<PAGE>
As filed with the Securities and Exchange Commission on July 2, 1999
Registration No. 333-79271
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
NOVAMED EYECARE, INC.
(Exact name of registrant as specified in its charter)
--------------
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)
- -----------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value......... 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.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
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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
, 1999
7,132,971 Shares of Common Stock
- --------------------------------------------------------------------------------
NovaMed Eyecare, Inc.: The Offering:
We are an eye care . We are offering
services company 5,000,000 shares.
focused on laser vision Existing stockholders
correction. We operate are offering
in five regional U.S. 2,132,971 shares.
markets, where we own
and operate 10 eye
surgery and laser
centers. In these
markets, we have
affiliated with 76 eye
care professionals who
practice in 44 eye care
clinics leased and
staffed by us. We also
own and operate an eye-
only research
organization. In
addition, we sell eye
care products and
accessories and provide
business,
administrative and
financial services to
eye care professionals.
[/R]
. 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.
. 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.
Proposed Nasdaq National Market Symbol:
. Closing:
, 1999.
NOVA
-------------------------------------------
<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.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
Hambrecht & Quist
William Blair & Company
The undersigned is facilitating Internet distribution.
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............... 38
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 exchange of $9.7 million of our subordinated
exchangeable promissory notes into our common stock at a ratio of $1.00
worth of our common stock, valued at the offering price, for each $0.80
worth of outstanding principal on the notes
. 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
Generally, we enter into long-term business relationships, or affiliations,
with eye care professionals by:
. acquiring their non-medical assets such as 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 76 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 44 eye care clinics which are leased and
staffed by us. In addition, our affiliated eye care professionals operate 27
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. 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
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
6,651,800 additional shares
reserved for issuance
pursuant to our 1996 stock
incentive plan and our 1999
stock purchase plan......... 24,750,159 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
in the three months ended September 30, 1999.
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>
Three months
Years ended December ended
31, March 31,
------------------------ ----------------
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 $12,427 $21,026
Operating expenses................ 16,679 40,387 58,986 11,951 19,994
------- ------- ------- ------- -------
Income (loss) from operations..... (829) 2,021 4,743 476 1,032
Other (income) expense............ 83 1,710 1,373 285 508
------- ------- ------- ------- -------
Income (loss) before income taxes. (912) 311 3,370 191 524
Provision for income taxes........ -- 206 1,664 94 235
------- ------- ------- ------- -------
Net income (loss)................. $ (912) $ 105 $ 1,706 $ 97 $ 289
Less--Accretion of Series C and
Series D convertible preferred
stock............................ -- -- (739) (84) (569)
------- ------- ------- ------- -------
Income (loss) available to Series
A and Series B convertible
preferred stock and common stock. $ (912) $ 105 $ 967 $ 13 $ (280)
======= ======= ======= ======= =======
Earnings (loss) per common share:
Basic............................ $ -- $ 0.01 $ 0.07 $ -- $ (0.02)
======= ======= ======= ======= =======
Diluted.......................... $ (0.08) $ 0.01 $ 0.06 $ -- $ (0.02)
======= ======= ======= ======= =======
Weighted average common shares
outstanding:
Basic............................ -- 2,178 2,751 2,749 2,521
======= ======= ======= ======= =======
Diluted.......................... 11,358 17,237 16,003 19,840 15,969
======= ======= ======= ======= =======
Pro Forma Data:
Earnings per common share--
diluted......................... $ 0.10 $ 0.02
======= =======
Weighted average common shares
outstanding--diluted............ 21,143 21,306
======= =======
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Three
months
ended
Years ended December 31, March 31,
----------------------------- -----------
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 28 44
Optical retail outlets............... 7 10 27 9 27
Procedures:
Laser vision correction............. -- 1,676 5,083 775 2,432
Cataract............................ 5,308 12,308 15,904 3,000 3,813
Other eye surgery and laser center
procedures......................... 1,337 7,445 9,837 1,860 2,547
Employees............................ 184 524 744 517 860
<CAPTION>
As of March 31, 1999
-----------------------------
Actual Pro Forma As Adjusted
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 1,098 $ 1,219 $ 38,542
Total assets......................... 69,336 69,887 107,210
Long term debt, excluding current
portion............................. 27,204 17,504 19
Series C & D convertible preferred
stock............................... 16,999 -- --
Total stockholders' equity........... 16,146 43,396 98,204
</TABLE>
Recent Unaudited Results of Operations
The following table sets forth a summary of our unaudited results of
operations for the two and five months ended May 31, 1998 and 1999. The
unaudited results of operations for the two and five months ended May 31, 1999
set forth below are not necessarily indicative of results that may be expected
for the full year.
<TABLE>
<CAPTION>
Two months Five months
ended May 31, ended May 31,
-------------- ---------------
1998 1999 1998 1999
------ ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net revenue..................................... $9,770 $15,324 $22,197 $36,352
Income from operations.......................... 808 1,267 1,284 2,299
Net income...................................... $ 311 $ 504 $ 407 $ 793
Laser vision correction procedures.............. 690 1,734 1,468 4,166
</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, such as 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, such as 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 such 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
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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, such as
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
March 31, 1999, intangible assets represented approximately 38.7% of pro forma
as adjusted total assets and 42.2% 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.
Risks Relating to Our Industry
Changes in government regulation and supervision or proposed health care
reforms
9
<PAGE>
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.
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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 24,750,159 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 17,617,188 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
4,181,170 of these shares and have piggyback registration rights for 17,202,188
shares covering future offerings by us. The holders of 6,223,065 of these
shares have agreed to not exercise these registration rights for six months
after the date of this prospectus, and the holders of 10,969,123 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
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<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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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 $9.68 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 53.6% 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
certain 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 such as "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.
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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, such as 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 forty-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
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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 one eye care clinic with one optical retail
outlet. 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.
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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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 capability
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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CAPITALIZATION
The table below shows our capitalization as of March 31, 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 4,907,583 shares of common stock issuable upon exercise of
outstanding options at June 30, 1999 at an average exercise price of
$3.33 per share
. the 199,250 shares of common stock issued upon the exercise of options
from March 31, 1999 through June 30, 1999
. Our repurchase of 46,905 shares from a shareholder on June 23, 1999
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Actual Pro Forma As Adjusted
(In thousands)
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 1,098 $ 1,219 $38,542
======= ======= =======
Current maturities of long-term debt............ $ 202 $ 202 $ 202
------- ------- -------
Long-term debt, less current maturities:
Subordinated exchangeable promissory notes.... $11,050 $ 1,350 $ --
------- ------- -------
Bank debt and other........................... 16,154 16,154 19
------- ------- -------
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............................... 6,661 -- --
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............................... 10,338 -- --
Stockholders' equity:
Series A convertible preferred stock, $.01 par
value, 13,112,000 shares authorized,
11,740,055 shares issued and 11,502,698
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,
2,360,863 shares outstanding actual,
19,597,816 pro forma and 24,597,816 as
adjusted..................................... 28 202 246
Additional paid-in-capital.................... 17,955 47,026 98,832
Retained earnings............................. 792 (1,082) (874)
Treasury Stock, at cost, 237,357 shares of
Series A convertible preferred stock actual,
none pro forma or as adjusted; 390,391 shares
of common stock actual and 627,748 pro forma;
no shares of common stock, as adjusted....... (2,750) (2,750) --
------- ------- -------
Total stockholders' equity.................. 16,146 43,396 98,204
------- ------- -------
Total capitalization........................ $60,551 $61,102 $98,425
======= ======= =======
</TABLE>
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DILUTION
Our pro forma net tangible book value as of March 31, 1999 was approximately
$2.2 million, or $0.11 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 March 31, 1999. Our as adjusted pro forma net tangible book value as of
March 31, 1999 would have been $57.1 million, or $2.32 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 $2.21 per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $9.69 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.. .11
Increase per share attributable to new investors.................. 2.21
----
As adjusted pro forma net tangible book value per share after this
offering........................................................... 2.32
------
Dilution per share to new investors................................. $ 9.68
======
</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... 19,597,810 80% $ 47,228,000 44% $ 2.41
New investors........... 5,000,000 20 $ 60,000,000 56 $12.00
---------- --- ------------ ---
Total............... 24,597,810 100% 107,228,000 100%
========== === ============ ===
</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
three month periods ended March 31, 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>
Three months
Years ended December 31, ended March 31,
-------------------------------- -----------------
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 $ 7,138 $ 11,852
Surgery and laser
centers................ -- 5,303 14,484 20,131 3,760 5,886
Product sales and
other.................. -- 221 3,523 7,545 1,529 3,288
------ ------- ------- ------- ------- --------
Total net revenue..... 568 15,850 42,408 63,729 12,427 21,026
------ ------- ------- ------- ------- --------
Operating expenses:
Salaries, wages and
benefits............... 446 8,259 18,123 25,266 5,117 8,231
Cost of sales and
medical supplies....... -- 2,570 8,723 15,762 3,072 5,738
Selling, general and
administrative......... 950 5,044 11,315 14,625 3,048 4,929
Depreciation and
amortization........... -- 806 2,226 3,333 714 1,096
------ ------- ------- ------- ------- --------
Total operating
expenses............. 1,396 16,679 40,387 58,986 11,951 19,994
------ ------- ------- ------- ------- --------
Income (loss) from
operations.............. (828) (829) 2,021 4,743 476 1,032
Other (income) expense... (21) 83 1,710 1,373 285 508
------ ------- ------- ------- ------- --------
Income (loss) before
income taxes............ (809) (912) 311 3,370 191 524
Provision for income
taxes................... -- -- 206 1,664 94 235
------ ------- ------- ------- ------- --------
Net income (loss)........ $ (809) $ (912) $ 105 $ 1,706 $ 97 $ 289
Less--Accretion of Series
C and Series D
convertible preferred
stock................... -- -- -- (739) (84) (569)
------ ------- ------- ------- ------- --------
Income (loss) available
to Series A and Series B
convertible preferred
and common stock........ $ (809) $ (912) $ 105 $ 967 $ 13 $ (280)
====== ======= ======= ======= ======= ========
Earnings (loss) per
common share:
Basic................... $ -- $ -- $ 0.01 $ 0.07 $ -- $ (0.02)
====== ======= ======= ======= ======= ========
Diluted................. $(0.46) $ (0.08) $ 0.01 $ 0.06 $ -- $ (0.02)
====== ======= ======= ======= ======= ========
Weighted average common
shares outstanding:
Basic................... -- -- 2,178 2,751 2,749 2,521
====== ======= ======= ======= ======= ========
Diluted................. 1,747 11,358 17,237 16,003 19,840 15,969
====== ======= ======= ======= ======= ========
Pro forma earnings per
common share:
Basic................... $ 0.11 $ 0.02
======= ========
Diluted................. $ 0.10 $ 0.02
======= ========
Pro forma weighted
average number of common
shares outstanding:
Basic................... 19,671 19,731
======= ========
Diluted................. 21,143 21,306
======= ========
<CAPTION>
As of December 31, As of March 31,
-------------------------------- -----------------
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 $ 671 $ 1,098
Total assets............. 2,034 27,694 52,734 62,679 51,912 69,336
Total debt, excluding
current portion......... -- 6,378 15,838 20,427 15,777 27,204
Redeemable convertible
preferred stock......... -- 5,794 12,680 16,430 12,764 16,999
Total stockholders'
equity.................. 1,786 12,755 18,149 16,954 18,161 16,146
</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,
such as (i) corrective lenses and eyeglasses produced by our three
wholesale optical laboratories, and (ii) 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 opthalmologists 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 fixed monthly fee established in an annual budget
that we negotiate each year with our affiliated eye care professionals. If the
revenue or expenses of the eye care clinics and optical retail outlets in any
month vary from the budget for that month, then our fee is adjusted to reflect
the actual results of the eye care clinics and optical retail outlets. There
are no limitations on the amount of these fee adjustments. On average, 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.
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, such as rent, utilities and general office
overhead, are fixed and will not change as volumes increase. Other of these
costs, such as 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 such as 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, such as 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, such as 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 such factors as:
. 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 $569,000 for the twelve months ended December 31,
1998 and the three months ended March 31, 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 in the three months ended September
30, 1999.
$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.
Results of Operations
Three Months Ended March 31, 1999 Compared to the Three Months Ended March
31, 1998
Net Revenue. Net revenue increased 69.2% from $12.4 million to $21.0
million. Management services revenue increased 66.0% from $7.1 million to
$11.9 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 56.5% from $3.8 million to $5.9 million,
primarily as a result of a 209.2% increase in laser vision correction
procedures, compared to the first quarter 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 three
months ended March 31, 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 33.0% increase in the number of cataract
and other eye related surgical procedures, compared to the first quarter of
1998. Product sales revenue increased 115.0% from $1.5 million to $3.3
million, primarily as a result of the acquisition of Midwest Uncuts, Inc.
23
<PAGE>
Salaries, Wages and Benefits. Salaries, wages and benefits expense increased
60.9% from $5.1 million to $8.2 million. As a percentage of revenue, salaries,
wages and benefits expense decreased from 41.2% to 39.1%. 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 86.8% from $3.1 million to $5.7 million. As a percentage of
revenue, cost of sales and medical supplies expense increased from 24.7% 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 61.7% from $3.0 million to $4.9 million. As a percentage of
revenue, selling, general and administrative expense decreased from 24.5% to
23.4%. 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 53.5% from $714,000 to $1.1 million. Acquisitions and affiliations
have increased overall amortization expense.
Other Expense. Other expense increased 78.2% from $285,000 to $508,000. 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 quarter of 1998.
Provision for Income Taxes. Our effective tax rate decreased to 44.8% from
49.2%.
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 three months ended March
31, 1999 of $337,000. We used $7.7 million in our investing activities during
the three months ended March 31, 1999, which included two acquisitions and the
purchase of property and equipment. We used net bank borrowings of $7.7 million
and net cash from operating activities to fund our investing activities and to
reduce subordinated debt and other debt obligations. As of March 31, 1999, we
had cash and cash equivalents of approximately $1.1 million and working capital
of approximately $9.5 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.
As of March 31, 1999, we had an outstanding note receivable of $400,000 from
an affiliated eye care provider. This loan was repaid in full in April 1999.
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. We currently have outstanding loans to six
affiliated eye care professionals for an aggregate amount of $790,908. We
anticipate that one of the selling stockholders will repay approximately
$490,000 of these loans out of his proceeds of this offering. 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 $3 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 such as options and forwards, including 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
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adoption of SFAS 133 will have a material impact on our financial position or
results of operations.
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, such as
Medicare, or third party payors, such as 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 such 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, such as 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 certain
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 such as
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. 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 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]
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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.
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 such as 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
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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, 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
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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.
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 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
. 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
. entering into contractual affiliations with leading ophthalmologists and
optometrists
. developing and implementing our business, administrative and financial
services in each new region
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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
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
We also expect to build upon this portfolio of services. In 1999, we plan to
implement new information technology offerings such as 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 seven 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
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physician's office. 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 such as cataract surgery.
Services and Products
Long-Term Service Agreements. We have long-term service agreements in place
with professional entities covering 45 ophthalmologists and 31 optometrists,
who provide eye care services in one or more of our 44 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 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
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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 fixed monthly fee established in an annual budget
that we negotiate each year with our affiliated eye care professionals. If the
revenue or expenses of the eye care clinics and optical retail outlets in any
month vary from the budget for that month, then our fee is adjusted to reflect
the actual results of the eye care clinics and optical retail outlets. There
are no limitations on the amount of these fee adjustments. On average, 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 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.
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, such as 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
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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 and optometrists, 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 and Chicago, and we plan to pursue this strategy in our
other existing markets 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. We also develop specialized programs
targeting ophthalmologists and optometrists in order to help them educate
patient-consumers.
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 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 21 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
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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, such as 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 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
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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.
Optical Retail Business. Under the terms of our long-term service
agreements, we assist our affiliated eye care professionals in operating 27
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 30 research sponsor agreements
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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 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 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
. 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 such 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.
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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
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, such as 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, the Block Vision division of Vision Twenty-One,
Inc., 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 28, 1999, we had approximately 879 employees. Approximately 136
are engaged in corporate management, 485 in eye care clinics, 140 in our eye
surgery and laser centers, 25 in optical retail outlets, 70 in our wholesale
optical laboratories, 15 in optical group purchasing services and eight in
clinical research. We are affiliated with 45 ophthalmologists and 31
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
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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 CON 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 such 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 such as 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 certain 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 U.S. 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, such as 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, certain 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 eye care professionals through
stock ownership and promissory notes made by us
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. 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, such as
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 such
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 certain 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 certain limited categories of designated health services, specifically,
ultrasound services, such as A-scans and B-scans, and prosthetic devices, such
as 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, such as to our eye surgery and laser centers, we believe
the Stark Law is not implicated. The
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<PAGE>
Stark Law's list of designated health services does not include services
rendered by ambulatory surgery centers, such as 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 such 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 such 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. Moreover, we also
believe that our affiliated eye care professionals' provision of designated
health services, such as 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. Such 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 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
46
<PAGE>
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 certain
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 certain 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 certain 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 such a
license without unreasonable expense or delay.
Some states require a Certificate of Need, or CON, prior to the construction
or modification of an ambulatory surgery center, such as our eye surgery and
laser centers, or the purchase of certain 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.
47
<PAGE>
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 certain types of contracting arrangements to register with the 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. 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, such as 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 LASIK, or the use of excimer lasers to
treat both eyes on the same day, commonly referred to as bilateral treatment,
because 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.
48
<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 certain 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 serves as the Chairman of the
University of Kansas Medical Center's department of ophthalmology and on the
boards of the American Board of Eye Surgery, the Outpatient Ophthalmic Surgical
Society and the Society for Geriatric Ophthalmology. He is a member of 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 in 1967, served his internship at the Los Angeles County
Hospital in Los Angeles, California and completed his residency at the
University of Kansas 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
50
<PAGE>
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 certain 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 such 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:
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<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 6,251,800 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, 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 such option 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.
We have also issued options to purchase common stock under the 1996 plan to
certain 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 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, such as 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
54
<PAGE>
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 three 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 $10,000 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.
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<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 24, 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.
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<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 , 1999, we purchased 30 research sponsor agreements from
Hunkeler Eye Centers, P.C., in exchange for 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.
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<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 Voting Power ---------------
<S> <C> <C> <C> <C> <C> <C>
Timothy B. Cavanaugh 177,098 * 35,419 155,374 * --
Cavanaugh Investments,
LLC 17,123 * 3,425 13,698 * --
Clifton D. Cokingtin (1) 117,131 * 23,426 93,705 * --
Eldi E. Deschamps
Revocable
Trust (2) 1,001,313 5.34% 300,000 701,313 2.83% --
Daniel S. Durrie 363,548 1.93% 117,156 207,225 * 70,417
Walter I. Fried and Gail
S. Fried Family Limited
Partnership 628,000 3.35% 10,000 618,000 2.50% --
Godfrey Family Limited
Partnership 90,404 * 5,000 85,404 * --
Blake Horio 53,622 * 6,849 46,773 * 19,375
John D. Hunkeler
Revocable Trust (3) 859,055 4.57% 70,000 789,055 3.18% 64,583
Jemshed A. Khan (4) 152,626 * 30,525 122,101 * --
Illinois Eye
Specialists, Ltd. (5) -- -- 4,167 16,666 * --
Kirk Family Limited
Partnership (6) 2,620,000 13.98% 600,000 2,020,000 8.16% --
Andrew L. Moyes 93,803 * 10,000 83,803 * --
Northshore Eye
Surgicenter, Ltd. 460,300 2.46% 126,460 333,840 1.35% --
Robert A. Rymer Trust 45,662 * 19,613 26,049 * --
Kathleen M. Scarpulla
(7) 397,300 2.12% 79,460 317,840 1.28% --
Steven M. Silverstein
Revocable Trust 117,329 * 23,466 93,863 * --
Michael C. Stiles (8) 170,981 * 34,190 136,791 * --
Stephen Vile Limited
Partnership 350,000 1.87% 61,000 289,000 1.17% --
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% 39,215 156,861 * --
Douglas P. Williams
Family Limited
Partnership (10) 1,820,000 9.71% 300,000 1,520,000 6.14% --
Lawrence D. Wolin
Limited Partnership 464,000 2.48% 105,800 358,200 1.45% --
</TABLE>
- --------
* Less than 1%
(1) Includes 34,247 shares jointly held with Diana L. Cokington before the
offering and 10,821 shares held after the offering.
(2) The trustee for Eldi E. Deschamps Revocable Trust is Eldi E. Deschamps,
M.D., a 5% stockholder. See "Principal Stockholders." Excludes 618,681
shares held in a separate trust for which Dr. Deschamps is also trustee.
(3) The trustee for the John D. Hunkeler Revocable Trust is John D. Hunkeler, a
member of our board of directors and our Medical Director.
(4) 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.
(5) 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.
(6) 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.
(7) Includes 120,000 shares jointly held with Richard Scarpulla before the
offering and 115,840 shares held after the offering.
(8) Includes 5,708 shares jointly held with Michella M. Stiles before the
offering and 4,568 shares held after the offering.
(9) 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.
(10) 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.
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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 8.16% --
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 9.56% --
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 6.14% --
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 4.93% --
8510 Broadway Street
Merrillville, Indiana
46410
Directors and Officers:
Stephen J. Winjum....... 1,571,433 8.07% 1,571,433 6.17% 723,333
Ronald G. Eidell........ 128,536 * 128,536 * 71,458
E. Michele Vickery...... 169,371 * 169,371 * 95,417
Scott H. Kirk, M.D. (4). 2,774,247 14.80% 2,174,247 8.78% --
John D. Hunkeler, M.D... 859,055 4.57% 789,055 3.46% 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 10.07% 1,588,000 6.42% --
Peter C. Wendell (8).... 2,366,722 12.63% 2,366,722 9.56% --
All Executive Officers and
Directors as a Group
(12 people).............. 10,064,604 50.87% 9,164,604 35.53% 1,046,457
</TABLE>
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<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 618,681 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.
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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 11,606,198 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 16,330,035 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 2,409,708 shares of common stock outstanding. Of the
81,761,465 authorized shares of our common stock, 16,330,035 shares are
reserved for issuance upon conversion of the preferred stock, 6,251,800 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 certain 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 such 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
62
<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 , 1999, our board of directors declared a dividend of
one right for each outstanding share of our common stock. The dividend is
payable on , 1999 to the stockholders of record on that date. Each right
entitles the registered holder to purchase from us one one-hundredth of a share
of Series E Junior Participating Preferred Stock, par value $.01 per share at a
price of $ per one one-hundredth 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 or amended.
Until the distribution date or earlier redemption or expiration of the
rights, new certificates for shares of our common stock issued after
, 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 , 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 hundredth 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
, 2009, unless this date is extended or unless the rights are
redeemed earlier by us, in each case, as described below.
At any time after the distribution date, each holder of a right will have
the right to receive, upon exercise, shares of our common stock, or in certain
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,
. we are acquired in a merger or other business combination transaction,
63
<PAGE>
. 50% or more of our consolidated assets or earning power are sold, or
. an acquiring person engages in certain 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 such 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 such 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. Our board of
directors may 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 such time, on such basis and with such 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 such 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 such 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 17,202,188 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
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
convertible preferred stock prior to this offering; provided, however, that
any such 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 6,223,065 of these shares have agreed not to exercise these
rights for six months after the date of this prospectus
. the holders of 10,969,123 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 such rights or the
transfer of such 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 24,750,159 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 17,617,188 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, such as 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
this 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 this prospectus and to additional volume limitations
during the year following the first anniversary of the date of this
prospectus.
In addition, for a 180 day period we have agreed not to file any
registration statement with 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
65
<PAGE>
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, 6,648,065 shares will be
eligible for sale 180 days from the date of this prospectus and 10,969,123
shares will become eligible for sale one year from the date of this 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 this
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
certain 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.
66
<PAGE>
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
and William Blair & Company, L.L.C. 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
such price less a concession not in excess of $ per share. The
underwriters may allow, and such 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 are shown 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 $ .
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
67
<PAGE>
approximately proportionate to such 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 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 such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such 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 such
transactions. Such 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. Certain 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.
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, and each of these statements is qualified in its
entirety by reference to the copy of the applicable document. 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 March
31, 1999 (unaudited)................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998 and the three months ended March 31,
1999 (unaudited)....................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 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>
Pro forma
December 31, March 31, March 31,
ASSETS --------------- --------- ---------
------ 1997 1998 1999 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents............ $ 4,009 $ 1,875 $ 1,098 $ 1,219
Accounts receivable, net of
allowances of $6,994, $10,347 and
$10,017, respectively............... 6,980 11,278 11,576
Due from affiliated providers, net... 755 110 --
Notes receivable from affiliated
providers........................... 2,035 393 422
Inventory............................ 715 1,490 2,344
Other current assets................. 940 1,240 1,212 1,642
------- ------- ------- -------
Total current assets............... 15,434 16,386 16,652 17,203
Property and equipment, net............ 6,492 9,893 10,825
Note receivable from related party..... 400 400 400
Intangible assets, net................. 30,127 35,660 41,154
Other assets, net...................... 281 340 305
------- ------- -------
Total assets....................... $52,734 $62,679 $69,336
======= ======= =======
</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 per share data)
<TABLE>
<CAPTION>
December 31, March 31,
---------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Pro Forma
------------------------------------ 1997 1998 1999 1999
(unaudited)
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable........................ $ 1,692 $ 3,142 $ 3,934
Accrued expenses........................ 2,811 3,297 2,768
Income taxes payable.................... 35 427 (138)
Due to affiliated providers, net........ -- -- 369
Current maturities of long-term debt.... 444 300 202
------- ------- -------
Total current liabilities............. 4,982 7,166 7,135
------- ------- -------
Long-term debt, net of current maturities. 15,838 20,427 27,204 $17,504
------- ------- ------- -------
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 March 31, 1999 (none pro
forma), respectively................... 5,794 6,350 6,661 --
------- ------- ------- -------
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 March
31, 1999 (none pro forma),
respectively........................... 6,886 10,080 10,338 --
------- ------- ------- -------
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 11,502,698
shares outstanding at December 31, 1997
and 1998, and March 31, 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 March 31, 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 20,225,564
shares issued and 2,748,503, 2,751,254,
2,360,863, and 19,597,816 shares
outstanding as of December 31, 1997 and
1998, March 31, 1999 and pro forma,
respectively........................... 27 28 28 202
Additional paid-in capital................ 18,083 17,955 17,955 47,026
Retained earnings......................... 105 1,072 792 (1,082)
Treasury stock, at cost, consists of
77,930, 507,347 and 237,357 shares of
Series A convertible preferred stock at
December 31, 1997 and 1998, and March 31,
1999 (none pro forma) and 390,391 shares
of common stock as of March 31, 1999,
627,748 pro forma........................ (187) (2,222) (2,750) (2,750)
------- ------- ------- -------
Total stockholders' equity............ 18,149 16,954 16,146 43,396
------- ------- ------- -------
Total liabilities and stockholders'
equity............................... $52,734 $62,679 $69,336
======= ======= =======
</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>
Three Months
Years Ended December Ended March
31, 31,
------------------------- ---------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue:
Management services............. $10,326 $24,401 $36,053 $7,138 $11,852
Surgery and laser centers....... 5,303 14,484 20,131 3,760 5,886
Product sales and other......... 221 3,523 7,545 1,529 3,288
------- ------- ------- ------ -------
Total net revenue............. 15,850 42,408 63,729 12,427 21,026
------- ------- ------- ------ -------
Operating expenses:
Salaries, wages and benefits.... 8,259 18,123 25,266 5,117 8,231
Cost of sales and medical
supplies....................... 2,570 8,723 15,762 3,072 5,738
Selling, general and
administrative................. 5,044 11,315 14,625 3,048 4,929
Depreciation and amortization... 806 2,226 3,333 714 1,096
------- ------- ------- ------ -------
Total operating expenses...... 16,679 40,387 58,986 11,951 19,994
------- ------- ------- ------ -------
Income (loss) from operations. (829) 2,021 4,743 476 1,032
------- ------- ------- ------ -------
Other (income) expense:
Interest income................. (29) (322) (273) (74) (36)
Interest expense................ 87 1,363 1,546 354 545
Minority interests in earnings
of consolidated entities....... 17 108 132 31 --
Other........................... 8 561 (32) (26) (1)
------- ------- ------- ------ -------
Total other expense........... 83 1,710 1,373 285 508
------- ------- ------- ------ -------
Income (loss) before income taxes. (912) 311 3,370 191 524
Provision for income taxes........ -- 206 1,664 94 235
------- ------- ------- ------ -------
Net income (loss)................. $ (912) $ 105 $ 1,706 $ 97 $ 289
Less--Accretion of Series C and
Series D convertible preferred
stock............................ -- -- (739) (84) (569)
------- ------- ------- ------ -------
Income (loss) available to Series
A and Series B convertible
preferred and common
stockholders..................... $ (912) $ 105 $ 967 $ 13 $ (280)
======= ======= ======
Earnings (loss) per common share
(audited):
Basic........................... $ -- $ .01 $ .07 $ -- $ (.02)
======= ======= ======= ====== =======
Diluted......................... $ (.08) $ .01 $ .06 $ -- $ (.02)
======= ======= ======= ====== =======
Weighted average common shares
outstanding (audited):
Basic........................... -- 2,178 2,751 2,749 2,521
======= ======= ======= ====== =======
Diluted......................... 11,358 17,237 16,003 19,840 15,969
======= ======= ======= ====== =======
Pro forma (Note 2)(unaudited):
Accretion to redemption value
eliminated as a result of the
completion of initial public
offering......................... 739 569
Interest expense eliminated due to
debt conversion, net of tax
benefit.......................... 483 121
------- -------
Pro forma net income.............. $ 2,189 $ 410
======= =======
Pro forma earnings per common
share (unaudited)
Basic........................... $ .11 $ .02
======= =======
Diluted......................... $ .10 $ .02
======= =======
Pro forma weighted average number
of common shares outstanding--
(unaudited)
Basic........................... 19,671 19,731
======= =======
Diluted......................... 21,143 21,306
======= =======
</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 Earnings Stockholders'
Shares Value Shares Value Shares Value Capital (Deficit) Shares At Cost Equity
<S> <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......... -- -- -- -- -- -- -- -- (390) (1,710) (1,710)
Accretion of Series C
and D preferred stock.. -- -- -- -- -- -- -- (569) -- -- (569)
Net income............. -- -- -- -- -- -- -- 289 -- -- 289
------ ---- --- ---- ----- ---- ------- ----- ------ ------- -------
BALANCE, March 31, 1999
(unaudited)............. 11,740 $117 400 $ 4 2,751 $ 28 $17,955 $ 792 (627) $(2,750) $16,146
====== ==== === ==== ===== ==== ======= ===== ====== ======= =======
</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 Three Months Ended
31, March 31,
------------------------- --------------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)........... $ (912) $ 105 $ 1,706 $ 97 $ 289
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 3,333 714 1,096
Deferred taxes............ -- 171 1,237 -- --
Preferred stock issued for
services................. -- 125 -- -- --
Minority interests........ 5 41 (46) 31 --
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) (1,517) 394
Inventory............... (55) (5) (374) (8) (195)
Other current assets.... (538) (374) (260) (107) 15
Other noncurrent assets. -- (180) (70) 13 111
Accounts payable,
accrued expenses and
income taxes payable... 1,055 (105) 65 (892) (1,373)
------- ------- ------- --------- ---------
Net cash provided
(used) in operating
activities........... (698) (422) 2,387 (1,669) 337
------- ------- ------- --------- ---------
Cash flows from investing
activities:
Purchases of property and
equipment.................. (1,302) (2,875) (4,466) (1,151) (1,342)
Acquisitions of and
affiliations with entities. (110) (2,222) (3,649) (186) (6,337)
Receipt (issuance) of notes
receivable from affiliated
providers.................. (75) (1,918) 1,491 (250) (28)
------- ------- ------- --------- ---------
Net cash used in
investing activities. (1,487) (7,015) (6,624) (1,587) (7,707)
------- ------- ------- --------- ---------
Cash flows from financing
activities:
Borrowings under revolving
line of credit............. -- 3,000 14,735 -- 12,500
Payments under revolving
line of credit............. -- (3,000) (6,250) -- (4,850)
Payments of subordinated
debt....................... -- -- (3,700) -- (850)
Proceeds from the issuance
of preferred stock, net of
issuance costs............. 7,394 6,946 3,044 -- --
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) (82) (207)
------- ------- ------- --------- ---------
Net cash provided
(used) by financing
activities........... 7,494 5,495 2,103 (82) 6,593
------- ------- ------- --------- ---------
Net increase (decrease) in
cash and cash equivalents.... 5,309 (1,942) (2,134) (3,338) (777)
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 $ 671 $ 1,098
======= ======= ======= ========= =========
</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 March 31, 1999 and for the three months ended March 31, 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 March 31, 1999, and for the three months
ended March 31, 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 three
months ended March 31, 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 three months
ended March 31, 1998 and 1999, management services revenue was as follows:
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
-------------------------- ----------------
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 $ 8,681 $14,411
Less--amounts retained by
Affiliated Professional
Entities..................... (3,554) (7,862) (10,321) (1,543) (2,559)
------- ------- -------- ------- -------
$10,326 $24,401 $ 36,053 $ 7,138 $11,852
======= ======= ======== ======= =======
</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 Three Months
December 31, Ended March 31,
------------------------ ---------------
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 $ 13 $ (280)
Income allocated to preferred
stockholders........................ (912) 89 784 10 (231)
------- ------- ------- ------- -------
Income available to common
stockholders-basic.................. $ -- $ 16 $ 183 $ 3 $ (49)
======= ======= ======= ======= =======
Income available to common
stockholders-diluted................ $ (912) $ 105 $ 967 $ 13 $ (280)
======= ======= ======= ======= =======
Basic weighted average number of
common shares outstanding........... -- 2,178 2,751 2,749 2,521
Weighted average number of common
shares issuable upon the conversion
of dilutive preferred shares........ 11,358 14,624 11,780 15,697 11,873
Effect of dilutive securities--stock
options............................. -- 435 1,472 1,394 1,575
------- ------- ------- ------- -------
Diluted weighted average number of
shares outstanding.................. 11,358 17,237 16,003 19,840 15,969
======= ======= ======= ======= =======
Earnings (loss) per common share:
Basic.............................. $ -- $ 0.01 $ 0.07 $ -- $ (0.02)
======= ======= ======= ======= =======
Diluted............................ $ (0.08) $ 0.01 $ 0.06 $ -- $ (0.02)
======= ======= ======= ======= =======
</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 three
months ended March 31, 1999.
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 March 31, 1999.
The unaudited pro forma earnings (loss) per share for the 12 months ended
December 31, 1998 and the three months ended March 31, 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,
no compensation expense was recorded relating to these stock options. 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.
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>
F-21
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
<S> <C> <C> <C> <C> <C> <C>
Three months ended March
31, 1999 (unaudited)--
Net revenue........... $14,411 $ 5,886 $3,288 $ -- $ (2,559) $21,026
EBT................... 1,375 2,138 391 (3,380) -- 524
Depreciation and
amortization......... 256 185 38 617 -- 1,096
Interest (income)..... (5) -- (11) (20) -- (36)
Interest expense...... 1 1 -- 543 -- 545
Identifiable assets... 12,227 7,187 3,656 45,627 -- 68,967
======= ======= ====== ======= ======== =======
Three months ended March
31, 1998 (unaudited)--
Net revenue........... $ 8,681 $ 3,760 $1,529 $ -- $ (1,543) $12,427
EBT................... 920 1,139 112 (1,980) -- 191
Depreciation and
amortization......... 190 116 1 407 -- 714
Interest (income)..... (3) -- (2) (69) -- (74)
Interest expense...... 5 -- -- 349 -- 354
Identifiable assets... 8,752 4,870 762 37,528 -- 51,912
======= ======= ====== ======= ======== =======
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>
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-1
<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.
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 259,553
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 259,553 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-2
<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-3
<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 Form of 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 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*+ Form of Management Services Agreement (Hunkeler Eye Centers--
Chicago, L.L.C.)
10.13*+ Form of 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)
27** Financial Data Schedule
</TABLE>
- --------
*We have applied for confidential treatment of portions of this agreement
**Previously filed
+To be filed by amendment
(b) Financial Statement Schedules.
II-4
<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-5
<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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 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 2nd 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. 1 to the Registration Statement has been signed below by the following
persons in the capacities indicated on July 2, 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-7
<PAGE>
__________ Shares/1/
NOVAMED EYECARE, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
WILLIAM BLAIR & COMPANY
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
600 California Street
San Francisco, CA 94108
Dear Sirs:
NovaMed Eyecare, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several underwriters named in Schedule I hereto (the
"Underwriters"), and certain stockholders of the Company named in Schedule II
hereto (the "Selling Stockholders") severally propose to sell to the several
Underwriters, an aggregate of _______________ shares of the Common Stock, $.01
par value per share (the "Common Stock"), of the Company (the "Firm Shares"), of
which _____________ shares are to be issued and sold by the Company and
_____________ shares are to be sold by the Selling Stockholders, each Selling
Stockholder selling the amount set forth opposite such Selling Stockholder's
name in Schedule II hereto. The Company also proposes to issue and sell to the
several Underwriters not more than an additional _______ shares of Common Stock
(the "Additional Shares") if requested by the Underwriters as provided in
Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter
referred to collectively as the "Shares". The Company and the Selling
Stockholders are hereinafter sometimes referred to collectively as the
"Sellers."
Section 1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 (No.________), including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is
- -------------------
/1/Insert number of shares to be sold (not including green shoe).
1
<PAGE>
hereinafter referred to as the "Registration Statement"; and the prospectus in
the form first used to confirm sales of Shares is hereinafter referred to as the
"Prospectus". If the Company has filed or is required pursuant to the terms
hereof to file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "Rule 462(b) Registration
Statement"), then, unless otherwise specified, any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement.
Section 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
______________ Firm Shares, (ii) each Selling Stockholder agrees, severally and
not jointly, to sell the number of Firm Shares set forth opposite such Selling
Stockholder's name in Schedule II hereto and (iii) each Underwriter agrees,
severally and not jointly, to purchase from each Seller at a price per Share of
$______ (the "Purchase Price") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) [that bears the
same proportion to the total number of Firm Shares to be sold by such Seller as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedules I hereto bears to the total number of Firm Shares].
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof, which date shall be a business
day (i) no earlier than two business days after such notice has been given (and,
in any event, no earlier than the Closing Date (as hereinafter defined)) and
(ii) no later than ten business days after such notice has been given. If any
Additional Shares are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
The Company agrees not to (i) 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, convey or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) 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 clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. The Selling
2
<PAGE>
Stockholders agree not to (i) 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, convey or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (including,
without limitation, shares of Common Stock which may be deemed to be
beneficially owned by any of the Selling Stockholders in accordance with the
rules and regulations of the Securities Exchange Commission) or (ii) 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 clause (i) or (ii) is to be settled
by the delivery of Common Stock, or such other securities, in cash or
otherwise), except to the Underwriters pursuant to this Agreement, for a period
of one year after the date of the Prospectus without the prior written consent
of Donaldson, Lufkin & Jenrette Securities Corporation. The Selling Stockholders
also agree that during the period between the first and second anniversary of
the date of the Prospectus, each Selling Stockholder shall not, in the
aggregate, in any 90 day period, 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, convey or
dispose of, directly or indirectly (including through any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock), greater than the lesser of
(a) 10% of the shares of Common Stock and any securities convertible into or
exercisable or exchangeable for Common Stock (including without limitation
shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock which may be deemed to be beneficially owned by
the Selling Stockholders in accordance with the rules and regulations of the
Commission) owned collectively by such Selling Stockholder immediately following
the date hereof or (b) 40,000 shares of Common Stock (regardless of whether any
of the transactions described above is to be settled by the delivery of Common
Stock, other securities, in cash or otherwise), without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during the 180 day period commencing on the date hereof, the
Company may (i) grant or sell (to affiliated providers of the Company) stock
options or stock awards, or issue or sell Common Stock pursuant to the Company's
existing stock option and other stock incentive plans, (ii) issue shares of
Common Stock upon the exercise of options or warrants or the conversion of a
security outstanding on the date hereof, (iii) issue shares of Common Stock and
issue or sell stock options in connection with acquisitions; provided, that the
person or entity receiving such shares or stock options agrees to be bound by
the restrictions on transfer contained in this paragraph until the 180 day
period commencing on the date hereof has lapsed and (iv) issue securities in
connection with the Company's Rights Plan (as defined in the Prospectus);
provided, however, that with respect to clauses (i), (ii) and (iii) of this
sentence, the person or entity receiving such shares of Common Stock or stock
options agrees to be bound by the restrictions on transfer contained in this
paragraph until the 180 day period commencing on the date hereof has lapsed. The
Company also agrees not to file any registration statement with respect to any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation; provided, however, that the Company may file a
Registration Statement on Forms S-4 and S-8. In addition, each Selling
Stockholder agrees that, for a period of one year after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, it will not make any demand for, or
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exercise any right with respect to, the registration of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock. The Company shall, prior to or concurrently with the execution of
this Agreement, deliver an agreement executed by each of the directors and
officers of the Company who is not a Selling Stockholder to the effect that such
person will not, during the period commencing on the date such person signs such
agreement and ending 180 days after the date of the Prospectus, without the
prior written consent of Donaldson, Lufkin & Jenrette Corporation, (A) engage in
any of the transactions described in the first sentence of this paragraph or (B)
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 or
exchangeable for Common Stock. The Company shall also, prior to or concurrently
with the execution of this Agreement, deliver an agreement executed by (i) each
Selling Stockholder and (ii) each stockholder listed on Annex I hereto to the
effect that such person will not, during the period commencing on the date such
person signs such agreement and ending one year after the date of the
Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) 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 or exchangeable for Common Stock. The
agreement executed by (i) each Selling Stockholder and (ii) each stockholder
listed on Annex I hereto shall also provide that between the first and second
anniversary of the date of the Prospectus, each Selling Stockholder shall not,
in any 90 day period, 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, greater than the lesser of (a) 10% of the shares of Common Stock and
any securities convertible into or exercisable or exchangeable for Common Stock
(including without limitation shares of Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock which may be deemed to be
beneficially owned by the Selling Stockholders in accordance with the rules and
regulations of the Commission) owned by such Selling Stockholder immediately
following the consummation of the initial public offering of the Company or (b)
40,000 shares of Common Stock, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. In the event the Company's Board of
Directors files a Solicitation/Recommendation Statement pursuant to Section
14(d)(9) of the Securities and Exchange Act of 1934, as amended, during the
period between the first and second anniversary of the Prospectus, the Selling
Stockholders and other stockholders listed on Annex I may act in accordance
with, or in furtherance of, the Board's solicitation or recommendation set forth
in such Schedule 14D-9.
Section 3. Terms of Public Offering. The Sellers are advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
Section 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Sellers, with any transfer
taxes thereon duly paid by the respective Sellers, to Donaldson, Lufkin &
Jenrette Securities
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Corporation through the facilities of The Depository Trust Company ("DTC"), for
the respective accounts of the several Underwriters, against payment to the
Sellers of the Purchase Price therefore by wire transfer of Federal or other
funds immediately available in New York City. The certificates representing the
Shares shall be made available for inspection not later than 9:30 A.M., Chicago,
Illinois time, on the business day prior to the Closing Date or the applicable
Option Closing Date, as the case may be, at the office of DTC or its designated
custodian (the "Designated Office"). The time and date of delivery and payment
for the Firm Shares shall be 9:00 A.M., Chicago, Illinois time, on ________,
1999 or such other time on the same or such other date as Donaldson, Lufkin &
Jenrette Securities Corporation and the Company shall agree in writing. The time
and date of delivery and payment for the Firm Shares are hereinafter referred to
as the "Closing Date". The time and date of delivery and payment for any
Additional Shares to be purchased by the Underwriters shall be 9:00 A.M.,
Chicago, Illinois time, on the date specified in the applicable exercise notice
given by you pursuant to Section 2 or such other time on the same or such other
date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company
shall agree in writing. The time and date of delivery and payment for any
Additional Shares are hereinafter referred to as the "Option Closing Date".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of McDermott, Will & Emery, 227 W. Monroe
Street, Chicago, Illinois 60606, and the Shares shall be delivered at the
Designated Office, all on the Closing Date or such Option Closing Date, as the
case may be.
Section 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you four signed copies of the Registration Statement as
first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
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(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., local time, on the first business day after the
date of this Agreement and from time to time thereafter for such period as in
the opinion of counsel for the Underwriters a prospectus is required by law to
be delivered in connection with sales by an Underwriter or a dealer, to furnish
to each Underwriter and any dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer may
reasonably request.
(e) If during the period specified in Section 5(d), any event shall occur
or condition shall exist as a result of which, in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending
[September 30, 2000] that shall satisfy the provisions of Section 11(a) of the
Act, and to advise you in writing when such statement has been so made
available.
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(h) During the period of three years after the date of this Agreement, to
furnish to you as soon as available copies of all reports or other
communications furnished by the Company to the record holders of Common Stock or
furnished by the Company to or filed by the Company with the Commission or any
national securities exchange on which any class of securities of the Company is
listed and such other publicly available information concerning the Company and
its subsidiaries as you may reasonably request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel, the Company's accountants and any Selling Stockholder's counsel (in
addition to the Company's counsel) in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) the
fees, costs and disbursements of counsel for the Underwriters in connection with
the review and clearance of the offering of the Shares by the National
Association of Securities Dealers, Inc., (v) all fees and expenses in connection
with the preparation and filing of the registration statement on Form 8-A
relating to the Common Stock and all costs and expenses incident to the listing
of the Shares on the Nasdaq National Market, (vi) the cost of printing
certificates representing the Shares, (vii) the costs and charges of any
transfer agent, registrar and/or depositary, and (viii) all other costs and
expenses incident to the performance of the obligations of the Company and the
Selling Stockholders hereunder for which provision is not otherwise made in this
Section. The provisions of this Section shall not supersede or otherwise affect
any agreement that the Company and the Selling Stockholders may otherwise have
for allocation of such expenses among themselves.
(j) To use its best efforts to list for quotation the Shares on the Nasdaq
National Market and to maintain the listing of the Shares on the Nasdaq National
Market, the New York Stock Exchange or the American Stock Exchange for a period
of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of this
Agreement does not cover all of the Shares, to file a Rule 462(b) Registration
Statement with the Commission registering the Shares not so covered in
compliance with Rule 462(b) by 10:00 P.M.,
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Washington D.C. time, on the date of this Agreement and to pay to the Commission
the filing fee for such Rule 462(b) Registration Statement at the time of the
filing thereof or to give irrevocable instructions for the payment of such fee
pursuant to Rule 111(b) under the Act.
(m) The Company will, for so long as any of the Common Stock is
outstanding and if, in the reasonable judgment of any Underwriter, such
Underwriter or any of its affiliates (as defined in the Act) is required to
deliver a prospectus in connection with sales of Common Stock (i) periodically
amend the Registration Statement so that the information contained in the
Registration Statement complies with the requirements of Section 10(a) of the
Act, (ii) amend the Registration Statement or amend or supplement the Prospectus
when necessary to reflect any material changes in the information provided
therein and promptly file such amendment or supplement with the Commission,
(iii) provide such Underwriter with copies of each amendment or supplement so
filed and such other documents, including opinions of counsel and "comfort"
letters, as such Underwriter may reasonably request and (iv) indemnify such
Underwriter and if applicable, contribute to any amount paid or payable by such
Underwriter in a manner substantially identical to that specified in Section 8
hereof (with appropriate modifications).
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
Washington D.C. time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement),
when it became effective, did not contain and, as amended, if applicable, will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement) and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Act, (iii) if the
Company is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, such Rule 462(b) Registration Statement and any
amendments thereto, when they become effective (A) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(B) will comply in all material respects with the Act and (iv) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or omissions
in the Registration Statement or the Prospectus based upon information relating
to any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
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(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) Each of the Company and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole
("Material Adverse Effect").
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company (including
the Shares to be sold by the Selling Stockholders) have been duly authorized and
when issued and delivered to the Underwriters against payment therefore as
provided by this Agreement will be validly issued and are fully paid, non-
assessable and not subject to any preemptive or similar rights; and the Shares
to be issued and sold by the Company have been duly authorized and, when issued
and delivered to the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature, except for
the lien on the Company's subsidiaries pursuant to the Company's Second
Amendment and Consent to the Amended and Restated Credit Agreement which is
filed as Exhibit 10.16 to the Registration Statement.
(h) Other than the Company's Convertible Preferred Stock that will
automatically convert to Common Stock on the Closing Date, the authorized
capital stock of the Company conforms as to legal matters to the description
thereof contained in the Prospectus.
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(i) Neither the Company nor any of its subsidiaries is in violation of its
respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the Company or its subsidiaries holding such Authorization.
(k) There are no legal or governmental proceedings pending or to the
Company's knowledge threatened to which the Company or any of its subsidiaries
is or could be a party or to which any of their respective property is or could
be subject that are required to be described in the Registration Statement or
the Prospectus and are not so described; nor are there any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has (i) violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended or any provisions of
the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, or (ii) knowingly violated or been alleged to have violated any
foreign, federal, state or local law or regulation relating to Medicare and/or
Medicaid (including, but not limited to, laws or regulations relating to the
filing of false claims or payments for referrals) ("Medicare/Medicaid Laws"),
any rules or regulations of the U.S. Food and Drug Administration ("FDA Laws"),
or any law or regulation relating to the provision of health care services,
including, but not limited to, anti-kickback statutes, self-referral laws, laws
governing the corporate practice of medicine, fee-splitting laws, and licensure
or certificate of need requirements (together with Medicare/Medicaid Laws and
FDA Laws, "Health Care Laws"), except for such violations which, singly or in
the aggregate, would not have a Material
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Adverse Effect.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws or Health Care Laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its business, except where
the failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
its subsidiaries is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the Company or its subsidiaries holding such Authorization; and such
Authorizations contain no restrictions that are burdensome to the Company or any
of its subsidiaries; except where such failure to be valid and in full force and
effect or to be in compliance, the occurrence of any such event or the presence
of any such restriction would not, singly or in the aggregate, have a Material
Adverse Effect.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) or Health Care Laws which would, singly or in the
aggregate, have a Material Adverse effect.
(o) This Agreement has been duly authorized, executed and delivered by the
Company.
(p) Arthur Andersen LLP are independent public accountants with respect to
the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared in
good faith on the basis of the assumptions described in the Registration
Statement and such assumptions are reasonable and the adjustments used therein
are
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appropriate to give effect to transactions and circumstances referred to
therein.
(r) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(s) Except as set forth in the Registration Statement, Exhibits 10.4 and
10.5 thereto, or in any document or agreement described therein, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares registered
pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and delivered to
the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(v) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any of its subsidiaries (i) has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order to
continue such insurance or (ii) has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers at a cost that would not
have a Material Adverse Effect.
(w) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or the Prospectus which is not so described.
(x) The pro forma financial statements of the Company and its subsidiaries
and the related notes thereto set forth in the Registration Statement and the
Prospectus (and any supplement or amendment thereto) have been prepared on a
basis consistent with the historical financial statements of the Company and its
subsidiaries, give effect to the
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assumptions used in the preparation thereof on a reasonable basis and in good
faith and present fairly the historical and proposed transactions contemplated
by the Registration Statement and the Prospectus. Such pro forma financial
statements have been prepared in accordance with the applicable requirements of
Rule 11-02 of Regulation S-X promulgated by the Commission. The other pro forma
financial and statistical information and data set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) are, in
all material respects, accurately presented and prepared on a basis consistent
with the pro forma financial statements.
(y) All material tax returns required to be filed by the Company and each
of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(z) Neither the Company nor its subsidiaries own any real property. The
Company and its subsidiaries good and marketable title to all personal property
owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
(aa) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("intellectual property") currently employed by
them in connection with the business now operated by them except where the
failure to own or possess or otherwise be able to acquire such intellectual
property would not, singly or in the aggregate, have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of such intellectual property which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(ab) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or threatened against the Company or
any of its subsidiaries before the National Labor Relations Board or any state
or local labor relations board, (ii) strike, labor dispute, slowdown or stoppage
pending or to the Company's knowledge threatened against the Company or any of
its subsidiaries or (iii) union representation question existing with respect to
the employees of the Company and
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its subsidiaries, except for such actions specified in clause (i), (ii) or (iii)
above, which, singly or in the aggregate, would not have a Material Adverse
Effect. To the best of the Company's knowledge, no collective bargaining
organizing activities are taking place with respect to the Company or any of its
subsidiaries.
(ac) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
Section 7. Representations and Warranties of the Selling Stockholders.
Each Selling Stockholder represents and warrants, severally and not jointly, to
each Underwriter and to the Company that:
(a) Such Selling Stockholder will have good and marketable title to the
Shares immediately prior to the consummation of the transactions contemplated by
this Agreement, free of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever.
(b) The Shares to be sold by such Selling Stockholder have been duly
authorized and are validly issued, fully paid and non-assessable.
(c) Such Selling Stockholder has, and on the Closing Date will have, full
legal right, power and authority, and all authorization and approval required by
law, to enter into this Agreement, the Letter of Transmittal and Custody
Agreement signed by such Selling Stockholder and _________________________, as
Custodian, relating to the deposit of the Shares to be sold by such Selling
Stockholder (the "Custody Agreement") and the Selling Stockholders' Irrevocable
Power of Attorney appointing certain individuals as such Selling Stockholder's
attorneys-in-fact (the "Attorneys") to the extent set forth therein, relating to
the transactions contemplated hereby and by the Registration Statement and the
Custody Agreement (the "Power of Attorney") and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder in the manner provided
herein and therein.
(d) This Agreement has been duly authorized, executed and delivered by or
on behalf of such Selling Stockholder.
(e) The Custody Agreement of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding agreement of such Selling Stockholder, enforceable in accordance
with its terms.
(f) The Power of Attorney of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding instrument of such
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Selling Stockholder, enforceable in accordance with its terms, and, pursuant to
such Power of Attorney, such Selling Stockholder has, among other things,
authorized the Attorneys, or any one of them, to execute and deliver on such
Selling Stockholder's behalf this Agreement and any other document that they, or
any one of them, may deem necessary or desirable in connection with the
transactions contemplated hereby and thereby and to deliver the Shares to be
sold by such Selling Stockholder pursuant to this Agreement.
(g) Upon delivery of and payment for the Shares to be sold by such Selling
Stockholder pursuant to this Agreement, the Underwriters will receive good and
clear title to such Shares, free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever, assuming that
the several Underwriters acquired their interest in the Shares without notice of
any adverse claims (within the meaning of Section 8-303 of the Uniform
Commercial Code in effect in the state of New York).
(h) The execution, delivery and performance of this Agreement and the
Custody Agreement and Power of Attorney of such Selling Stockholder by or on
behalf of such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (i) require any consent,
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except such as has been obtained or may be required
under the securities or Blue Sky laws of the various states), (ii) conflict with
or constitute a breach of any of the terms or provisions of, or a default under,
the organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any property of such Selling
Stockholder is bound or (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Stockholder or any property
of such Selling Stockholder.
(i) The information in the Registration Statement under the caption
"Selling Stockholders" which specifically relates to such Selling Stockholder
does not, and will not on the Closing Date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(j) At any time during the period described in Section 5(d), if there is
any change in the information referred to in Section 7(i), such Selling
Stockholder will immediately notify you of such change.
(k) Each certificate signed by or on behalf of such Selling Stockholder
and delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
Section 8. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages,
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liabilities and judgments (including, without limitation, any reasonable and
documented legal or other expenses incurred in connection with investigating or
defending any matter, including any action, that could give rise to any such
losses, claims, damages, liabilities or judgments) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Underwriter furnished in writing
to the Company by such Underwriter through you expressly for use therein
provided, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter who
failed to deliver a Prospectus, as then amended or supplemented (so long as the
Prospectus and any amendment or supplement thereto was provided by the Company
to the several Underwriters in the requisite quantity and on a timely basis to
permit proper delivery on or prior to the Closing Date) to the person asserting
any losses, claims, damages, liabilities or judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in such
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured in the Prospectus, as so
amended or supplemented, and such Prospectus was required by law to be delivered
at or prior to the written confirmation of sale to such person. The Company also
agrees to indemnify and hold harmless each Underwriter, its directors, its
officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) arising from or relating to any breach of any warranty or the
inaccuracy of any representation, made by any Selling Stockholder in this
Underwriting Agreement, provided; however, that the Company's indemnification
obligations in this sentence shall only apply after the indemnified party in
this sentence has first asserted applicable claims against and have used their
reasonable efforts to obtain relief from the Selling Stockholder making such
representations and warranties, and provided further, that the Company shall,
upon satisfaction of the indemnification obligations in this sentence and to the
extent of such satisfaction, be subrogated to the rights of such indemnified
party against the Selling Stockholder making such representations and
warranties.
The Selling Stockholders agree, severally and not jointly, to indemnify and
hold harmless each Underwriter, its directors, its officers and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any
reasonable and documented legal or other expenses incurred in connection with
investigating or defending any matter, including any action, that could give
rise to any such losses, claims, damages, liabilities or judgments) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any
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preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus, as then
amended or supplemented (so long as the Prospectus and any amendment or
supplement thereto was provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages,
liabilities or judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in such preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in the Prospectus, as so amended or supplemented, and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person. Notwithstanding the foregoing, the
aggregate liability of any Selling Stockholder pursuant to this Section 8(a)
shall be limited to an amount equal to the total proceeds (before deducting
underwriting discounts and commissions and expenses) received by such Selling
Stockholder from the Underwriters for the sale of the Shares sold by such
Selling Stockholder hereunder.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Stockholder and each person, if any, who controls such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Sellers to such Underwriter
but only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall
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have failed to assume the defense of such action or employ counsel reasonably
satisfactory to the indemnified party or (iii) the named parties to any such
action (including any impleaded parties) include both the indemnified party and
the indemnifying party, and the indemnified party shall have been advised in
writing by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for (i) the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all Underwriters, their officers and
directors and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act, (ii)
the fees and expenses of more than one separate firm of attorneys (in addition
to any local counsel) for the Company, its directors, its officers who sign the
Registration Statement and all persons, if any, who control the Company within
the meaning of either such Section and (iii) the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all
Selling Stockholders and all persons, if any, who control any Selling
Stockholder within the meaning of either such Section, and all such reasonable
and documented fees and expenses shall be reimbursed as they are incurred. In
the case of any such separate firm for the Underwriters, their officers and
directors and such control persons of any Underwriters, such firm shall be
designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation. In
the case of any such separate firm for the Company and such directors, officers
and control persons of the Company, such firm shall be designated in writing by
the Company. In the case of any such separate firm for the Selling Stockholders
and such control persons of any Selling Stockholders, such firm shall be
designated in writing by the Attorneys. The indemnifying party shall indemnify
and hold harmless the indemnified party from and against any and all losses,
claims, damages, liabilities and judgments by reason of any settlement of any
action (i) effected with the indemnifying party's written consent or (ii)
effected without its written consent if the settlement is entered into more than
twenty business days after the indemnifying party shall have received a request
from the indemnified party for reimbursement for the fees and expenses of
counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is
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appropriate to reflect the relative benefits received by the Sellers on the one
hand and the Underwriters on the other hand from the offering of the Shares or
(ii) if the allocation provided by clause 8(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Sellers on the one hand and the Underwriters on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Sellers, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Sellers on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholders on the one hand or the Underwriters on the other hand and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) Each Selling Stockholder hereby designates [NAME OF COMPANY], [ADDRESS
OF COMPANY], as its authorized agent, upon which process may be served in any
action which may be instituted in any state or federal court in the State of New
York by any Underwriter, any director or officer of any Underwriter or any
person controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each Selling Stockholder
will accept the jurisdiction of such court in such action, and waives, to the
fullest
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extent permitted by applicable law, any defense based upon lack of personal
jurisdiction or venue. A copy of any such process shall be sent or given to such
Selling Stockholder, at the address for notices specified in Section 12 hereof.
Section 9. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Firm Shares under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington
D.C. time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Stephen J. Winjum and Ronald G. Eidell, in their
capacities as the President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer of the Company, respectively, confirming
the matters set forth in Sections 6(t), 9(a) and 9(b) and that the Company has
complied with all of the agreements and satisfied all of the conditions herein
contained and required to be complied with or satisfied by the Company on or
prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you shall
have received on the Closing Date a certificate dated the Closing Date from or
on behalf of each Selling Stockholder to such effect and to the effect that such
Selling Stockholder has complied with all of the agreements and satisfied all of
the conditions herein contained and required to be complied with or satisfied by
such Selling Stockholder on or prior to the Closing Date.
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(f) You shall have received on the Closing Date an opinion (reasonably
satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Katten Muchin & Zavis, counsel for the Company and the Selling Stockholders,
to the effect that:
(i) the Company has been duly incorporated and each of the Company
and its subsidiaries is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the corporate
power and authority to carry on its business as described in the Prospectus
and to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly qualified and
is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, which jurisdictions are
listed on Schedule III hereto, except where the failure to be so qualified
would not have a Material Adverse Effect;
(iii) all the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable and
not subject to any statutory preemptive rights;
(iv) the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided by this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights;
(v) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature,
except as set forth in Exhibit 10.16 to the Registration Statement or any
document or agreement described therein;
(vi) this Agreement has been duly authorized, executed and delivered
by the Company and by or on behalf of each Selling Stockholder;
(vii) other than with respect to the Company's Convertible Preferred
Stock that will automatically convert to Common Stock on the Closing Date,
the authorized capital stock of the Company conforms as to legal matters to
the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the Act,
no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the best of such counsel's knowledge
after due inquiry, pending before or contemplated by the Commission;
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(ix) the statements under the captions "Risk Factors", "Government
Regulation", "Description of Securities", "Shares Eligible for Future Sale"
and "Underwriting" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of
the legal matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such legal matters,
documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws and, to the best of such counsel's
knowledge after due inquiry, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound;
(xi) the execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will not (A)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (B) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or
any of its subsidiaries or any indenture, loan agreement, mortgage, lease
or other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound, (C) violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property or (D) result
in the suspension, termination or revocation of any Authorization of the
Company or any of its subsidiaries or any other impairment of the rights of
the Company or its subsidiaries holding such Authorization;
(xii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any
of its subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described, or of any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required;
(xiii) each of the Company and its subsidiaries has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations
and all courts and other tribunals, including, without limitation, under
any applicable Environmental Laws or Health Care Laws, as are necessary to
own, lease, license and operate its respective properties and to conduct
its
22
<PAGE>
business, except where the failure to have any such Authorization or to
make any such filing or notice would not, singly or in the aggregate, have
a Material Adverse Effect; each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction
with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow,
revocation, suspension or termination of any such Authorization or results
or, after notice or lapse of time or both, would result in any other
impairment of the rights of the Company or its subsidiaries holding such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance,
the occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a Material Adverse Effect;
(xiv) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;
(xv) to the best of such counsel's knowledge after due inquiry,
except as set forth in the Registration Statement, Exhibits 10.4 and 10.5
therto, or in any document or agreement described therein, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement;
(xvi) each Selling Stockholder will have good and marketable title
to the Shares to be sold by such Selling Stockholder pursuant to this
Agreement when issued and delivered to the Underwriters against payment
therefore, free of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever;
(xvii) each Selling Stockholder has full legal right, power and
authority, and all authorization and approval required by law, to enter
into this Agreement and the Custody Agreement and the Power of Attorney of
such Selling Stockholder and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder in the manner provided herein
and therein;
(xviii) the Custody Agreement of each Selling Stockholder has
been duly authorized, executed and delivered by such Selling Stockholder
and is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms;
(xix) the Power of Attorney of each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is
a valid and binding instrument of such Selling Stockholder, enforceable in
accordance with its terms, and, pursuant to
23
<PAGE>
such Power of Attorney, such Selling Stockholder has, among other things,
authorized the Attorneys, or any one of them, to execute and deliver on
such Selling Stockholder's behalf this Agreement and any other document
they, or any one of them, may deem necessary or desirable in connection
with the transactions contemplated hereby and thereby and to deliver the
Shares to be sold by such Selling Stockholder pursuant to this Agreement;
(xx) upon delivery of and payment for the Shares to be sold by each
Selling Stockholder pursuant to this Agreement, the Underwriters will
receive good and clear title to such Shares, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever, assuming that the several Underwriters acquired their interest
in the Shares without notice of any adverse claims (within the meaning of
Section 8-303 of the Uniform Commercial Code in effect in the state of New
York); and
(xxi) the execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney of each Selling Stockholder
by such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (A) require any
consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (B) conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of such Selling Stockholder, if
such Selling Stockholder is not an individual, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which any property of such Selling
Stockholder is bound or (C) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over such Selling
Stockholder or any property of such Selling Stockholder.
The opinion of Katten Muchin & Zavis described in Section 9(f) above shall
be rendered to you at the request of the Company and the Selling Stockholders
and shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of McDermott, Will & Emery, counsel for the Underwriters, as to
the matters referred to in Sections 9(f)(iv), 9(f)(vi) (but only with respect to
the Company), and 9(f)(ix) (but only with respect to the statements under the
caption "Description of Securities" and "Underwriting").
In giving the opinions covered by Section 9(f) and 9(g), Katten Muchin &
Zavis and McDermott, Will & Emery shall state that (A) the Registration
Statement and the Prospectus and any supplement or amendment thereto (except for
the financial statements and other financial data included therein as to which
no opinion need be expressed) comply as to form with the Act, (B) such counsel
has no reason to believe that at the time the Registration Statement became
effective or on the date of this Agreement, the Registration Statement and the
prospectus included therein (except for the financial statements and other
financial and operating data as to which such counsel need not express any
belief) contained any untrue statement of a material
24
<PAGE>
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (C) such counsel has
no reason to believe that the Prospectus, as amended or supplemented, if
applicable (except for the financial statements and other financial and
operating data, as aforesaid) contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that such counsel may state in their opinion that
the foregoing is based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but is without independent
check or verification except as specified.
(h) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Arthur Andersen LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(k) The Company and the Selling Stockholders shall not have failed on or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company or the
Selling Stockholders, as the case may be, on or prior to the Closing Date.
(l) You shall have received on the Closing Date, a certificate of each
Selling Stockholder who is not a U.S. Person (as defined under applicable U.S.
federal tax legislation) to the effect that such Selling Stockholder is not a
U.S. Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-8 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
Section 10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic
25
<PAGE>
conditions or in the financial markets of the United States or elsewhere that,
in your reasonable judgment, is material and adverse and, in your reasonable
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus, (ii) the suspension or material
limitation of trading in securities or other instruments on the New York Stock
Exchange, the American Stock Exchange, the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq
National Market or limitation on prices for securities or other instruments on
any such exchange or the Nasdaq National Market, (iii) the suspension of trading
of any securities of the Company on any exchange or in the over-the-counter
market, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects,
or will materially and adversely affect, the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, (v) the declaration of a banking moratorium by either federal or New
York State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
your opinion has a material adverse effect on the financial markets in the
United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to
you, the Company and the Selling Stockholders for purchase of such Firm Shares
are not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case which does not result in
termination of this Agreement, either you or the Sellers shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. If, on an
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to
26
<PAGE>
purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
Section 11. Agreements of the Selling Stockholders. Each Selling
Stockholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
Section 12. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company, to NovaMed
Eyecare, Inc., 980 North Michigan Avenue, Suite 1620, Chicago, Illinois 60611,
(ii) if to the Selling Stockholders, to Stephen J. Winjum and Ronald G. Eidell
c/o NovaMed Eyecare, Inc., 980 North Michigan Avenue, Suite 1620, Chicago,
Illinois 60611and (iii) if to any Underwriter or to you, to you c/o Donaldson,
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, or in any case to such other address as
the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Stockholder or any person controlling such Selling
Stockholder, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Company agrees to reimburse the several
Underwriters for all reasonable and documented out-of-pocket expenses (including
the reasonable and documented fees and disbursements of counsel) incurred by
them. Notwithstanding any termination of this Agreement, the Company shall be
liable for all expenses which it has agreed to pay pursuant to Section 5(i)
hereof. The Company also agrees to reimburse the several Underwriters, their
directors and officers and any persons controlling any of the Underwriters for
any and all reasonable and documented fees and expenses (including, without
limitation, the reasonable and documented fees disbursements of counsel)
incurred by them in connection with enforcing their rights hereunder (including,
without limitation, pursuant to Section 8 hereof).
27
<PAGE>
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
NOVAMED EYECARE, INC.
By:
--------------------
Title:
-----------------
THE SELLING STOCKHOLDERS NAMED IN SCHEDULE II
HERETO, ACTING SEVERALLY
By:
---------------------
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
WILLIAM BLAIR & COMPANY
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
28
<PAGE>
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
------------------------
29
<PAGE>
Schedule I
Number of Firm
Shares
Underwriters to be Purchased
- ------------ ---------------
Donaldson Lufkin & Jenrette Securities Corporation.............
Willaim Blair & Company .......................................
Hambrecht & Quist..............................................
Total....................................................
<PAGE>
SCHEDULE II
-----------
Selling Stockholders
--------------------
<TABLE>
<CAPTION>
Number of Firm
Name Shares Being Sold
- ---- -----------------
<S> <C>
</TABLE>
Annex I
[Insert names of stockholders of the Company who will be required to sign lock
ups]
<PAGE>
NM [LOGO for NovaMed]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS IS TO CERTIFY THAT CUSIP 66986W 10 8
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF PAR VALUE $.01 PER SHARE
NOVAMED EYECARE, INC.
Transferable on the books of the Corporation in person or by an attorney duly
authorized in writing upon surrender of this certificate properly endorsed. A
statement of the rights, preferences, privileges and restrictions granted to or
imposed upon each class or series of stock and the holders thereof is available
upon the request and without charge from the principal executive office of the
Corporation. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile of the duly authorized officers of the Corporation.
Dated:
--------------- ---------------
SIGNATURE SIGNATURE
TO COME TO COME
--------------- ---------------
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COPANY
(NEW YORK, N.Y.)
TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE>
NOVAMED EYECARE, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ______________Custodian_______________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act___________________________________
in common (State)
UNIF TRF MIN ACT -- ________Custodian (until age)________)
(Cust)
_______________under Uniform Transfers
(Minor)
to Minors Act_________________________
(State)
</TABLE>
Additional abbreviations may also be used through not in the above list.
FOR VALUE RECEIVED, ___________________________ hereby sell(s), assigns(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
|____________________________________|
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________________
X _______________________________________
X _______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERNATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.
___________________________________________________
| |
| AMERICAN BANK NOTE COMPANY JUNE 18, 1999 fm |
| 3504 ATLANTIC AVENUE |
| SUITE 12 |
| LONG BEACH, CA 90807 062327bk |
| (562) 989-2333 |
| (FAX) (562) 426-7450 Proof_____ NEW |
|_________________________________________________|
<PAGE>
Exhibit 4.2
Form of Registrants Rights Agreement
________________________________________________________________________________
NovaMed Eyecare, Inc.
and
--------------------------------------
Rights Agent
Rights Agreement
Dated as of ________________, 1999
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Exhibit A - Form of Certificate of Designations of Series A 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
</TABLE>
ii
<PAGE>
RIGHTS AGREEMENT
----------------
Agreement, dated as of _______________, 1999, between NovaMed Eyecare, Inc., a
Delaware corporation (the "Company"), and ___________________________, 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
__________________, 1999 (the "Record Date"), each Right representing the right
to purchase one one-hundredth 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, or (iv) any
entity organized, appointed or established by the Company for, or pursuant
to the terms of, any such plan. [Consider excluding from definition of
Acquiring Person current insiders, their immediate family members, and
entities controlled by them.] 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
<PAGE>
"Acquiring Person". Notwithstanding the foregoing, if the Board of Directors
determines in good faith that a Person who would otherwise be an "Acquiring
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 determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act); or
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(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 $.01 per
share, of the Company, except that when the context refers to "Common
Shares" of any Person other than the Company such term shall mean the
capital stock (or equity interest) of such other Person with the greatest
voting power, or the equity securities or other equity interest having
power to control or direct the management of such Person.
(g) "Distribution Date" shall have the meaning set forth in Section 3 hereof.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(i) "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
(j) "Person" shall mean any individual, trust, firm, corporation, partnership,
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
(k) "Preferred Shares" shall mean shares of Series A Junior Participating
Preferred Stock, par value [$.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.
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(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.
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.
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(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 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 intention of
any Person (other than the Company, 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
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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:
This certificate also evidences and entitles the holder hereof to certain rights
as set forth in a Rights Agreement between NovaMed Eyecare, Inc. and
______________________________ dated as of ______________, 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
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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.
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(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-hundredths
of a Preferred Share as shall be set forth therein at the price per one
one-hundredth 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.
(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.
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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 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-hundredths 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
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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 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-hundredth 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 _______________, 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-hundredth of a Preferred Share to be
issued upon exercise of a Right shall initially be $____________, 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
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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-hundredths 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
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.
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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.
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.
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(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 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
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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.
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-hundredths 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-hundredths 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
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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.
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"
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(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.
(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
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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, 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
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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 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-
hundredths of a Preferred Share purchasable from time to time hereunder
upon exercise of the Rights all subject to further adjustment as provided
herein.
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(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-hundredths 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-hundredths 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-hundredths 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-hundredths 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 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-hundredths 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-hundredths 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.
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(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-hundredth 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 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-hundredths of a Preferred Share
purchasable after such event upon proper exercise of each Right shall be
determined by multiplying the number of one one-hundredths 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.
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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 (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,
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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-hundredths 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-hundredths 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.
(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
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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;
(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
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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-hundredth 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-hundredth of a Preferred
Share). Fractions of Preferred Shares in integral multiples of one one-
hundredth 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-hundredth 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.
22
<PAGE>
(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.
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
23
<PAGE>
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, 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
24
<PAGE>
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; 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 omitted 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.
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<PAGE>
(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 (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
26
<PAGE>
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 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.
27
<PAGE>
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 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
28
<PAGE>
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 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 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)
29
<PAGE>
hereof) for Common Shares exchangeable for Rights, at the initial rate of one
one-hundredth 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 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
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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:
NovaMed Eyecare, Inc.
--------------------------------
--------------------------------
--------------------------------
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:
[Rights Agent]
--------------------------------
--------------------------------
--------------------------------
Attention: _________________
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
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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-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 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.
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<PAGE>
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.
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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: _________________________ By: _________________________
Name: Name:
Title: Title:
[RIGHTS AGENT],
as Rights Agent
Attest:
By: _________________________ By:_________________________
Name: Name:
Title: Title:
<PAGE>
Exhibit A
---------
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A 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 __________, 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 A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be designated
as "Series A Junior Participating Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting the Series A Preferred Stock shall
initially be _______________. 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 A 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
A-1
<PAGE>
outstanding securities or rights issued by the Company convertible into Series A
Preferred Stock and further provided that the Board of Directors shall increase
the number of shares constituting the Series A Preferred Stock to the extent
necessary for the Company to have available sufficient shares of such Series A
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
A Preferred Stock with respect to dividends, the holders of shares of Series A
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 100 times the aggregate
per share amount of all cash dividends, and 100 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 A 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 A
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 A Preferred Stock
shall have the following voting rights:
(A) Each share of Series A Preferred Stock shall entitle the holder thereof to
100 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 A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the
A-2
<PAGE>
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 A 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 A 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 A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 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 A 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 A
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 100 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
A-3
<PAGE>
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 set forth in the preceding sentence with respect to the
exchange or change of shares of Series A 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 A Preferred Stock shall not be
redeemable.
Section 8. Rank. The Series A 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 A 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 A 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 ____ day of _____, 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 _____________________, 2009 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT, AND ARE
VOIDABLE AND SUBJECT TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
[THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN THE SECOND
PARAGRAPH OF SECTION 11(a)(ii) OF THE RIGHTS AGREEMENT.]*
Rights Certificate
NovaMed Eyecare, Inc.
This certifies that ____________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of ___________________, 1999 (the "Rights Agreement")
between NovaMed Eyecare, Inc., a Delaware corporation (the "Company"), and
__________________, a ______________ ___________________ (the "Rights Agent"),
to purchase from the Company at any time after the Distribution Date (as such
term is defined in the Rights Agreement) and prior to 5:00 p.m., Chicago,
Illinois time on ____________________, 2009 at the principal office of the
Rights Agent, or at the office of its successor as Rights Agent, one one-
hundredth of a fully paid nonassessable share of Series A Junior Participating
Preferred Stock, par value [$.01] per share (the "Preferred Shares"), of the
Company, at a purchase price of $__________ per one one-hundredth 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 number of Rights evidenced by this Rights
- ------------------------------
* The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
B-1
<PAGE>
Certificate (and the number of one one-hundredths 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 _______________,
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-hundredths 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-hundredths 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
B-2
<PAGE>
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or 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 ____________________, 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 $.01 per share (the "Common Shares"), of the
Company. The dividend is payable on __________________, 1999 (the "Record Date")
to the stockholders of record on that date. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, par value [$.01] per share (the "Preferred
Shares"), of the Company at a price of $_______ per one one-hundredth 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 ________________________________, 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
C-1
<PAGE>
business on the Distribution Date and such separate Rights Certificates alone
will evidence the Rights. Each Right is exercisable for one-one hundredth 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 _________________, 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-hundredth 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]
________, 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 [___________] 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.
______, 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
[__________] shares of Common Stock covered by the Registration Statement
(including [_________] 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 caption "Certain Legal Matters" 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 10.3
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is entered into as of the
24th day of May, 1999, by and among NovaMed Eyecare, Inc. a Delaware corporation
(the "Company") and Stephen J. Winjum (together with any stockholder of which
such person is, directly or indirectly, a director, officer, member or general
partner, "Indemnitee").
RECITALS
A. The Company is aware that because of the increased exposure to
litigation costs and risks resulting from service to Companies, talented and
experienced persons are increasingly reluctant to serve or continue serving as
directors or executive officers of Companies unless they are protected by
comprehensive liability insurance and indemnification.
B. Plaintiffs often seek damages in such large amounts, and the costs of
litigation may be so great (whether or not the case is meritorious), that the
defense and/or settlement of such litigation can create an extraordinary burden
on the personal resources of directors and executive officers.
C. Based upon their experience as business managers, the Board of
Directors of the Company has concluded that, to retain and attract talented and
experienced individuals to serve as directors and executive officers of the
Company, it is appropriate for the Company to contractually indemnify its
directors and certain of its executive officers, and to assume for itself
liability for expenses and damages in connection with claims against such
directors and executive officers in connection with their service to the
Company.
D. The Company believes that it is fair and proper to protect its
directors and certain executive officers of the Company from the risk of
judgments, settlements and other expenses which may occur as a result of their
service to the Company.
NOW, THEREFORE, the parties, intending to be legally bound, for good and
valuable consideration, hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify and hold
harmless Indemnitee to the fullest extent permitted by law if such Indemnitee
was or is or becomes a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other (hereinafter a "Claim") by reason of (or arising in part out of any event
or occurrence
-1-
<PAGE>
related to the fact that Indemnitee is or was or may be deemed a director,
officer, employee, controlling person, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was or may be deemed to be serving at the
request of the Company as a director, officer, employee, controlling person,
agent or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of such
Indemnitee while serving in such capacity including, without limitation, any and
all losses, claims, damages, expenses and liabilities, joint or several
(including any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise, which relate
directly or indirectly to the registration, purchase, sale or ownership of any
securities of the Company or to any fiduciary obligation owed with respect
thereto or as a result of any claim (a) made by a third party against an
Indemnitee based on any misstatement or omission of a material fact by the
Company in violation of any duty of disclosure imposed on the Company by Federal
or state securities or common laws, (b) made by a third party against an
Indemnitee based (in whole or in part) on, or arising in any way out of, or
relating to conduct attributed to the Company or anyone alleged to be acting on
the Company's behalf, or (c) made by a third party against an Indemnitee based
(in whole or in part) on, or arising in any way out of, or relating to (i) the
Indemnitee's alleged participation in the management or direction of the
Company, (ii) the Indemnitee being an investor in the Company, (iii) the
Indemnitee's alleged participation in providing any assistance or advice to the
Company, or (iv) Indemnitee being a person described in Section 15 of Securities
Act or Section 20 of the Exchange Act (hereinafter an individually an
"Indemnification Event" and collectively the "Indemnification Events") against
any and all expenses (including attorneys fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including an appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if, and only if, such
settlement is approved in advance by the Company, which approval may be withheld
or granted by the Company in its sole discretion) of such Claim and any federal,
state, local or foreign taxes imposed on Indemnitee as a result of the actual or
deemed receipt of any payments under this Agreement (collectively, hereinafter
"Expenses"), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no
later than ten (10) days after written demand by the Indemnitee therefor is
presented to the Company, which demand shall be accompanied by vouchers,
invoices and similar evidence documenting the Expenses incurred.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that it shall not have been finally determined that Indemnitee would not be
permitted to be indemnified under applicable law (initial determination shall be
made by the Reviewing Party as described in Section 10(e) hereof in a written
opinion, in any case in which the Independent Legal Counsel referred to in
Section
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1(e) hereof is involved), and (ii) and each Indemnitee acknowledges and agrees
that the obligation of the Company to make an advance payment of Expenses to
Indemnitee pursuant to Section 2(a) (an "Expense Advance") shall be subject to
the condition that, if, when and to the extent that it is so determined that
Indemnitee would not be permitted to be so indemnified under applicable law, the
Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced or thereafter commences legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any initial determination made by the
Reviewing Party that Indemnitee would not be permitted to be indemnified under
applicable law shall not be binding and Indemnitee shall not be required to
reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse
the Company for any Expense Advance shall be unsecured and no interest shall be
charged thereon. If there has not been a Change in Control (as defined in
Section 10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel referred to in Section
l(e) hereof. If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation seeking an initial determination by the
court or challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.
(c) Contribution. If the indemnification provided for in Section 1(a)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
such Indemnitee thereunder, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Indemnitee, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Indemnitee in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company and the Indemnitee
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Indemnitee and the parties relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
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The Company and the Indemnitee agree that it would not be just and equitable if
contribution pursuant to this Section 1(c) were determined by pro rata or per
capita allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. No person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(d) Survival Regardless of Investigation. The indemnification and
contribution provided for in this Section 1 will remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnitee or any
officer, director, general partner, limited partner, member, managing member,
employee, agent or controlling person of the Indemnitee.
(e) Change in Control. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
under this Agreement or any other agreement or under the Company's Amended and
Restated Certificate of Incorporation (the "Restated Certificate") or Bylaws as
now or hereafter in effect, Independent Legal Counsel (as defined in Section
10(d) hereof) shall be selected on behalf of Indemnitee and all persons who are
the beneficiaries of indemnification agreements similar to this Agreement from
the Company by a committee consisting of those persons who were members of the
Board of Directors immediately prior to such Change in Control and who are no
longer serving on the Board of Directors, and such selection shall be approved
by the Company (which approval shall not be unreasonably withheld). Such
counsel, among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent Indemnitee would be permitted to be
indemnified under applicable law. The Company agrees to abide by such opinion
and to pay the reasonable fees of the Independent Legal Counsel referred to
above and to fully indemnify such counsel against any and all expenses
(including attorneys fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
(f) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in the defense of any action, suit, proceeding,
inquiry or investigation referred to in Section l(a) hereof or in the defense
of any claim, issue or matter therein, each Indemnitee shall be indemnified
against all Expenses incurred by such Indemnitee in connection herewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to
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Indemnitee as soon as practicable but in any event no later than fifteen (15)
days after written demand by such Indemnitee therefor to the Company, which
demand shall be accompanied by vouchers, invoices and similar evidence
documenting the Expenses incurred or to be incurred by Indemnitee.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall give the
Company notice as soon as practicable of any Claim made against Indemnitee for
which indemnification will or could be sought under this Agreement. Notice to
the Company shall be directed to the Chief Executive Officer of the Company at
the address shown on the signature page of this Agreement (or such other address
as the Company shall designate in writing to Indemnitee).
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In addition,
neither the failure of the Reviewing Party to have made a determination as to
whether Indemnitee has met any particular standard of conduct or had any
particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief,
prior to the commencement of legal proceedings by Indemnitee to secure a
judicial determination that Indemnitee should be indemnified under applicable
law, shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief. In connection with any determination by the Reviewing Party
or otherwise as to whether Indemnitee is entitled to be indemnified hereunder,
the burden of proof shall be on the Company to establish that Indemnitee is not
so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt written notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in each of the policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be obligated
hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim, with counsel reasonably approved by the
applicable Indemnitee, approved thereof not to be unreasonably withheld, upon
the delivery to such Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
such Indemnitee under this Agreement for any fees of counsel subsequently
incurred by such Indemnitee with respect to the same Claim; provided that, (i)
the Indemnitee shall have the right to employ such
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Indemnitee's counsel in any such Claim at the Indemnitee's expense; and (ii) if
(A) the employment of counsel by the Indemnitee has been previously authorized
by the Company, (B) counsel for such Indemnitee shall have provided the Company
with written advice that there is a conflict of interest between the Company and
such Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of the Indemnitee's counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law, even if such indemnification is not
specifically authorized by the other provisions of this Agreement or any other
agreement, the Company's Restated Certificate, the Company's Bylaws or by
statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
stockholder (as defined in Section 10(g)), employee, controlling person, agent
or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy
by this Agreement the greater benefits afforded by such change. In the event of
any change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, stockholder (as defined in Section 10(g)), employee, agent or
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties rights and obligations hereunder except as set forth in
Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Restated Certificate, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the laws of the State of California or
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to each Indemnitee for any action such Indemnitee
took or did not take while serving in an indemnified capacity even though the
Indemnitee may have ceased to serve in such capacity and such indemnification
shall inure to the benefit of each Indemnitee from and after Indemnitee's first
day of service as a director with the Company or affiliation with a director
from and after the date such director commences services as a director with the
Company.
4. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment
(under any insurance policy, Restated Certificate, Bylaws or otherwise) of the
amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If any Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for any portion of
Expenses incurred in connection with any Claim, but not, however, for all of
the total amount thereof, the Company
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shall nevertheless indemnify Indemnitee for the portion of such Expenses to
which such Indemnitee is entitled.
6. Mutual Acknowledgement. The Company and each Indemnitee acknowledge that
in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, stockholders (as defined in
Section 10(g)), employees, controlling persons, agents or fiduciaries under this
Agreement or otherwise.
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, stockholders (as defined in Section
10(g)), employees, control persons, agents or fiduciaries, each Indemnitee shall
be covered by such policies in such a manner as to provide Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if such Indemnitee is a director, or of the Company's
officers, if such Indemnitee is not a director of the Company but is an officer,
or of the Company's key employees, controlling persons, agents or fiduciaries,
if such Indemnitee is not an officer or director but is a key employee, agent,
control person, or fiduciary.
8. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to any Indemnitee with respect to Claims initiated or brought voluntarily by
such Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings to establish or enforce a right to indemnification under this
Agreement or any other agreement or insurance policy or under the Company's
Restated Certificate or Bylaws now or hereafter in effect relating to Claims for
Indemnifiable Events, (ii) in specific cases if the Board of Directors has
approved the initiation or bringing of such Claim, or (iii) as otherwise
required under Delaware statute or law, regardless of whether such Indemnitee
ultimately is determined to be entitled to such indemnification, advance expense
payment or insurance recovery, as the case may be; or
(b) Claim Under Section 16(b). To indemnify any Indemnitee for
expenses and the payment of profits arising from the purchase and sale by such
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or
any similar successor statute; or
(c) Unlawful Indemnification. To indemnify an Indemnitee if a final
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
9. Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or in the right of the Company against any
Indemnitee, any Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of five (5) years from the date of
accrual of such cause of action, and any claim or cause of action of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal
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action within such five (5) year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, stockholders (as defined in
Section 10(g)), employees, agents or fiduciaries, so that if Indemnitee is or
was or may be deemed a director, officer, stockholder (as defined in Section
10(g)), employee, agent, control person, or fiduciary of such constituent
corporation, or is or was or may be deemed to be serving at the request of such
constituent corporation as a director, officer, stockholder (as defined in
Section 10(g)), employee, control person, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, each Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as each Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on any Indemnitee with respect to an employee benefit
plan; and references to "serving at the request of the Company" shall include
any service as a director, officer, stockholder (as defined in Section 10(g)),
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, stockholder (as defined in Section 10(g)),
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if any Indemnitee acted in good faith and
in a manner such Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, such Indemnitee
shall be deemed to have acted in a manner "not opposed to the best interests of
the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Section
13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders (as defined in
Section 10(g)) of the Company in substantially the same proportions as their
ownership of stock of the Company, (A) who is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing twenty percent
(20%) or more of the combined voting power of the Company's then outstanding
Voting Securities, increases his beneficial ownership of such securities by five
percent (5 %) or more over the percentage so owned by such person, or (B)
becomes the "beneficial owner" (as defined in Rule l3d-3 under said Exchange
Act), directly or indirectly, of securities of the Company representing more
than thirty percent (30%) of the total voting power represented by the Company's
then outstanding Voting Securities, (ii) during
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any period of two (2) consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company and any new
director whose election by the Board of Directors or combination for election by
the Company's stockholders (as defined in Section 10(g)) was approved by a vote
of at least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute a
majority thereof, or (iii) the stockholders (as defined in Section 10(g)) of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least two-thirds (2/3) of the
total voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders (as defined in Section 10(g)) of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of transactions) all or
substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(e) hereof, who shall not have otherwise performed
services for the Company or any Indemnitee within the last three (3) years
(other than with respect to matters concerning the right of any Indemnitee under
this Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party " shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
(g) For purposes of this Agreement, "stockholder" shall include any
holder of any capital stock of the Company and an affiliate thereof. For
purposes of this Agreement, affiliate shall constitute any limited partner,
general partner, or any member or managing member of such general partner.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors, assigns, including any direct or indirect successor
by purchase, merger, consolidation
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or otherwise to all or substantially all of the business and/or assets of the
Company, partnership, spouses, heirs, and personal and legal representatives.
The Company shall require and cause any successor (whether direct or indirect
by purchase, merger, consolidation or otherwise) to all, substantially all, or a
substantial part, of the business and/or assets of the Company, by written
agreement in form and substance satisfactory to each Indemnitee, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect with respect to Claims
relating to Indemnifiable Events regardless of whether any Indemnitee continues
to serve as a director, officer, employee, agent, controlling person, or
fiduciary of the Company or of any other enterprise, including subsidiaries of
the Company, at the Company's request.
13. Attorneys Fees. In the event that any action is instituted by an
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, such Indemnitee shall be entitled to be paid all Expenses incurred by
such Indemnitee with respect to such action, regardless of whether such
Indemnitee is ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless, as a part of such
action, a court of competent jurisdiction over such action determines that each
of the material assertions made by such Indemnitee as a basis for such action
was not made in good faith or was frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, the Indemnitee shall be entitled
to be paid all Expenses incurred by such Indemnitee in defense of such action
(including costs and expenses incurred with respect to Indemnitee counterclaims
and cross-claims made in such action), and shall be entitled to the advancement
of Expenses with respect to such action.
14. Notice. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if deliverable by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed, if to Indemnitee, at
each Indemnitee's address as set forth beneath the Indemnitee's signature to
this Agreement, and, if to the Company, at the address of its principal
corporate offices (attention: Secretary), or at such other address as such party
may designate by ten (10) days advance written notice to the other parties
hereto.
15. Consent to Jurisdiction. The Company and each Indemnitee each hereby
irrevocably consent to the jurisdiction and venue of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be commenced, prosecuted and continued only in the
courts of the State of Delaware.
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16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the extent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware,
without regard to the conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by the parties to be bound thereby. Notice of same shall be provided to all
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
20. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving any Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
21. Corporate Authority. The Board of Directors of the Company in
accordance with Delaware law have approved the terms of this Agreement.
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In Witness Whereof, the parties hereto have executed this Agreement on an
as of the day and year first above written.
NovaMed Eyecare, Inc.,
a Delaware corporation
By: /s/ Ronald G. Eidell
----------------------------
Ronald G. Eidell
Executive Vice President
Address: 980 North Michigan Avenue
Suite 1620
Chicago, Illinois 60611
Indemnitee:
/s/ Stephen J. Winjum
-------------------------------
Stephen J. Winjum
Address:
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The Registrant is filing this Schedule pursuant to Instruction 2 to Item 601 of
Regulation S-K to identify the other documents omitted from being filed as
exhibits to Amendment No. 1 to the Registration Statement on Form S-1,
Registration No. 333-79271, as filed with the Commission on July 2, 1999. Except
for the names of the parties, the material details of the following documents
are the same as the Indemnification Agreement by and among NovaMed Eyecare, Inc.
and Stephen J. Winjum dated May 24, 1999 filed as Exhibit 10.3 to the
Registration Statement.
Indemnification Agreement by and among NovaMed Eyecare, Inc. and Robert A.
Wallach dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and J. Gary Jordan
dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and T. Trent Roark
dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and John W.
Lawrence, Jr. dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and Martin A.
Koehler dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and Thomas J.
Chirillo dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and Ronald G.
Eidell dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and Daniel O.
Wagster dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and E. Michele
Vickery dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and Douglas P.
Williams, M.D. dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and Peter C.
Wendell dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and James B.
Tananbaum dated May 24, 1999
<PAGE>
Indemnification Agreement by and among NovaMed Eyecare, Inc. and Steven V.
Napolitano dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and Scott H. Kirk,
M.D. dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and R. Judd Jessup
dated May 24, 1999
Indemnification Agreement by and among NovaMed Eyecare, Inc. and John D.
Hunkeler, M.D. dated May 24, 1999
<PAGE>
Exhibit 10.6
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated as
of February 17, 1999, by and between NovaMed Eyecare Management, LLC, a
Delaware limited liability company (the "Company"), and Stephen J. Winjum
("Employee").
PRELIMINARY RECITALS
A. The Company is an eye care services company engaged in the business
of: (i) providing comprehensive eye care services to eye care providers and
businesses ancillary thereto, including, without limitation, providing
financial, administrative, information technology, marketing and managed care
services to ophthalmic and optometric providers; (ii) owning, operating and/or
managing ambulatory surgery centers, refractive centers, excimer lasers,
optical dispensaries, wholesale optical laboratories, and an optical supplies
and equipment purchasing organization; and (iii) providing clinical research
and site management services to the eye care pharmaceutical and device
industries (collectively, the "Business").
B. The Company and Employee entered into an Employment Agreement dated
August 21, 1995 (the "Original Agreement").
C. In consideration for the continued employment of Employee, and the
Company's grant to Employee of options to acquire shares of common stock of
NovaMed Holdings Inc., the parent company of the Company of even date herewith,
the parties hereto desire to amend the terms and conditions of the Original
Agreement, all on the terms and conditions set forth herein.
D. The Company desires to continue to employ Employee, and Employee
desires to continue to be employed by the Company, as Chairman, President and
Chief Executive Officer of the Company on the terms and conditions contained
herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I
Employment
1.1 Engagement of Employee. The Company agrees to continue to employ
----------------------
Employee, and Employee accepts such continued employment by the Company, for
the period beginning February 17, 1999 (the "Effective Date") and ending on
February 16, 2002 (the "Initial Employment Period"). The Initial Employment
Period and any Renewal Period (as hereinafter
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<PAGE>
defined) shall automatically be renewed and extended on the same terms and
conditions contained herein for consecutive one-year periods (the "Renewal
Periods"), unless not later than sixty (60) days prior to the end of the Initial
Employment Period or any Renewal Period, either party shall give written notice
to such other party electing to terminate this Agreement. The Initial Employment
Period and the Renewal Periods are hereinafter referred to as the "Employment
Period." For purposes of this Agreement, any notice of termination electing not
to renew this Agreement pursuant to this Section 1.1 shall be deemed: (i) a
termination without cause if such notice is delivered by the Company; or (ii) a
voluntary termination of employment if such notice is delivered by Employee;
provided, however, that if the Employment Period is terminated pursuant to this
Section 1.1 by Employee, then notwithstanding Section 3.3, the Company shall
have no further obligations hereunder or otherwise with respect to Employee's
employment from and after the expiration of the Employment Period (except
payment of Employee's Base Salary, Benefits and Special Benefits accrued through
the expiration of the Employment Period). Notwithstanding anything to the
contrary contained herein, the Employment Period is subject to termination
pursuant to Article III below.
1.2 Duties and Powers. During the Employment Period, Employee will have
-----------------
such responsibilities, duties and authorities, and will render such services or
act in such other capacity for the Company and its affiliates as the Board of
Directors (the "BOARD") of NovaMed Holdings Inc. ("Holdings"), the manager and
parent of the Company (or any designated officer of Holdings or the Company),
may from time to time direct. Employee will devote his best efforts, energies
and abilities and his full business time, skill and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company, and shall perform the
duties and carry out the responsibilities assigned to him, to the best of his
ability, in a diligent, trustworthy, businesslike and efficient manner for the
purpose of advancing the Company. Employee acknowledges that his duties and
responsibilities will require his full-time business efforts and agrees that
during the Employment Period he will not engage in any other business activity
or have any business pursuits or interests except activities or interests which
do not conflict with the business of the Company, Holdings and any of their
affiliated entities or interfere with the performance of Employee's duties
hereunder.
1.3 No Violation. Employee represents and warrants that the execution of
------------
this Agreement by Employee and the performance by Employee of his duties as an
employee of the Company will not violate, conflict with or result in a breach or
default under any agreements, arrangements or understandings to which Employee
is or was a party, or by which he is or was bound, nor will the performance of
Employee's duties as an employee of the Company be limited, restricted or
impaired in any manner as a result of any agreements, arrangements or
understandings to which Employee is or was a party.
-2-
<PAGE>
ARTICLE II
Compensation
2.1 Base Salary. During the Employment Period, the Company will pay
-----------
Employee a base salary at the rate of $250,000 per annum (the "Base Salary"),
payable in regular installments in accordance with the Company's general payroll
practices for salaried employees. If the Employment Period is terminated
pursuant to SECTION 3 (subject to any severance provisions in Section 3.3),
Employee's Base Salary for any partial year will be prorated based upon the
number of days elapsed in such year during which services were actually
performed by Employee. The Board or any designated officer shall perform an
annual review of Employee's Base Salary based on Employee's Performance of his
duties and the Company's other compensation policies; provided that any increase
in the Base Salary shall require approval of the Board.
2.2 Discretionary Bonus. Following the end of each fiscal year, the Board,
-------------------
in its sole discretion, may elect to cause the Company to award to Employee a
bonus for such year, in an amount to be determined by the Board, based on such
performance targets as shall be established, and adjusted from time to time, by
the Board's compensation committee.
2.3 Benefits. In addition to the Base Salary payable to Employee
--------
hereunder, Employee will be entitled to the following benefits during the
Employment Period, unless otherwise altered by the Board with respect to all
management employees of the Company (collectively, the "Benefits"):
(a) hospitalization, disability, life and health insurance, to the
extent offered by the Company, and in amounts consistent with Company policy,
for all management employees, as reasonably determined by the Board;
(b) paid vacation each year with salary, consistent with Company
policy for all management employees;
(c) reimbursement for reasonable out-of-pocket business expenses
incurred by Employee in the ordinary course of his duties, subject to the
Company's policies in effect from time to time with respect to travel,
entertainment and other expenses, including without limitation, requirements
with respect to reporting and documentation of such expenses;
(d) other benefit arrangements, including a 401 (K) or similar tax
deferral plan, to the extent made generally available by the Company to its
management employees; and
(e) participation in Holdings' Stock Incentive Plan such that Employee
is granted options to purchase an amount of the common equity interest in
Holdings consistent with the determination of the Board or its Compensation
Committee pursuant to such plan.
-3-
<PAGE>
2.4 Special Benefits. In addition to the Base Salary payable to Employee
----------------
hereunder and the Benefits Employee is entitled to hereunder, Employee will be
entitled to a $750 per month automobile allowance during the Employment Period
(the "Special Benefits").
2.5 Taxes, etc. All compensation payable to Employee hereunder is stated
----------
in gross amount and shall be subject to all applicable withholding taxes, other
normal payroll and any other amounts required by law to be withheld.
ARTICLE III
Termination
3.1 Termination By Employee or the Company. The Employment Period (i)
---------------------------------------
shall automatically terminate immediately upon Employee's resignation or
death, or (ii) may be terminated by the Company as set forth herein for Cause
or without Cause, or by reason of Employee's Permanent Disability.
"Cause" as used herein means the occurrence of any of the following
events:
(a) a material breach by Employee of any of the terms and conditions
of this Agreement;
(b) Employee's gross negligence in the performance of his duties or
material failure or willful refusal to perform his duties;
(c) Employee's failure, as notified by the Company in writing, to
comply with any of the Company's written guidelines or procedures promulgated by
the Company and furnished to Employee, including, without limitation, any
guidelines or procedures relating to marketing or community relations; provided
that Employee shall have a reasonable period of time during which to cure such
failure following the date on which Employee receives the Company's written
notice of such failure;
(d) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act that materially negatively affects
the Company's business or reputation; or
(e) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act or acts constituting a felony or
other act involving dishonesty, disloyalty or fraud against the Company.
"Permanent Disability" as used herein shall mean that Employee is unable
to perform, with or without reasonable accommodation, by reason of physical or
mental incapacity, the essential functions of his or her position. The Board
shall determine, according to the facts then available, whether and when a
Permanent Disability has occurred. Such determination shall not be arbitrary or
unreasonable, and shall be final and binding on the parties hereto.
-4-
<PAGE>
3.2 Termination by Employee. Employee has the right to terminate his
-----------------------
employment under this Agreement at any time, for any or no reason, upon ninety
(90) days written notice to the Company.
3.3 Compensation After Termination.
------------------------------
(a) If the Employment Period is terminated (i) by the Company for
Cause or due to the death or Permanent Disability of Employee, (ii) by Employee
(including a termination resulting from Employee's election not to renew this
Agreement under Section 1.1 hereof), then the Company shall have no further
obligations hereunder or otherwise with respect to Employee's employment from
and after the termination or expiration date (except payment of Employee's Base
Salary accrued through the date of termination or expiration), and the Company
shall continue to have all other rights available hereunder (including, without
limitation, all rights under Article IV hereof) at law or in equity;
(b) If the Employment Period is terminated by the Company without
Cause (including a termination resulting from the Company's election not to
renew this Agreement under Section 1.1 hereof), the Employee shall be entitled
to receive Severance Pay (as hereinafter defined) for a period of eighteen (18)
months, payable in regular installments in accordance with the Company's general
payroll practices for salaried employees. Receipt of Severance Pay is contingent
upon Employee executing and adhering to a release of all employment claims in a
form acceptable to the Company. The Company shall have no further obligations
hereunder or otherwise with respect to Employee's employment from and after the
termination date, and the Company shall continue to have all other rights
available hereunder (including without limitation, all rights under Article IV
hereof) at law or in equity.
(c) For purposes of this Agreement, "Severance Pay" shall include (i)
Employee's Base Salary hereunder, (ii) the bonus that Employee would have
received under SECTION 2.2 hereof at the end of the year during which
termination without cause occurs had such termination not occurred, which bonus
shall be prorated to cover the severance period set forth in Section 3.3(b)
hereof, and (iii) continuation of the Benefits for the severance period set
forth in Section 3.3(b) hereof.
ARTICLE IV
Restrictive Covenants
4.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(a) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(b) Employee is one of a limited number of persons who will be
developing the Business;
-5-
<PAGE>
(c) Employee will occupy a position of trust and confidence with the
Company after the date of this Agreement, and during such period and Employee's
employment under this Agreement, Employee will become familiar with the
Company's trade secrets and with other proprietary and confidential information
concerning the Company and the Business;
(d) the agreements and covenants contained in this Article IV are
essential to protect the Company and the goodwill of the Business and are a
condition precedent to the Company entering into this Agreement;
(e) Employee's employment with the Company has special, unique and
extraordinary value to the Company and the Company would be irreparably damaged
if Employee were to provide services to any person or entity in violation of the
provisions of this Agreement;
(f) Employee has means to support himself and his dependents other
than by engaging in the Business, or a business similar to the Business, and the
provisions of this Article IV will not impair such ability; and
(g) for purposes of this Article IV, the term "Company" shall include
the Company, Holdings and any of their respective subsidiaries and affiliates.
4.2 Non-Compete. Employee hereby agrees that for a period commencing on
-----------
the date hereof and ending on the date of termination or expiration of his
employment with the Company for any reason (the "TERMINATION DATE"), and
thereafter, through the period ending on the first anniversary of the
Termination Date (collectively, the "Restrictive Period"), he shall not,
directly or indirectly, as employee, agent, consultant, stockholder, director,
co-partner or in any other individual or representative capacity, own, operate,
manage, control, engage in, invest in or participate in any manner in, act as a
consultant or advisor to, render services for (alone or in association with any
person, firm, corporation or entity), or otherwise assist any person or entity
(other than the Company) that engages in or owns, invests in, operates, manages
or controls any venture or enterprise that directly or indirectly engages or
proposes to engage in any element of the Business anywhere within a 100-mile
radius of the Chicago metropolitan area or within a 100-mile radius of any area
(or in the event such area is a major city, the metropolitan area relating to
such city) in which the Company on the Termination Date engages in any element
of the Business (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in the stock of any
competing corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Employee is not involved in the business of
said corporation and if Employee and his associates (as such term is defined in
Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as in
effect on the date hereof), collectively, do not own more than an aggregate of
3% of the stock of such corporation. With respect to the Territory, Employee
specifically acknowledges that the Company intends to expand the Business into
and throughout the United States.
-6-
<PAGE>
4.3 Interference with Relationships. Without limiting the generality of the
-------------------------------
provisions of Section 4.2 hereof, Employee hereby agrees that, during the
Restrictive Period, he will not, directly or indirectly, solicit or encourage,
or participate as employee, agent, consultant, stockholder, director, partner or
in any other individual or representative capacity, in any business which
solicits or encourages (a) any person, firm, corporation or other entity which
has executed, or proposes to execute, a management services agreement with the
Company at any time during the term of this Agreement, or from any successor in
interest to any such person, firm, corporation or other entity, for the purpose
of securing business or contracts related to any element of the Business, or (b)
any present or future customer or patient of the Company or any of its
affiliated practices to terminate or otherwise alter his, her or its
relationship with the Company or such affiliated practice; provided, however,
that nothing contained herein shall be construed to prohibit or restrict
Employee from soliciting business from any such parties on behalf of the Company
in performance of his duties as an employee of the Company required under and as
specifically contemplated by Section 1.2 above.
4.4 Nonsolicitation. Other than in the performance of his duties hereunder,
---------------
during the Restrictive Period, Employee shall not, directly or indirectly, as
employee, agent, consultant, stockholder, director, co-partner or in any other
individual or representative capacity, employ or engage, recruit or solicit for
employment or engagement, any person who is or becomes employed or engaged by
the Company or any of its affiliated practices during the Restrictive Period, or
otherwise seek to influence or alter any such person's relationship with the
Company.
4.5 Confidential Information. Other than in the performance of his duties
------------------------
hereunder, during the Restrictive Period and thereafter, Employee shall keep
secret and retain in strictest confidence, and shall not, without the prior
written consent of the Company, furnish, make available or disclose to any third
party or use for the benefit of himself or any third party, any Confidential
Information. As used in this Agreement, "Confidential Information" shall mean
any information relating to the business or affairs of the Company or the
Business, including but not limited to any technical or non-technical data,
formulae, compilations, programs, devices, methods, techniques, designs,
processes, procedures, improvements, models, manuals, financial data,
acquisition strategies and information, information relating to operating
procedures and marketing strategies, and any other proprietary information used
by the Company in connection with the Business, irrespective of its form;
provided, however, that Confidential Information shall not include any
information which is in the public domain or becomes known in the industry
through no wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary to
the Company.
4.6 Inventions and Discoveries.
--------------------------
(a) Employee understands and agrees that all inventions, discoveries,
ideas, improvements, whether patentable, copyrightable or not, pertaining to the
Business of the Company or relating to the Company's actual or demonstrably
anticipated research, development or inventions (collectively, "Inventions and
Discoveries") that result from any work performed by Employee solely or jointly
with others for the Company which Employee, solely or jointly with
-7-
<PAGE>
others, conceives, develops, or reduces to practice during the course of
Employee's employment with the Company, are the sole and exclusive property of
the Company. Employee will promptly disclose all such matters to the Company and
will assist the Company in obtaining legal protection for Inventions and
Discoveries. Employee hereby agrees on behalf of himself, his executors, legal
representatives and assignees that he will assign, transfer and convey to the
Company, its successors and assigns the Inventions and Discoveries.
(b) THE COMPANY AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a)
SHALL NOT APPLY TO AN INVENTION OF EMPLOYEE FOR WHICH NO EQUIPMENT, SUPPLIES,
FACILITY OR TRADE SECRET INFORMATION OF THE COMPANY WAS USED AND WHICH WAS
DEVELOPED ENTIRELY ON EMPLOYEE'S OWN TIME, UNLESS (A) THE INVENTION RELATED (I)
TO THE BUSINESS OF THE COMPANY OR (II) TO THE COMPANY'S ACTUAL OR DEMONSTRABLY
ANTICIPATED RESEARCH OR DEVELOPMENT, OR (B) THE INVENTION RESULTS FROM ANY WORK
PERFORMED BY EMPLOYEE FOR THE COMPANY. EMPLOYEE AND THE COMPANY FURTHER
ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a) SHALL NOT APPLY TO ANY INVENTIONS OR
WORK PRODUCT DEVELOPED OR VESTED BY EMPLOYEE PRIOR TO THE EFFECTIVE DATE.
(c) EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS SECTION 4.6 AND FULLY
UNDERSTANDS THE LIMITATIONS WHICH IT IMPOSES UPON HIM AND HAS RECEIVED A
DUPLICATE COPY OF THIS AGREEMENT FOR HIS RECORDS.
4.7 Blue-Pencil. If any court of competent jurisdiction shall at any time
-----------
deem the term of this Agreement or any particular Restrictive Covenant (as
defined) too lengthy or the Territory too extensive, the other provisions of
this Section 4 shall nevertheless stand, the Restrictive Period herein shall be
deemed to be the longest period permissible by law under the circumstances and
the Territory herein shall be deemed to comprise the largest territory
permissible by law under the circumstances. The court in each case shall reduce
the time period and/or Territory to permiissible duration or size.
4.8 Remedies. Employee acknowledges and agrees that the covenants set
--------
forth in this Section 4 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business interests,
that irreparable injury will result to the Company if Employee breaches any of
the terms of said Restrictive Covenants, and that in the event of Employee's
actual or threatened breach of any such Restrictive Covenants, the Company will
have no adequate remedy at law. Employee accordingly agrees that in the event of
any actual or threatened breach by him of any of the Restrictive Covenants, the
Company shall be entitled to immediate temporary injunctive and other equitable
relief, without bond and without the necessity of showing actual monetary
damages, subject to hearing as soon thereafter as possible. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies
-8-
<PAGE>
available to it for such breach or threatened breach, including the recovery of
any damages which it is able to prove.
ARTICLE V
Miscellaneous
5.1 Notices. Any notice provided for in this Agreement must be in writing
-------
and must be either (i) personally delivered, (ii) mailed by registered or
certified first class mail, prepaid with return receipt requested or (iii) sent
by a recognized overnight courier service, to the recipient at the address below
indicated:
To the Company:
NovaMed Eyecare Management, LLC
980 N. Michigan Avenue
Suite 1620
Chicago, IL 60611
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Steven V. Napolitano, Esq.
To Employee:
Stephen J. Winjum
____________________________________
____________________________________
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given (a) on the date
such notice is personally delivered, (b) three (3) days after the date of
mailing if sent by certified or registered mail, or (c) one (1) day after the
date such notice is delivered to the overnight courier service if sent by
overnight courier.
5.2 Severability. Whenever possible, each provision of this Agreement will
--------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed,
-9-
<PAGE>
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
5.3 Entire Agreement. This Agreement, those documents expressly referred
----------------
to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
5.4 Counterparts. This Agreement may be executed on separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
5.5 Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by Employee and the Company and their
respective successors and permitted assigns. Employee may not assign any of his
rights or obligations hereunder without the written consent of the Company.
5.6 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party
hereto.
5.7 Amendments and Waivers. Any provision of this Agreement may be
----------------------
amended or waived only with the prior written consent of the Company and
Employee.
5.8 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Illinois, without giving effect to provisions thereof regarding
conflict of laws.
5.9 Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under this Agreement as
ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as ordinary income for
income tax purposes, and should he report such amounts as other than ordinary
income for income tax purposes, he will indemnify and hold the Company harmless
from and against any and all taxes, penalties, interest, costs and expenses,
including reasonable attorneys' and accounting fees and costs, which are
incurred by Company directly or indirectly as a result thereof.
5.10 CONSENT TO JURISDICTION. THE COMPANY AND EMPLOYEE HEREBY CONSENT TO
-----------------------
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREE THAT SUBJECT TO THE COMPANY'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT
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<PAGE>
SHALL BE LITIGATED IN SUCH COURTS. EMPLOYEE ACCEPTS FOR HIMSELF AND IN
CONNECTION WITH HIS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT.
5.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE THEIR
--------------------
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. THE PARTIES HERETO ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, DISCRIMINATION CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. THE PARTIES HERETO ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT
TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE COMPANY AND EMPLOYEE FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH THEIR RESPECTIVE
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES THEIR RESPECTIVE
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on
the day and year first above written.
COMPANY:
-------
NovaMed Eyecare Management, LLC, a Delaware limited
liability company
By: /s/ Ronald G. Eidell
---------------------
Ronald G. Eidell
Executive Vice President and
Chief Financial Officer
EMPLOYEE:
---------
/s/ Stephen J. Winjum
_____________________
Stephen J. Winjum
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<PAGE>
The Registrant is filing this Schedule pursuant to Instruction 2 to Item 601 of
Regulation S-K to identify the other documents omitted from being filed as
exhibits to Amendment No. 1 to the Registration Statement on Form S-1,
Registration No. 333-79271, as filed with the Commission on July 2, 1999. Except
as set forth below, the following documents are the same as the Amended and
Restated Employment Agreement by and between NovaMed Eyecare, Inc. and Stephen
J. Winjum dated February 17, 1999 filed as Exhibit 10.6 to the Registration
Statement.
Amended and Restated Employment Agreement by and between NovaMed Eyecare, Inc.
and Ronald G. Eidell dated February 17, 1999.
Job Title: Executive Vice President and Chief Financial Officer
Term: 3 years
Salary: $200,000 per year
Severance Period: 9 months
Amended and Restated Employment Agreement by and between NovaMed Eyecare, Inc.
and E. Michele Vickery dated February 17, 1999.
Job Title: Executive Vice President Operations
Term: 3 years
Salary: $200,000 per year
Severance Period: 9 months
Employment Agreement by and between NovaMed Eyecare, Inc. and Robert A. Wallach
dated April 19, 1999.
Job Title: Senior Vice President Marketing
Term: 2 years
Salary: $175,000 per year
Severance Period: 6 months
Employment Agreement by and between NovaMed Eyecare, Inc. and J. Gary Jordan
dated April 12, 1999.
Job Title: Senior Vice President Sales
Term: 2 years
Salary: $175,000 per year
Severance Period: 6 months
<PAGE>
Exhibit 10.8
$35,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of May 20, 1997
as amended and restated
as of July 8, 1998
(As Amended and Restated as of May 21, 1999)
among
NOVAMED HOLDINGS INC.,
as the Borrower,
CERTAIN COMMERCIAL LENDING INSTITUTIONS,
as the Lenders,
and
THE NORTHERN TRUST COMPANY,
as the Agent for the Lenders.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS................................ 1
1.1. Defined Terms............................................. 1
1.2. Use of Defined Terms...................................... 21
1.3. Cross-References.......................................... 21
1.4. Accounting Principles .................................... 21
ARTICLE II
REVOLVING COMMITMENTS, BORROWING PROCEDURES AND NOTES........... 21
2.1. Revolving Commitments..................................... 21
2.1.1.Revolving Commitment of Each Lender....................... 21
2.1.2.Lenders Not Permitted or Required To Make Loans........... 22
2.2. Reduction of Revolving Commitment Amount.................. 22
2.2.1.Optional.................................................. 22
2.2.2.Mandatory................................................. 22
2.3. Borrowing Procedure....................................... 22
2.4. Continuation and Conversion Elections..................... 22
2.5. Funding................................................... 23
2.6. Notes..................................................... 23
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES...................... 25
3.1. Repayments and Prepayments................................ 25
3.1.1.Prior to the Revolving Commitment Termination Date ....... 25
3.1.2.On the Maturity Date..................................... 26
3.1.3 Extension of Maturity Date................................ 26
3.2. Interest Provisions....................................... 27
3.2.1.Rates .................................................... 27
3.2.2.Post-Maturity Rates ...................................... 29
3.2.3.Payment Dates ............................................ 29
3.3. Fees...................................................... 30
3.3.1.Revolving Commitment Fee.................................. 30
3.3.2.Letter of Credit Fees..................................... 30
3.3.3.Agency Fees............................................... 30
i
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TABLE OF CONTENTS
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(continued)
Page
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ARTICLE IV
LIBO RATE AND OTHER PROVISIONS.................................. 30
4.1. LIBO Rate Lending Unlawful................................ 30
4.2. Deposits Unavailable...................................... 31
4.3. Increased LIBO Rate Loan Costs, etc....................... 31
4.4. Funding Losses............................................ 31
4.5. Increased Capital Costs................................... 32
4.6. Taxes..................................................... 32
4.7. Payments, Computations, etc............................... 33
4.8. Sharing of Payments....................................... 34
4.9. Setoff.................................................... 34
4.10. Use of Proceeds........................................... 35
4.11. Changes to Other Branches; Equal Treatment of Borrower.... 35
ARTICLE V
CONDITIONS TO BORROWING......................................... 35
5.1. Initial Borrowing......................................... 35
5.1.1.Resolutions, etc.......................................... 35
5.1.2.Delivery of Notes......................................... 36
5.1.3.Applicable Margin......................................... 36
5.1.4.Guaranty.................................................. 36
5.1.5.Pledge Agreements......................................... 36
5.1.6.Security Agreement........................................ 36
5.1.7.Intellectual Property Assignment.......................... 37
5.1.8.Opinions of Counsel....................................... 37
5.1.9.Agreements................................................ 37
5.1.10.Closing Fees, Expenses, etc.............................. 37
5.2. All Borrowings and Letters of Credit...................... 37
5.2.1.Compliance with Warranties, No Default, etc............... 37
5.2.2.Borrowing Request; LC Notice.............................. 38
5.2.3.Satisfactory Legal Form................................... 38
ARTICLE VI
REPRESENTATIONS AND WARRANTIES.................................. 38
6.1. Organization, etc......................................... 38
6.2. Due Authorization, Non-Contravention, etc................. 38
6.3. Government Approval, Regulation, etc...................... 39
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
6.4. Validity, etc............................................. 39
6.5. Financial Information..................................... 39
6.6. No Material Adverse Change................................ 39
6.7. Litigation, Labor Controversies, etc...................... 39
6.8. Subsidiaries.............................................. 40
6.9. Ownership of Properties................................... 40
6.10. Taxes..................................................... 40
6.11. Pension and Welfare Plans................................. 40
6.12. Environmental Warranties.................................. 40
6.13. Regulations G, T, U and X................................. 42
6.14. Accuracy of Information................................... 42
6.15. Solvency.................................................. 42
6.16. Collateral Documents...................................... 42
6.17. Indebtedness.............................................. 43
6.18. Service Agreements; Employment Agreements................. 43
6.19. Other Agreements/Program Eligibility...................... 43
6.20. Reimbursement from Third Party Payors..................... 43
6.21. Legal Compliance.......................................... 44
6.22. Licensing and Accreditation............................... 44
6.23. Subordination Provisions.................................. 44
6.24. RICO...................................................... 44
6.25. IPO....................................................... 45
6.26. Reorganization............................................ 45
6.27. Year 2000 Problem......................................... 45
ARTICLE VII
COVENANTS....................................................... 45
7.1. Affirmative Covenants..................................... 45
7.1.1.Financial Information, Reports, Notices, etc.............. 46
7.1.2.Compliance with Laws, etc................................. 48
7.1.3.Maintenance of Properties................................. 48
7.1.4.Insurance................................................. 48
7.1.5.Books and Records......................................... 49
7.1.6.Environmental Covenant.................................... 49
7.1.7 Change to Certain Agreements.............................. 50
7.1.8 Governmental Licenses..................................... 50
7.1.9 Covenants Extending to Other Persons...................... 50
7.1.10.Solvency................................................. 50
7.1.11.Further Assurances....................................... 50
iii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
7.1.12 New Subsidiaries.......................................... 51
7.2. Negative Covenants........................................ 52
7.2.1. Business Activities....................................... 52
7.2.2. Indebtedness.............................................. 52
7.2.3. Liens..................................................... 54
7.2.4. Financial Condition....................................... 55
7.2.5. Investments............................................... 56
7.2.6. Restricted Payments, etc.................................. 57
7.2.7. Capital Expenditures, etc................................. 59
7.2.8. Consolidation, Merger, etc................................ 59
7.2.9. Asset and Capital Stock Dispositions, etc................. 60
7.2.10.Modification of Certain Agreements........................ 62
7.2.11.Transactions with Affiliates.............................. 62
7.2.12.Negative Pledges, Restrictive Agreements, etc............. 62
7.2.13 Blue Ridge NovaMed, Inc.......................................... 63
ARTICLE VIII
EVENTS OF DEFAULT................................................. 63
8.1. Listing of Events of Default.............................. 63
8.1.1. Non-Payment of Obligations................................ 63
8.1.2. Breach of Warranty........................................ 63
8.1.3. Non-Performance of Certain Covenants and Obligations...... 63
8.1.4. Non-Performance of Other Covenants and Obligations........ 63
8.1.5. Default on Other Indebtedness............................. 63
8.1.6. Judgments................................................. 64
8.1.7. Pension Plans............................................. 64
8.1.8. Change of Control......................................... 64
8.1.9. Bankruptcy, Insolvency, etc............................... 64
8.1.10. Impairment of Security, etc............................... 65
8.1.11. Fraud and Abuse Laws...................................... 65
8.1.12. Certifications............................................ 65
8.1.13. Service Agreements........................................ 66
8.2. Action if Bankruptcy...................................... 66
8.3. Action if Other Event of Default.......................... 66
8.4. Letters of Credit......................................... 66
ARTICLE IX
iv
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
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THE AGENT
............................................................... 67
9.1. Actions.................................................... 67
9.2. Funding Reliance, etc...................................... 67
9.3. Exculpation................................................ 67
9.4. Successor.................................................. 68
9.5. Loans by Northern.......................................... 68
9.6. Credit Decisions........................................... 68
9.7. Copies, etc................................................ 69
ARTICLE X
MISCELLANEOUS PROVISIONS........................................ 69
10.1. Waivers, Amendments, etc.................................. 69
10.2. Notices................................................... 70
10.3. Payment of Costs and Expenses............................. 70
10.4. Indemnification........................................... 71
10.5. Survival.................................................. 72
10.6. Severability.............................................. 72
10.7. Headings.................................................. 72
10.8. Execution in Counterparts, Effectiveness, etc............. 72
10.9. Governing Law; Entire Agreement........................... 72
10.10.Successors and Assigns.................................... 72
10.13.Other Transactions........................................ 76
10.14.Forum Selection and Consent to Jurisdiction .............. 76
10.15.Waiver of Jury Trial ..................................... 76
10.16 Amendment and Restatement................................. 77
SCHEDULE 1 -- Closing Date Stockholders
SCHEDULE 2 -- Agreed EBITDA Formula
SCHEDULE 6.3 -- Approvals
SCHEDULE 6.8 -- Subsidiaries
SCHEDULE 6.10 -- Tax Matters
SCHEDULE 6.17 -- Existing Indebtedness
SCHEDULE 6.18 -- Service Agreements; Employment Agreements
SCHEDULE 6.22 -- Required Certificates
SCHEDULE 7.1.4 -- Insurance
SCHEDULE 7.2.3 -- Existing Liens
v
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
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SCHEDULE 7.2.5 -- Existing Investments
SCHEDULE 10.2 -- Notice Information
EXHIBIT A Form of Note
EXHIBIT B Form of Borrowing Request
EXHIBIT C Form of Continuation/Conversion Notice
EXHIBIT D Form of Lender Assignment Agreement
EXHIBIT E Form of Guaranty
EXHIBIT F-1 Form of Borrower Pledge Agreement
EXHIBIT F-2 Form of Guarantor Pledge Agreement
EXHIBIT G-1 Form of Borrower Security Agreement
EXHIBIT G-2 Form of Guarantor Security Agreement
EXHIBIT H Form of Opinion of Counsel to the Borrower
vi
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 20, 1997, as
amended and restated as of July 8, 1998, among NOVAMED HOLDINGS INC., an
Illinois corporation (the "Borrower"), the various financial institutions from
--------
time to time party hereto (collectively, the "Lenders"), and THE NORTHERN TRUST
-------
COMPANY, as agent (the "Agent") for the Lenders,
-----
W I T N E S S E T H:
WHEREAS, the Borrower desires to obtain Revolving Commitments from the
Lenders pursuant to which Loans, in a maximum aggregate principal amount at any
one time outstanding not to exceed $35,000,000, will be made to the Borrower
from time to time prior to the Revolving Commitment Termination Date; and
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article V), to extend such Revolving
---------
Commitments and make such Loans to the Borrower; and
WHEREAS, the proceeds of such Loans will be used for general corporate
purposes and working capital purposes of the Borrower and its Subsidiaries and
to finance Permitted Acquisitions by the Borrower;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Defined Terms. The following terms (whether or not
-------------
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Adjusted Net Worth" means at any time the sum of (a) Net Worth as of the
------------------
date of determination, plus (b) consolidated Subordinated Debt as of the date of
----
determination, plus (c) all amounts charged against Net Worth with respect to
----
the accretion of the Series C and Series D preferred stock of the Borrower, plus
----
(d) any non-cash, non-recurring loss or negative net income
<PAGE>
referred to in the last sentence of the definition of Net Income, minus (e) an
-----
amount equal to 25% of the book value of any equity securities issued by the
Borrower in connection with a Permitted Acquisition after the Effective Date and
prior to the date of determination.
"Affiliate" of any Person means any other Person which, directly or
---------
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power
(a) to vote 10% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Agent" means (i)for funding purposes under the Loan Documents, PNC Bank,
-----
National Association; and (ii) for all other purposes under the Loan Documents,
The Northern Trust Company.
"Agreed EBITDA FORM" is defined in Schedule 2.
------------------
"Agreement" means, on any date, this Credit Agreement as originally in
---------
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"ASC Subsidiary" means a Subsidiary of the Borrower (other than
--------------
Intermediate Parent or NovaMed) primarily engaged in the business as an
ambulatory surgery center.
"Asset Disposition" means any sale, transfer or other disposition of any
-----------------
property of the Borrower or any Subsidiary in a single transaction or in a
series of related transactions (other than the sale of inventory and of
equipment that is obsolete or no longer useable by the Borrower or any of its
Subsidiaries, in each case in the ordinary course of business and Permitted
Equity Ownership Sales).
"Assignee Lender" is defined in Section 10.11.1.
--------------- ---------------
"Authorized Officer" means, relative to any Credit Party, those of its
------------------
officers whose signatures and incumbency shall have been certified to the Agent
and the Lenders pursuant to Section 5.1.1.
-------------
"Base Rate" means, on any date and with respect to all Base Rate Loans, a
---------
fluctuating rate of interest per annum equal to the rate of interest most
recently announced by the Agent as its prime
2
<PAGE>
rate of interest. The Base Rate is not necessarily intended to be the lowest
rate of interest determined by the Agent in connection with extensions of
credit. Changes in the rate of interest on that portion of any Loans maintained
as Base Rate Loans will take effect simultaneously with each change in the Base
Rate. The Agent will give notice promptly to the Borrower and the Lenders of
changes in the Base Rate.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
--------------
determined by reference to the Base Rate.
"Blue Ridge" means Blue Ridge NovaMed, Inc., a Missouri corporation.
----------
"Borrower" is defined in the preamble.
-------- --------
"Borrower Pledge Agreement" means the Amended and Restated Pledge Agreement
-------------------------
executed and delivered by the Borrower pursuant to Section 5.1.5, substantially
-------------
in the form of Exhibit F-1 hereto, as amended, supplemented, restated or
-----------
otherwise modified from time to time.
"Borrower Security Agreement" means the Amended and Restated Security
---------------------------
Agreement executed and delivered pursuant to Section 5.1.6, substantially in the
-------------
form of Exhibit G-1 hereto, as amended, supplemented, restated or otherwise
-----------
modified from time to time.
"Borrowing" means the Loans of the same type and, in the case of LIBO Rate
---------
Loans, having the same Interest Period made by all Lenders on the same Business
Day and pursuant to the same Borrowing Request in accordance with Section 2.1.
-----------
"Borrowing Request" means a loan request and certificate duly executed by
-----------------
an Authorized Officer of the Borrower, substantially in the form of Exhibit B
---------
hereto.
"Business Day" means
------------
(a) any day which is neither a Saturday or Sunday nor a legal holiday
on which banks are authorized or required to be closed in Chicago,
Illinois; and
(b) relative to the making, continuing, prepaying or repaying of any
LIBO Rate Loans, any day on which dealings in Dollars are carried on in the
London interbank market.
"Capital Expenditures" means, for any period, the aggregate amount of all
--------------------
expenditures of the Borrower and its Subsidiaries for fixed or capital assets
made during such period which, in accordance with GAAP, would be classified as
capital expenditures.
"Capitalized Lease Liabilities" means all monetary obligations of any
-----------------------------
Credit Party under any leasing or similar arrangement which, in accordance with
GAAP, would be classified as capitalized
3
<PAGE>
leases, and, for purposes of this Agreement and each other Loan Document, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP, and the stated maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without payment
of a penalty.
"Cash Equivalent Investment" means, at any time:
--------------------------
(a) any evidence of Indebtedness, maturing not more than eighteen
months after such time, issued or guaranteed by the United States
Government;
(b) commercial paper, maturing not more than nine months from the
date of issue, which is issued by:
(i) a corporation (other than an Affiliate of any Credit Party)
organized under the laws of any state of the United States or of the
District of Columbia and rated A-l by Standard & Poor's Corporation or
P-l by Moody's Investors Service, Inc., or
(ii) any Lender (or its holding company);
(c) any certificate of deposit or bankers acceptance, maturing not
more than one year after such time, which is issued by either:
(i) a commercial banking institution that is a member of the
Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $500,000,000, or
(ii) any Lender; or
(d) any repurchase agreement entered into with any Lender (or other
commercial banking institution of the stature referred to in clause (c)(i))
-------------
which:
(i) is secured by a fully perfected security interest in any
obligation of the type described in any of clauses (a) through (c);
----------- ---
and
(ii) has a market value at the time such repurchase agreement is
entered into of not less than 100% of the repurchase obligation of
such Lender (or other commercial banking institution) thereunder.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
------
Liability Act of 1980, as amended.
4
<PAGE>
"CERCLIS" means the Comprehensive Environmental Response Compensation
-------
Liability Information System List.
"Change of Control" means (a) any Person or any two or more Persons acting
-----------------
in concert (in any such case, excluding the Closing Date Stockholders and their
Affiliates) acquiring beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Exchange Act), directly or
indirectly, of capital stock (or other securities convertible into such capital
stock) of the Borrower representing 35% or more of the combined voting power of
all capital stock of the Borrower entitled to vote in the election of directors,
or (b) during any period of 12 consecutive calendar months, the ceasing of those
individuals (the "Continuing Directors") who (i) were directors of the Borrower,
--------------------
on the first day of each such period or (ii) subsequently became directors of
the Borrower, and whose initial election or initial nomination for election
subsequent to that date was approved either by (A) a majority of the Continuing
Directors then on the board of directors of the Borrower or (B) the shareholders
who, in accordance with the provisions of the Articles of Incorporation of the
Borrower, are entitled to elect such director, to constitute a majority of the
board of directors of the Borrower.
"Closing Date" means the date on which all conditions precedent set forth
------------
in Section 5.1 are satisfied or waived by all Lenders.
-----------
"Closing Date Stockholders" means, collectively, the stockholders of the
-------------------------
Borrower as of the Effective Date listed on Schedule 1.
----------
"Code" means the Internal Revenue Code of 1986, and regulations promulgated
----
thereunder.
"Collateral" means all property and interests in property and proceeds
----------
thereof now owned or hereafter acquired by any Credit Party in or upon which a
Lien now or hereafter exists in favor of the Agent on behalf of the Lenders,
whether under this Agreement, Collateral Document or under any other documents
executed by any such Credit Party and delivered to the Agent.
"Collateral Documents" means, collectively, (a) the Borrower Security
--------------------
Agreement, the Guarantor Security Agreement, the Guaranty, the Borrower Pledge
Agreement, the Guarantor Pledge Agreement, the Intellectual Property Assignments
and all other security agreements, pledge agreements, assignments, guarantees
and other similar agreements between a Credit Party and the Agent for the
benefit of the Lenders now or hereafter delivered to the Lenders or
5
<PAGE>
the Agent pursuant to or in connection with the transactions contemplated
hereby, and all financing statements (or comparable documents now or hereafter
filed in accordance with the Uniform Commercial Code or comparable law) against
a Credit Party as debtor in favor of the Agent, for the benefit of the Lenders,
as secured party and (b) any amendments, supplements, modifications, renewals,
replacements, consolidations, substitutions and extensions of any of the
foregoing.
"Consideration" means with respect to any Permitted Acquisition, the
-------------
aggregate of (i) the cash paid by the Borrower or any of its Wholly-Owned
Subsidiaries, directly or indirectly, to the seller in connection therewith,
(ii) the Indebtedness incurred or assumed by the Borrower or any of its Wholly-
Owned Subsidiaries (including, without limitation, Indebtedness of a person
becoming a Credit Party in connection with a Permitted Acquisition, which
Indebtedness continues to exist following the consummation of such Permitted
Acquisition), whether in favor of the seller or otherwise and whether fixed or
contingent, in connection therewith, (iii) any guaranty given or incurred by the
Borrower or any of its Wholly-Owned Subsidiaries in connection therewith, (iv)
the fair market value of any equity issued by the Borrower, in connection
therewith, and (v) any other consideration given or obligation incurred by the
Borrower or any of its Wholly-Owned Subsidiaries in connection therewith;
provided, however, that the amount of any deferred earn-out payments to any
- -------- -------
seller not required by GAAP to be disclosed as a liability on the consolidated
balance sheet of the Borrower as of the date of consummation of such Permitted
Acquisition shall be excluded from the determination under clauses (i) through
(v) of this definition.
"Contingent Liability" means any agreement, undertaking or arrangement
--------------------
which would be reflected in a footnote to a balance sheet as a contingent
liability in accordance with GAAP.
"Continuation/Conversion Notice" means a notice of continuation or
------------------------------
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit C hereto.
---------
"Controlled Group" means all members of a controlled group of corporations
----------------
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code or
Section 4001 of ERISA.
"Credit Party" means the Borrower and any Subsidiary of the Borrower party
------------
to a Loan Document.
"Default" means any condition, occurrence or event which, after notice or
-------
lapse of time or both, would constitute an Event of Default.
6
<PAGE>
"Dollar" and the sign "$" mean lawful money of the United States.
------ -
"Domestic Office" means, relative to any Lender, the office of such Lender
---------------
designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender (or any successor or
assign of such Lender) within the United States as may be designated from time
to time by notice from such Lender, as the case may be, to each other Person
party hereto. A Lender may have separate Domestic Offices for purposes of
making, maintaining or continuing, as the case may be, Base Rate Loans.
"EBITDA" means, for any applicable computation period, the Borrower's
------
consolidated Net Income on a consolidated basis from continuing operations, plus
(a) income and franchise taxes paid or accrued during such period, (b) interest
expenses paid or accrued during such period, and (c) amortization and
depreciation deducted in determining Net Income for such period. For the purpose
of determining compliance with Section 7.2.4(b) and (c) and Section 7.2.7,
------------------------ -------------
"EBITDA" shall be as adjusted pursuant to the formula described in Schedule 2.
----------
"Effective Date" means the date this Agreement becomes effective pursuant
--------------
to Section 10.8.
------------
"Effective Maturity Date" is defined in Section 3.1.3(a).
-----------------------
"Employment Agreement" means any employment agreement entered into by any
--------------------
Provider, who is a shareholder of a Practice, with such Practice.
"Environmental Laws" means all applicable federal, state or local statutes,
------------------
laws, ordinances, codes, rules, regulations and guidelines (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment.
"Equity Provider" means any individual or group of individuals who had an
---------------
equity interest in (i) a Practice acquired in a Permitted Acquisition, on the
date of such Permitted Acquisition, or (ii) any other Practice with which the
Borrower has a Service Agreement, on the date of the execution of any such
Service Agreement."
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"Event of Default" is defined in Section 8.1.
---------------- -----------
"Existing Letter of Credit" means Letter of Credit No.: S267137 issued for
-------------------------
the account of the Borrower, with a face amount of $90,000 and expiring March
30, 1999.
"Extension Effective Date" is defined in Section 3.1.3(a).
------------------------
7
<PAGE>
"Extension Response Date" is defined in Section 3.1.3(a).
-----------------------
"Extension Request" is defined in Section 3.1.3(a).
------------------
"Federal Funds Effective Rate" means, for any day, an interest rate per
----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Fiscal Quarter" means any quarter of a Fiscal Year.
--------------
"Fiscal Year" means any period of twelve consecutive calendar months ending
-----------
on December 31; references to a Fiscal Year with a number corresponding to any
calendar year (e.g. the "1997 Fiscal Year") refer to the Fiscal Year ending on
----
the December 31 occurring during such calendar year.
"Founding Affiliated Practice" means any of the following Practices:
----------------------------
Walter I. Fried, Ph.D., M.D., S.C.
-- Gurnee, Illinois
Northshore Eye Associates Ltd.
-- Chicago, Illinois
Kirk Eye Center, S.C.
-- River Forest, Illinois
Northwest Ophthalmology Associates, S.C.
-- Arlington Heights, Illinois
Brodersen-Williams Eye Institute, P.C.
-- Hammond, Indiana
Deschamps Eye Care, P.C.
-- Merrillville, Indiana
"Fraud and Abuse Laws" means Section 1128B(b) of the Social Security Act,
--------------------
42 U.S.C. Section 1320a-7b(b) and Section 1877 of the Social Security Act, 42
U.S.C. Section 1395nn, each
8
<PAGE>
as from time to time amended; any successor statute(s) thereto; all rules and
regulations promulgated thereunder; any other federal or state law concerning
the referral of patients by physicians; and any law, rule, regulation or
successor thereto concerning or related to false or fraudulent billing for
medical goods or services.
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
------------
or any successor thereto.
"GAAP" means generally accepted accounting principles set forth from time
----
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination; provided, however, that for purposes of all computations required
-------- -------
to be made with respect to compliance by the Borrower with Sections 7.2.4,
--------------
8.1.11 and 8.1.12 such term shall mean generally accepted accounting principles
- ------ ------
as in effect on the date of this Agreement, applied in a manner consistent with
those used in preparing the financial statements referred to in Section 6.5.
-----------
"Guarantor" means each Person party to a Guaranty.
---------
"Guarantor Pledge Agreement" means the Amended and Restated Pledge
--------------------------
Agreement executed and delivered by each Credit Party to the Guaranty pursuant
to Section 5.1.5, substantially in the form of Exhibit F-2 hereto, as amended,
------------- -----------
supplemented, restated or otherwise modified from time to time.
"Guarantor Security Agreement" means the Amended and Restated Security
----------------------------
Agreement executed and delivered by each Credit Party to the Guaranty pursuant
to Section 5.1.6, substantially in the form of Exhibit G-2 hereto, as amended,
------------- -----------
supplemented, restated or otherwise modified from time to time.
"Guaranty" means, collectively, the Amended and Restated Guaranty executed
--------
and delivered by each Subsidiary of the Borrower pursuant to Section 5.1.4,
-------------
substantially in the form of Exhibit E hereto, as amended, supplemented,
---------
restated or otherwise modified from time to time.
"Hazardous Material" means
------------------
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource Conservation
and Recovery Act, as amended;
(c) any petroleum product; or
9
<PAGE>
(d) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any other applicable
federal, state or local law, regulation, ordinance or requirement
(including consent decrees and administrative orders) relating to or
imposing liability or standards of conduct concerning any medical,
hazardous, toxic or dangerous waste, substance or material, all as amended
or hereafter amended.
"HCFA" shall mean the United States Health Care Financing Administration
----
and any successor thereto.
"Hedging Obligations" means, with respect to any Person, all liabilities of
-------------------
such Person under interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements, and all other agreements or arrangements
designed to protect such Person against fluctuations in interest rates or
currency exchange rates.
"herein", "hereof", "hereto", "hereunder" and similar terms contained in
------ ------ ------ ---------
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular Section,
paragraph or provision of this Agreement or such other Loan Document.
"Impermissible Qualification" means, relative to the opinion or
---------------------------
certification of any independent public accountant as to any financial statement
of any Credit Party, any qualification or exception to such opinion or
certification:
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement; or
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause
such Credit Party to be in default of any of its obligations under Section
-------
7.2.4.
-----
"including" means including without limiting the generality of any
---------
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
------- -------
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"Indebtedness" of any Person means, without duplication:
------------
10
<PAGE>
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit (including Letters of Credit), whether or
not drawn, and banker's acceptances issued for the account of such Person;
(c) all obligations of such Person as lessee under leases which have
been or should be, in accordance with GAAP, recorded as Capitalized Lease
Liabilities;
(d) all other liabilities for borrowed money in accordance with GAAP
included on the liability side of the balance sheet of such Person as of
the date at which Indebtedness is to be determined;
(e) net liabilities of such Person under all Hedging Obligations;
(f) whether or not so included as liabilities in accordance with GAAP,
all obligations of such Person to pay the deferred purchase price of
property or services, and indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(g) all Contingent Liabilities of such Person in respect of any of the
foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer, except to the extent payments have been
made or are required to be made with respect to such Indebtedness solely by a
general partner or a joint venture partner other than a Credit Party.
"Indemnified Liabilities" is defined in Section 10.4.
----------------------- ------------
"Indemnified Parties" is defined in Section 10.4.
------------------- ------------
"Intercompany Loans" is defined in Section 7.2.2.
------------------ -------------
"Intercompany Notes" is defined in Section 7.2.2.
------------------ -------------
"Intellectual Property Assignment" means that certain Amended and Restated
--------------------------------
Intellectual Property Assignment in form and substance satisfactory to the
Agent, duly executed and delivered by a Credit Party in favor of the Agent, for
the benefit of itself and the Lenders, as the same may be amended, supplemented
or otherwise modified from time to time.
11
<PAGE>
"Interest Period" means, relative to any LIBO Rate Loans, the period
---------------
beginning on (and including) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4
----------- ---
and shall end on (but exclude) either (i) the day one week subsequent to such
day, or (ii) the day which numerically corresponds to such date one, two, three
or six months thereafter (or, if such month has no numerically corresponding
day, on the last Business Day of such month), as the Borrower may select in its
relevant notice pursuant to Section 2.3 or 2.4; provided, however, that
----------- --- -------- -------
(a) the Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more
than five different dates;
(b) Interest Periods commencing on the same date for Loans comprising
part of the same Borrowing shall be of the same duration;
(c) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the next following
Business Day (unless such next following Business Day is the first Business
Day of the immediately succeeding calendar month, in which case such
Interest Period shall end on the Business Day next preceding such
numerically corresponding day);
(d) no Interest Period with respect to Loans made prior to the
Revolving Commitment Termination Date may end later than the date set forth
in clause (a) of the definition of "Revolving Commitment Termination Date";
----------
(e) no Interest Period for any Loan outstanding on and after the
Revolving Commitment Termination Date shall extend beyond the Maturity
Date; and
(f) no Interest Period applicable to a Loan outstanding on and after
the Revolving Commitment Termination Date, or portion thereof, shall extend
beyond any date upon which is due any scheduled principal payment in
respect of the Loans unless the aggregate principal amount of Loans
represented by LIBO Rate Loans having Interest Periods that will expire on
or before such date, equals or exceeds the amount of such principal
payment.
"Intermediate Parent" means NovaMed II Inc., an Illinois corporation.
-------------------
"Investment" means, relative to any Person,
----------
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business);
12
<PAGE>
(b) any Contingent Liability of such Person; and
(c) any ownership or similar interest held by such Person in any other
Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property.
"IPO" means a registered initial public offering by the Borrower on Form S-
---
1 filed with the Securities and Exchange Commission pursuant to a firm
commitment underwriting agreement.
"LC Notice" has the meaning specified in Section 2.7.
--------- -----------
"Lender Assignment Agreement" means a Lender Assignment Agreement
---------------------------
substantially in the form of Exhibit D hereto.
---------
"Lenders" is defined in the preamble.
------- --------
"Letter of Credit" shall mean a Letter of Credit that is either (x) issued
----------------
pursuant to Section 2.7 or (y) an Existing Letter of Credit.
-----------
"Letter of Credit Cash Collateral Account" has the meaning specified in
----------------------------------------
Section 8.4.
- -----------
"Letter of Credit Expiry Date" shall mean the date which is five Business
----------------------------
Days prior to the Revolving Commitment Termination Date.
"Letter of Credit Issuer" shall mean Northern.
-----------------------
"Letter of Credit Obligations" shall mean, as at the time of determination
----------------------------
thereof, the sum of (a) the aggregate amount of all unpaid and outstanding
reimbursement obligations and (b) without duplication, the aggregate stated
amount at such time of Letters of Credit then outstanding and undrawn (as such
aggregate stated amount shall be adjusted, from time to time, as a result of
drawings, the issuance of Letters of Credit, or otherwise).
"Letter of Credit Sublimit" shall mean an aggregate amount of $2,000,000.
-------------------------
"LIBO Rate" is defined in Section 3.2.1.
--------- -------------
13
<PAGE>
"LIBO Rate Loan" means a Loan bearing interest, at all times during an
--------------
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate (Reserve Adjusted).
"LIBO Rate (Reserve Adjusted)" is defined in Section 3.2.1.
---------------------------- -------------
"LIBOR Office" means, relative to any Lender, the office of such Lender
------------
designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender as designated from time to
time by notice from such Lender to the Borrower and the Agent, whether or not
outside the United States, which shall be making or maintaining LIBO Rate Loans
of such Lender hereunder.
"LIBOR Reserve Percentage" is defined in Section 3.2.1.
------------------------ -------------
"Lien" means any security interest, mortgage, pledge, hypothecation,
----
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loan" is defined in Section 2.1.1.
---- -------------
"Loan Document" means this Agreement, the Notes, each Collateral Document
-------------
and each other document delivered pursuant to Section 7.1.12.
--------------
"Material Adverse Effect" means a material adverse effect on the financial
-----------------------
condition, operations, assets, business, properties or prospects of the Borrower
and its Subsidiaries taken as a whole or the Borrower and its Subsidiaries,
taken as a whole.
"Maturity Date" means the earliest of:
-------------
(a) July 8, 2000 (subject to extension as provided in Section 3.1.3);
--------------
or
(b) the date on which any Termination Event occurs.
"Medicaid Certification" means a certification by a state agency or other
----------------------
entity responsible for certifying Medicaid providers and suppliers that a health
care provider or supplier is in compliance with all the conditions of
participation set forth in the Medicaid Regulations.
"Medicaid Provider Agreement" means an agreement entered into between HCFA
---------------------------
or a state agency or other such entity administering the Medicaid program and a
health care provider or supplier under which the health care provider or
supplier agrees to provide services for Medicaid patients in accordance with the
terms of the agreement and Medicaid Regulations.
14
<PAGE>
"Medicaid Regulations" means, collectively, (i) all federal statutes
--------------------
(whether set forth in Title XIX of the Social Security Act or elsewhere)
affecting the medical assistance program established by Title XIX of the Social
Security Act and any successor statute(s); (ii) all applicable provisions of all
federal rules, regulations, manuals and orders of all governmental authorities
promulgated pursuant to or in connection with the statutes described in clause
(i) above and all federal administrative, reimbursement and other guidelines of
all governmental authorities having the force of law promulgated pursuant to or
in connection with the statutes described in clause (i) above; (iii) all state
statutes and plans for medical assistance enacted in connection with the
statutes and provisions described in clauses (i) and (ii) above; and (iv) all
applicable provisions of all rules, regulations, manuals and orders of all
governmental authorities promulgated pursuant to or in connection with the
statutes described in clause (iii) above and all state administrative,
reimbursement and other guidelines of all governmental authorities having the
force of law promulgated pursuant to or in connection with the statutes
described in clause (iii) above, in each case as may be amended, supplemented or
other wise modified from time to time.
"Medicare Certification" means certification by HCFA or a state agency or
----------------------
entity under contract with HCFA that the health care operation is in compliance
with all the conditions of participation set forth in the Medicare Regulation.
"Medicare Provider Agreement" means an agreement entered into between HCFA
---------------------------
or a state agency or other such entity administering the Medicare program and a
health care provider or supplier under which the health care provider or
supplier agrees to provide services for Medicare patients in accordance with the
terms of the agreement and Medicare Regulations.
"Medicare Regulations" means, collectively, all federal statues (whether
--------------------
set forth in Title XVIII of the Social Security Act or elsewhere) affecting the
health insurance program for the aged and disabled established by Title XVIII of
the Social Security Act and any successor statute(s); together with all
applicable provisions of all rules, regulations, manuals and orders and
administrative, reimbursement and other guidelines of all governmental
authorities (including without limitation, the United States Department of
Health and Human Services ("HHS"), HCFA, the Office of the Inspector General for
HHS, or any person succeeding to the functions of any of the foregoing)
promulgated pursuant to or in connection with any of the foregoing having the
force of law, as each may be amended, supplemented or otherwise modified from
time to time.
"Net Available Proceeds" means (a) with respect to any Asset Disposition,
----------------------
the sum of cash or readily marketable cash equivalents received (including by
way of a cash generating sale or discounting of a note or account receivable)
therefrom, whether at the time of such disposition or subsequent thereto, or (b)
with respect to any sale or issuance of any debt or equity securities of the
Borrower or any Subsidiary, cash or readily marketable cash equivalents received
therefrom, whether at the time of such disposition or subsequent thereto, net,
in either case, of all legal, title and recording tax expenses, commissions and
other fees and all costs and expenses incurred and all federal, state, local and
other taxes required to be accrued as a liability as a consequence of such
transactions and, in the case of an Asset Disposition, net of all payments made
by the Borrower or
15
<PAGE>
any of its Subsidiaries, including any prepayment premiums, on any Indebtedness
which is secured by such assets pursuant to a permitted Lien upon or with
respect to such assets or which must, by the terms of such Lien, in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition.
"Net Income" means, for any computation period, with respect to the
----------
Borrower, on a consolidated basis, cumulative net income earned during such
period as determined in accordance with GAAP (other than net income from any
Subsidiary which is restricted from declaring or paying dividends, distributions
or otherwise advancing funds to its borrower whether by contract or otherwise,
except to the extent of any such net income actually received which is not in
violation of the applicable restriction). Net Income shall be determined
without giving effect to (x) any non-cash, non-recurring loss, including,
without limitation, the one-time non-cash charge of $565,000 which was taken by
the Borrower for the period ended December 31, 1997 and (y) any negative net
income attributable to the Fiscal Quarter ending March 31, 1998 not in excess of
$300,000.
"Net Worth" means, for any computation period, the consolidated
---------
shareholders' equity of the Borrower determined in accordance with GAAP, which
consolidated shareholders' equity shall be deemed to include the preferred stock
of the Borrower.
"Non Consenting Lender" means any Lender which has denied, or is deemed to
---------------------
have denied, an Extension Request pursuant to Section 3.1.3(a).
----------------
"Northern" means The Northern Trust Company, acting in its individual
--------
capacity.
"Note" means a promissory note of the Borrower payable to any Lender, in
----
the form of Exhibit A hereto (as such promissory note may be amended, endorsed
---------
or otherwise modified from time to time), evidencing the aggregate Indebtedness
of the Borrower to such Lender resulting from outstanding Loans, and also means
all other promissory notes accepted from time to time in substitution therefor
or renewal thereof.
"NovaMed" means NovaMed Eyecare Management, LLC, a Delaware limited
-------
liability company.
"Obligations" means all obligations (monetary or otherwise) of each Credit
-----------
Party arising under or in connection with this Agreement, the Notes, the Letters
of Credit and each other Loan Document.
"Organizational Document" means, relative to any Credit Party, its
-----------------------
certificate of incorporation, its by-laws, its limited liability company
agreement, partnership agreement and all shareholder agreements, voting trusts
and similar arrangements applicable to any of its authorized shares of capital
stock, partnership interests, or membership interests, as the case may be.
16
<PAGE>
"Participant" is defined in Section 10.11.
----------- -------------
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan", as such term is defined in section
------------
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or
any corporation, trade or business that is, along with the Borrower, a member of
a Controlled Group, may have liability, including any liability by reason of
having been a substantial employer within the meaning of section 4063 of ERISA
at any time during the preceding five years, or by reason of being deemed to be
a contributing sponsor under section 4069 of ERISA.
"Percentage" means, relative to any Lender, the percentage set forth
----------
opposite its name on Schedule 10.1 hereto or set forth in the Lender Assignment
-------------
Agreement, as such percentage may be adjusted from time to time pursuant to
Lender Assignment Agreement(s) executed by such Lender and its Assignee
Lender(s) and delivered pursuant to Section 10.11.
-------------
"Permitted Acquisition" means the purchase (by asset purchase, stock
---------------------
purchase, merger or otherwise, subject to the other requirements of this
definition set forth below) by the Borrower or a Wholly-Owned Subsidiary of the
Borrower of the assets of a Practice (it being acknowledged that medical records
and certain other professional assets that are required by law to be owned by a
Provider are not acquired in these transactions), which purchase meets the
following criteria:
(a) no Default or Event of Default shall have occurred or be
continuing both before and after giving effect to such acquisition;
(b) the aggregate consideration (including any Indebtedness pursuant
to Section 7.2.2(h), (i), (j) and (k) relating to such Permitted
----------------------------------
Acquisitions) in connection with all Permitted Acquisitions made during (i)
the 1998 Fiscal Year of the Borrower shall not exceed $25,000,000 and (ii)
each Fiscal Year of the Borrower thereafter shall not exceed $35,000,000;
provided, however that in the event that EBITDA for the immediately
-------- -------
preceding Fiscal Year is less than $6,200,000, the aggregate consideration
permitted pursuant to this clause (ii) shall not exceed $25,000,000;
(c) the acquisition shall have been of the assets and/or working
capital of a Practice or, if for stock or other equity interest in a
Practice, shall be for not less than 75% of the equity interest therein,
shall either, to the extent permitted by applicable law, be merged with and
into the Borrower or a Wholly-Owned Subsidiary of the Borrower, or be a
Wholly-Owned Subsidiary of the Borrower; and
17
<PAGE>
(d) the Borrower shall have delivered to the Agent, not later than
30 days after the closing of the acquisition (i) pro forma financial
statements or certificates demonstrating continued compliance with all
covenants in this Agreement following the inclusion of the target in the
Borrower's consolidated enterprise, (ii) a copy of the related acquisition
agreement and Service Agreement and each Employment Agreement (all to the
extent applicable) and (iii) a fully executed Agreed EBITDA Form in form
and substance approved by the Agent.
"Permitted Equity Ownership Sale" means the sale of the outstanding capital
-------------------------------
stock or other equity interests in an ASC Subsidiary, so long as:
(i) after giving effect to such sale, a Credit Party shall own not
less than 65% of the equity interests (including securities convertible
into equity interests) of such ASC Subsidiary;
(ii) such ASC Subsidiary shall remain a party to the Guaranty,
Guarantor Pledge Agreement and Guarantor Security Agreement as such
agreements were in effect immediately prior to such sale; and
(iii) the chief financial officer of the Borrower shall have
delivered a certificate, dated the date of such sale, to the Agent
certifying (a) that no Default or Event of Default exists or would result
from such sale and (b) pro forma financial statements demonstrating
compliance with Section 7.2.4 for the twelve-month period following such
-------------
sale.
"Permitted Liens" means those liens listed in Section 7.2.3.
--------------- -------------
"Person" means any natural person, corporation, partnership, limited
------
liability company, firm, association, trust, government, governmental agency or
any other entity, whether acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
----
"Pledged Collateral" has the meaning specified in the Borrower Pledge
------------------
Agreement and the Guarantor Pledge Agreement.
"Practice" means a medical or ophthalmology practice, ambulatory surgery
--------
center or management service center, optometry practice, optical dispensory or
optical laboratory, vision correction centers (including, without limitation,
laser vision correction centers), companies that own, operate and/or manage
vision correction centers (including, without limitation, laser vision
correction centers), clinical research organizations or entities engaged in the
provision of clinical research and/or sight management services to ophthalmic
device and/or pharmaceutical companies, or reasonable extensions thereof
(including any company which leases or sells equipment or
18
<PAGE>
provides services to any of the foregoing), at a single location or various
locations. Whenever in this Agreement "Practice" is used in describing an
acquisition by the Borrower or a Wholly-Owned Subsidiary of the Borrower of
equity interests, such reference is to the acquisition of the assets used in the
operation of the Practice that can lawfully be acquired by the Borrower or a
Wholly-Owned Subsidiary of the Borrower or to the acquisition of the equity
interests of a Person that owns, as of the time of purchase, only those assets
that can be lawfully acquired by the Borrower or a Wholly-Owned Subsidiary of
the Borrower.
"Provider" means any Person who performs professional medical services for
--------
a Practice that is either managed by a Credit Party or the assets of which are
owned by a Credit Party.
"Quarterly EBITDA Certificate" is defined in Schedule 2.
---------------------------- ----------
"Quarterly Payment Date" means the last day of each March, June, September,
----------------------
and December or, if any such day is not a Business Day, the next succeeding
Business Day.
"Release" means a "release", as such term is defined in CERCLA.
-------
"Reorganization" is defined in Section 7.2.8(d).
-------------- ----------------
"Reorganization Date" is defined in Section 7.2.8(d).
------------------- ----------------
"Replacement Lender" is defined in Section 3.1.3(b).
------------------
"Reporting Person" shall mean, the Founding Affiliated Practices, as a
----------------
single entity, The Eye Center, Inc., NovaMed Eye Surgery Center of North
County, LLC, Illinois Eye Specialist, LTD, NovaMed Eye Surgery Center of
Maryville, L.L.C., Dominion Eye Associates, P.C., NovaMed of Richmond, Inc.,
NovaMed Management of Kansas City, Inc., NovaMed Eye Surgery Center (Plaza)
L.L.C., NovaMed Surgery Center of Overland Park, L.L.C., NovaMed Management of
Hinsdale, Inc. and each Practice acquired by the Borrower pursuant to a
Permitted Acquisition.
"Required Lenders" means, (i) at any time less than three Lenders are a
----------------
party to this Agreement, all Lenders and (ii) at any other time, Lenders holding
at least 66-2/3% of the then aggregate outstanding principal amount of all of
the Notes then held by the Lenders, or, if no such principal amount is then
outstanding, Lenders having at least 66-2/3% of the Revolving Commitments.
"Resource Conservation and Recovery Act" means the Resource Conservation
--------------------------------------
and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to
-- ---
time.
"Revolving Commitment" means, relative to any Lender, such Lender's
--------------------
obligation to make Loans pursuant to Section 2.1.1.
-------------
19
<PAGE>
"Revolving Commitment Amount" means, on any date, $35,000,000. The
---------------------------
Revolving Commitment Amount then in effect may be reduced from time to time
pursuant to Section 2.2.
-----------
"Revolving Commitment Termination Date" means the earliest of
-------------------------------------
(a) July 8, 2000;
(b) the date on which the Revolving Commitment Amount is terminated
in full or reduced to zero pursuant to Section 2.2; and
-----------
(c) the date on which any Termination Event occurs.
Upon the occurrence of any event described in clause (b) or (c), the Revolving
---------- ---
Commitments shall terminate automatically and without further action.
"Senior Leverage Ratio" is defined in Section 3.2.1
--------------------- -------------
"Service Agreement" means any of (i) the Service Agreements listed on
-----------------
Schedule 6.18 and (ii) any similar agreement entered into by any Credit Party on
- -------------
and after the Effective Date in each case as any of such agreements may from
time to time be amended, restated, supplemented or otherwise modified.
"Senior Debt" shall mean Indebtedness of the type described in clauses (a),
----------- -----------
(c) and (d) of the definition "Indebtedness" (other than Subordinated Debt) of
- --- ---
the Borrower on a consolidated basis.
"Solvent" means, when used with respect to a Person, that (a) the fair
-------
saleable value of the assets of such Person is in excess of the total amount of
the present value of its liabilities (including for purposes of this definition
all liabilities whether or not reflected on a balance sheet prepared in
accordance with GAAP and whether direct or indirect, fixed or contingent,
secured or unsecured, disputed or undisputed), (b) such Person is able to pay
its debts or obligations in the ordinary course as they mature and (c) such
Person does not have unreasonably small capital to carry out its business as
conducted and as proposed to be conducted. "Solvency" shall have a correlative
meaning.
"Subordinated Debt" means all Indebtedness the repayment of which is
-----------------
subordinated, upon terms satisfactory to the Agent, in right of payment to the
payment in full in cash of all Obligations.
"Subsidiary" of a Person means any corporation, association, partnership,
----------
limited liability company, joint venture or other business entity of which more
than 50% of the voting stock, membership interests or other equity interests (in
the case of Persons other than corporations), is owned or controlled directly or
indirectly by the Person, or one or more of the Subsidiaries of the Person, or a
combination thereof.
20
<PAGE>
"Taxes" is defined in Section 4.6.
----- -----------
"Termination Event" means
-----------------
(a) the occurrence of any Default described in clauses (a) through (e)
----------- ---
of Section 8.1.9; or
-------------
(b) the occurrence and continuance of any other Event of Default and
either
(i) the declaration of the Loans to be due and payable pursuant
to Section 8.3, or
-----------
(ii) in the absence of such declaration, the giving of notice by
the Agent, acting at the direction of the Required Lenders, to the
Borrower that the Revolving Commitments have been terminated.
"Type" means, relative to any Loan, the portion thereof, if any, being
----
maintained as a Base Rate Loan or a LIBO Rate Loan.
"United States" or "U.S." means the United States of America, its fifty
------------- ----
States and the District of Columbia.
"Welfare Plan" means a "welfare plan", as such term is defined in Section
------------
3(1) of ERISA.
"Wholly-Owned Subsidiary" means any Person in which (other than directors'
-----------------------
qualifying shares required by law) 100% of the equity interests of each class
having ordinary voting power, and 100% of the equity interests of every other
class, in each case, at the time as of which any determination is being made, is
owned, beneficially and of record, by the Borrower or by one or more of the
other Wholly-Owned Subsidiaries, or both.
SECTION 1.2 Use of Defined Terms. Unless otherwise defined or the
--------------------
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Schedules and in each Note,
Borrowing Request, Continuation/Conversion Notice, Loan Document, notice and
other communication delivered from time to time in connection with this
Agreement or any other Loan Document.
SECTION 1.3 Cross-References. Unless otherwise specified, references in
----------------
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
21
<PAGE>
SECTION 1.4. Accounting Principles. Unless the context otherwise clearly
---------------------
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
ARTICLE II
REVOLVING COMMITMENTS, BORROWING PROCEDURES AND NOTES
SECTION 2.1. Revolving Commitments. On the terms and subject to the
---------------------
conditions of this Agreement (including Article V), each Lender severally agrees
---------
to make Loans pursuant to the Revolving Commitments described in this Section
-------
2.1.
- ---
SECTION 2.1.1. Revolving Commitment of Each Lender. From time to time on
-----------------------------------
any Business Day occurring prior to the Revolving Commitment Termination Date,
each Lender will make loans (relative to such Lender, and of any type, its
"Loans") to the Borrower, which, when added to the Letter of Credit Obligations
- ------
at such time, equal to such Lender's Percentage of the aggregate amount of the
Borrowing requested by the Borrower to be made on such day. The commitment of
each Lender described in this Section 2.1.1 is herein referred to as its
-------------
"Revolving Commitment". On the terms and subject to the conditions hereof, the
- ---------------------
Borrower may from time to time borrow, prepay and reborrow Loans.
SECTION 2.1.2. Lenders Not Permitted or Required To Make Loans. No Lender
-----------------------------------------------
shall be permitted or required to make any Loan if, after giving effect thereto,
the aggregate outstanding principal amount of all Loans
(a) of all Lenders would exceed the Revolving Commitment Amount,
or
(b) of such Lender would exceed such Lender's Percentage of the
Revolving Commitment Amount.
SECTION 2.2. Reduction of Revolving Commitment Amount. The Revolving
----------------------------------------
Commitment Amount is subject to reduction from time to time pursuant to this
Section 2.2.
- -----------
SECTION 2.2.1 Optional. The Borrower may, from time to time on any
--------
Business Day occurring after the time of the initial Borrowing hereunder,
voluntarily reduce the Revolving Commitment Amount; provided, however, that all
-------- -------
such reductions shall require at least three Business Days' prior notice to the
Agent and be permanent, and any partial reduction of the Revolving Commitment
Amount shall be in a minimum amount of $1,000,000 and in an integral multiple of
$500,000.
22
<PAGE>
SECTION 2.2.2 Mandatory. The Revolving Commitment Amount shall, without
---------
any further action, automatically and permanently be reduced to zero on the
Revolving Commitment Termination Date.
SECTION 2.3. Borrowing Procedure. By delivering a Borrowing Request to
-------------------
the Agent on or before 10:00 a.m., Chicago time, on a Business Day, the Borrower
may from time to time irrevocably request, on notice on the date of the
requested Borrowing in the case of Base Rate Loans and on not less than three
nor more than five Business Days' notice in the case of LIBO Rate Loans, that a
Borrowing be made in a minimum amount of (i) $500,000 if such Loan is a LIBO
Rate Loan or (ii) the lesser of the unused amount of the Revolving Commitments
or $100,000, if such Loan is a Base Rate Loan and an integral multiple of
$50,000, to the extent such additional amount is permitted to be borrowed
hereunder. On the terms and subject to the conditions of this Agreement, each
Borrowing shall be comprised of the type of Loans, and shall be made on the
Business Day, specified in such Borrowing Request. On or before 11:00 a.m.
(Chicago time) on such Business Day, each Lender shall deposit with the Agent
same day funds in an amount equal to such Lender's Percentage of the requested
Borrowing. Such deposit will be made to an account which the Agent shall specify
from time to time by notice to the Lenders. To the extent funds are received
from the Lenders, the Agent shall make such funds available to the Borrower by
wire transfer to the accounts the Borrower shall have specified in its Borrowing
Request. No Lender's obligation to make any Loan shall be affected by any other
Lender's failure to make any Loan.
SECTION 2.4. Continuation and Conversion Elections. By delivering a
-------------------------------------
Continuation/Conversion Notice to the Agent on or before 10:00 a.m., Chicago
time, on a Business Day, the Borrower may from time to time irrevocably elect,
on not less than three nor more than five Business Days' notice that all, or any
portion in an aggregate minimum amount of $500,000 and an integral multiple of
$50,000, of any Loans be, in the case of Base Rate Loans, converted into LIBO
Rate Loans or, in the case of LIBO Rate Loans, be converted into a Base Rate
Loan or continued as a LIBO Rate Loan (in the absence of delivery of a
Continuation/ Conversion Notice with respect to any LIBO Rate Loan at least
three Business Days before the last day of the then current Interest Period with
respect thereto, such LIBO Rate Loan shall, on such last day, automatically
convert to a Base Rate Loan); provided, however, that (i) each such conversion
-------- -------
or continuation shall be pro rated among the applicable outstanding Loans of all
Lenders, and (ii) no portion of the outstanding principal amount of any Loans
may be continued as, or be converted into, LIBO Rate Loans when any Event of
Default has occurred and is continuing.
SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its
-------
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; provided,
--------
however, that such LIBO Rate Loan shall nonetheless be deemed to have been made
- -------
and to be held by such Lender, and the obligation of the Borrower to repay such
LIBO Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch, Affiliate or international banking facility. In addition, the
Borrower hereby consents and agrees that, for
23
<PAGE>
purposes of any determination to be made for purposes of Sections 4.1, 4.2, 4.3
-------- --- --- ---
or 4.4, it shall be conclusively assumed that each Lender elected to fund all
---
LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank
eurodollar market.
SECTION 2.6. Notes. Each Lender's Loans under its Revolving Commitment
-----
shall be evidenced by a Note payable to the order of such Lender in a maximum
principal amount equal to such Lender's Percentage of the original Revolving
Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to
make (or cause to be made) appropriate notations on the grid attached to such
Lender's Note (or on any continuation of such grid), which notations, if made,
shall evidence, inter alia, the date of, the outstanding principal of, and the
----- ----
interest rate and Interest Period applicable to the Loans evidenced thereby.
Such notations shall be conclusive and binding on the Borrower absent manifest
error; provided, however, that the failure of any Lender to make any such
-------- -------
notations shall not limit or otherwise affect any Obligations of the Borrower or
any other Credit Party.
SECTION 2.7. Letters of Credit.
-----------------
2.7.1 Issuance of Letters of Credit. From and after the date hereof,
-----------------------------
the Letter of Credit Issuer agrees, upon the terms and conditions set forth
in this Agreement, and subject to the satisfaction of such policy standards
and conditions relating to the issuance of standby letters of credit
generally as may be established by the Letter of Credit Issuer from time to
time, to issue standby letters of credit, for the account of the Borrower,
from time to time from the Effective Date to the Letter of Credit Expiry
Date; provided that the Borrower shall not request and the Letter of Credit
--------
Issuer shall not issue, any Letter of Credit which would cause the
aggregate Letter of Credit Obligations (after giving effect to the issuance
of such Letter of Credit) to exceed the amount of the lesser of (i) the
Letter of Credit Sublimit and (ii) the unused aggregate Revolving
Commitment.
2.7.2 Participating Interests. Immediately upon the issuance by the
-----------------------
Letter of Credit Issuer of a Letter of Credit, each Lender shall be deemed
to have irrevocably and unconditionally purchased and received from the
Letter of Credit Issuer, without recourse, representation or warranty, an
undivided participation interest equal to its Percentage of the face amount
of such Letter of Credit and each draw paid by the Letter of Credit Issuer
thereunder. Each Lender's obligation to pay its proportionate share of all
draws under the Letters of Credit, absent gross negligence or willful
misconduct by the Letter of Credit Issuer in honoring any such draw, shall
be absolute, unconditional and irrevocable and in each case shall be made
without counterclaim or set-off by such Lender.
2.7.3 Reimbursement Upon Drawing. (a) The Borrower agrees to
--------------------------
reimburse the Letter of Credit Issuer for the amount of each draft drawn on
a Letter of Credit on the date such draft is so drawn. The Borrower agrees
to reimburse the Letter of Credit Issuer immediately when due, under all
circumstances, including, without limitation, any of the
24
<PAGE>
following circumstances: (w) any lack of validity or enforceability of this
Agreement or any instrument executed pursuant hereto; (x) the existence of
any claim, set-off, defense or other right which the Borrower may have at
any time against a beneficiary named in a Letter of Credit, any transferee
of any Letter of Credit (or any Person for whom any such transferee may be
acting), any Lender or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying transaction between
the Borrower and the beneficiary named in any Letter of Credit); (y) the
validity, sufficiency or genuineness of any document which the Letter of
Credit Issuer reasonably has determined in good faith complies on its face
with the terms of the applicable Letter of Credit, even if such document
should later prove to have been forged, fraudulent, invalid or insufficient
in any respect or any statement therein shall have been untrue or
inaccurate in any respect; or (z) the surrender or material impairment of
any security for the performance or observance of any of the terms hereof.
(b) If the Borrower does not pay any such reimbursement obligations
when due, the Borrower shall be deemed to have immediately requested that
the Lenders make a Base Rate Loan under this Agreement in a principal
amount equal to such unreimbursed reimbursement obligations. The Agent
shall promptly notify the Lenders of such deemed request and, without the
necessity of compliance with the requirements of Sections 2.1 and 5.2, each
------------ ---
Lender shall make available to the Agent its Loan. The proceeds of such
Loans shall be paid over by the Agent to the Letter of Credit Issuer for
the account of the Borrower in satisfaction of such unreimbursed
reimbursement obligations, which shall thereupon be deemed satisfied by the
proceeds of, and replaced by, such Loan.
(c) If the Letter of Credit Issuer makes a payment on account of any
Letter of Credit and is not concurrently reimbursed therefor by the
Borrower and if for any reason a Loan may not be made pursuant to Section
-------
2.7.3(b), then as promptly as practical during normal banking hours on the
--------
date of its receipt of such notice or, if not practicable on such date, not
later than 12:00 noon (Chicago time) on the Business Day immediately
succeeding such date of notification, each Lender shall deliver to the
Agent for the account of the Letter of Credit Issuer, in immediately
available funds, the purchase price for such Lender's interest in such
unreimbursed reimbursement obligations, which shall be an amount equal to
such Lender's pro-rata share of such payment. Each Lender shall, upon
demand by the Letter of Credit Issuer, pay the Letter of Credit Issuer
interest on such Lender's pro-rata share of such draw from the date of
payment by the Letter of Credit Issuer on account of such Letter of Credit
until the date of delivery of such funds to the Letter of Credit Issuer by
such Lender at a rate per annum, computed for actual days elapsed based on
a 360-day year, equal to the Federal Funds Effective Rate for such period;
provided, that such payments shall be made by the Lenders only in the event
--------
and to the extent that the Letter of Credit Issuer is not reimbursed in
full by the Borrower for interest on the amount of any draw on the Letters
of Credit.
25
<PAGE>
2.7.4 Request for Letter of Credit. Each Letter of Credit shall be issued
----------------------------
upon receipt by the Letter of Credit Issuer and the Agent from the Borrower of
an irrevocable request thereof (an "LC Notice") not later than 11:00 a.m.
---------
(Chicago time) three (3) Business Days prior the issuance date. Each LC Notice
for a Letter of Credit issued shall be in form and substance satisfactory to the
Letter of Credit Issuer.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1 Repayments and Prepayments.
--------------------------
SECTION 3.1.1 Prior to the Revolving Commitment Termination Date. The
---------------------------------------------------
Borrower
(a) may, from time to time on any Business Day prior to the Revolving
Commitment Termination Date, make a voluntary prepayment, in whole or in
part, of the outstanding principal amount of any Loans; provided, however,
-------- -------
that:
(i) any such prepayment shall be made pro rata among Loans of
--- ----
the same type and, if applicable, having the same Interest Period of
all Lenders;
(ii) unless the Borrower complies with Section 4.4, no such
-----------
prepayment of any LIBO Rate Loan may be made on any day other than
the last day of the Interest Period for such Loan; and
(b) shall, immediately upon any acceleration of the Maturity Date of
any Loans pursuant to Section 8.2 or Section 8.3, repay all Loans, unless,
----------- -----------
pursuant to Section 8.3, only a portion of all Loans is so accelerated.
-----------
Each prepayment of any Loans made pursuant to this Section 3.1.1 shall be
-------------
without premium or penalty, except as may be required by Section 4.4. No
-----------
voluntary prepayment of principal of any Loans pursuant to this Section 3.1.1
-------------
shall cause a reduction in the Revolving Commitment Amount.
SECTION 3.1.2 On the Maturity Date. On the Maturity Date, the Borrower
---------------------
shall repay the principal of the Loans then outstanding.
SECTION 3.1.3 Extension of Maturity Date.
--------------------------
(a) Option for Extension. The Borrower may, by written request to the
--------------------
Agent and the Lenders given not later than one hundred eighty (180) days
prior to the Maturity Date then in effect (the "Effective Maturity Date")
request (an "Extension Request") that
26
<PAGE>
such Effective Maturity Date be extended to a date which is twenty-four
(24) months after such Effective Maturity Date. No later than the date (the
"Extension Response Date") which is 30 days after such Extension Request
has been delivered to each of the Lenders, each Lender will notify the
Borrower in writing (with a copy to the Agent) whether or not it consents
to such Extension Request (which consent may be granted or denied by each
Lender in its sole discretion and may be conditioned on receipt of such
financial information or other documentation as may be specified by such
Lender); provided, that any Lender that fails to so advise the Borrower on
or prior to the Extension Response Date shall be deemed to have denied such
Extension Request. The extension of the Maturity Date contemplated by an
Extension Request shall become effective as of the applicable Effective
Maturity Date; provided, that (i) all of the Lenders (other than Non-
Consenting Lenders which have been replaced by Replacement Lenders in
accordance with Section 3.1.3(b)) shall have consented to such Extension
Request; and (ii) (x) each of the representations and warranties made by
the Borrower in or pursuant to the Loan Documents shall be true and correct
in all material respects on and as of each of the date of such Extension
Request and such Effective Maturity Date as if made on and as of such date,
except to the extent relating to an earlier date, (y) no Default or Event
of Default shall have occurred and be continuing on the date of such
Extension Request or on such Effective Maturity Date and (z) on each of the
date of such Extension Request and such Effective Maturity Date, the Agent
shall have received a certificate of the Borrower as to the matters set
forth in clauses (x) and (y) above; and
(b) Replacement Lenders. The Borrower shall be permitted to replace
-------------------
any Non-Consenting Lender with a replacement bank or other financial
institution (a "Replacement Lender") at any time on or prior to the
applicable Effective Maturity Date; provided, that (i) such replacement
does not conflict with any requirement of law, (ii) the Replacement Lender
shall purchase, at par, all Loans and other amounts owing to such Non-
Consenting Lender on or prior to the date of replacement, (iii) the
Borrower shall be liable to such Non-Consenting Lender under Section 4.4 if
-----------
any LIBO Rate Loan owing to such Non-Consenting Lender shall be prepaid (or
purchased) other than on the last day of the Interest Period relating
thereto, (iv) the Replacement Lender, if not already a Lender, shall be
obligated to make such replacement in accordance with the provisions of
Section 10.11.a (provided that the Replacement Lender shall be obligated to
pay the registration and processing fee referred to therein) and (vi) the
Replacement Lender shall have agreed to be subject to all of the terms and
conditions of this Agreement (including the extension of the Maturity Date
contemplated by the Extension Request). The Agent hereby agrees to
cooperate with the Borrower in the Borrower's efforts to arrange one or
more Replacement Lenders as contemplated by this paragraph (b).
27
<PAGE>
SECTION 3.2 Interest Provisions. Interest on the outstanding principal
-------------------
amount of Loans shall accrue and be payable in accordance with this Section 3.2.
-----------
SECTION 3.2 Rates. Pursuant to an appropriately delivered Borrowing
-----
Request or Continuation/Conversion Notice, the Borrower may elect that Loans
comprising a Borrowing accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a Base Rate Loan,
equal to the sum of the Base Rate from time to time in effect minus a
margin of .50%; or
(b) on that portion maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate
(Reserve Adjusted) for such Interest Period plus the Applicable Margin.
The "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made,
----------------------------
continued or maintained as, or converted into, a LIBO Rate Loan for any Interest
Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of
1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
-------------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be determined by the Agent on the basis of the LIBOR Reserve
Percentage in effect on, and the applicable rates furnished to and received by
the Agent from Northern, two Business Days before the first day of such Interest
Period.
"LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the
---------
rate of interest equal to the average (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to Northern's LIBOR Office in the
London interbank market as at or about 10:00 a.m. London time two Business Days
prior to the beginning of such Interest Period for delivery on the first day of
such Interest Period, and in an amount approximately equal to the amount of
Northern's LIBO Rate Loan and for a period approximately equal to such Interest
Period.
"LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO
------------------------
Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum
aggregate reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements) specified under regulations
issued from time to time by the F.R.S. Board and then applicable to assets or
liabilities consisting of and including "Eurocurrency Liabilities", as currently
defined in
28
<PAGE>
Regulation D of the F.R.S. Board, having a term approximately equal or
comparable to such Interest Period.
All LIBO Rate Loans shall bear interest from and including the first day
of the applicable Interest Period to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such LIBOR Rate
Loan.
"Applicable Margin" means on any date the applicable percentage set forth
-----------------
below based upon the Level as shown in the certificate then most recently
delivered to the Lenders pursuant to Section 7.1.1(d):
----------------
Level Revolving Loans Commitment Fee
------- ---------------- ---------------
I 2.00% .375%
II 1.75% .375%
III 1.50% .375%
; provided, however that if the Borrower shall have failed to deliver to the
-------- -------
Lenders by the date required hereunder any certificate pursuant to Section
-------
7.1.1(d), then from the date such certificate was required to be delivered until
- --------
the date of such delivery the Applicable Margin shall be deemed to be Level I.
Each change in the Applicable Margin shall take effect with respect to all
outstanding Loans on the third Business Day immediately succeeding the day on
which such certificate is received by the Agent. Notwithstanding the foregoing,
no reduction in the Applicable Margin shall be effected if a Default or an Event
of Default shall have occurred and be continuing on the date when such change
would otherwise occur, it being understood that on the third Business Day
immediately succeeding the day on which such Default or Event of Default is
either waived or cured (assuming no other Default or Event of Default shall be
then pending), the Applicable Margin shall be reduced (on a prospective basis)
in accordance with the then most recently delivered certificate.
"Level" means, and includes, Level I, Level II or Level III, whichever is
-----
in effect at the relevant time.
"Level I" shall exist at any time the Senior Leverage Ratio is equal to or
-------
less than 3.00:1.0 but equal to or greater than 2.50:1.0.
"Level II" shall exist at any time the Senior Leverage Ratio is less than
--------
2.50:1.0 but equal to or greater than 2.00:1.0.
"Level III" shall exist at any time the Senior Leverage Ratio is less than
---------
2.00:1.0.
29
<PAGE>
"Senior Leverage Ratio" means, with respect to any period, the ratio of (i)
---------------------
Senior Debt to (ii) EBITDA, as of the end of the relevant period.
SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount
-------------------
of any Loan is due and payable (whether on the Revolving Commitment Termination
Date, upon acceleration or otherwise), or after any other monetary Obligation of
the Borrower shall have become due and payable, the Borrower shall pay, but only
to the extent permitted by law, interest (after as well as before judgment) on
such amounts at a rate per annum equal to the Base Rate plus a margin of 2.00%.
SECTION 3.2.3 Payment Dates. Interest accrued on each Loan shall be
-------------
payable, without duplication:
(a) on the Revolving Commitment Termination Date;
(b) on the date of any payment or prepayment, in whole or in part, of
principal outstanding on such Loan;
(c) with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the Effective Date;
(d) with respect to LIBO Rate Loans, the last day of each applicable
Interest Period and, in the case of an Interest period in excess of three
months, on the dates which are successively three months after the
commencement of such Interest Period;
(e) with respect to any Base Rate Loans converted into LIBO Rate
Loans on a day when interest would not otherwise have been payable pursuant
to clause (c), on the date of such conversion; and
----------
(f) on that portion of any Loans the Maturity Date of which is
accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such
----------- -----------
acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Maturity Date, upon acceleration or otherwise) shall be
payable upon demand.
SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in this
----
Section 3.3. All such fees shall be non-refundable.
- -----------
SECTION 3.3.1. Revolving Commitment Fee. The Borrower agrees to pay tothe
------------------------
Agent for the account of each Lender, for the period (including any portion
thereof when its Revolving
30
<PAGE>
Commitment is suspended by reason of the Borrower's inability to satisfy any
condition of Article V) commencing on the Effective Date and continuing through
---------
the Revolving Commitment Termination Date, a commitment fee at the rate equal to
the Applicable Margin for Commitment Fees per annum on such Lender's Percentage
of the sum of the average daily unused portion of the Revolving Commitment
Amount. Such commitment fees shall be payable by the Borrower in arrears on each
Quarterly Payment Date, commencing with the first such day following the
Effective Date and on the Revolving Commitment Termination Date.
SECTION 3.3.2. Letter of Credit Fees. (a) The Borrower agrees to pay the
---------------------
Agent, for the account of each Lender pro-rata on the basis of its Revolving
Commitment, a fee in respect of each Letter of Credit computed at the rate of
1.50% per annum on the average daily stated amount of such Letter of Credit
(computed on the basis of a 360-day year for the actual days elapsed), such fee
to be due and payable quarterly in arrears on each Quarterly Payment Date and on
the Revolving Commitment Termination Date.
(b) The Borrower shall pay to the Letter of Credit Issuer a letter of
credit fronting fee for each Letter of Credit issued by the Letter of Credit
Issuer equal to 1/4 of 1% of the face amount (or increased face amount) of such
Letter of Credit. Such Letter of Credit fronting fee shall be due and payable
on each date of issuance (or date of increase) of a Letter of Credit.
(c) The Borrower agrees to pay directly to the Letter of Credit
Issuer upon each issuance of, drawing under, and/or amendment of, a Letter of
Credit issued by it in such amount as shall at the time of such issuance,
drawing or amendment be the administrative charge which the Letter of Credit
Issuer is customarily charging for issuances of, drawing under or amendments of,
letters of credit issued by it.
SECTION 3.3.3. Agency Fees. The Borrower shall pay to the Agent (x) on the
-----------
Closing Date for its own account and/or for distribution to the Lenders such
fees as heretofore agreed by the Borrower and the Agent and (y) for its own
account such other fees as may be agreed to from time to time between the
Borrower and the Agent, when and as due.
ARTICLE IV
LIBO RATE AND OTHER PROVISIONS
SECTION 4.1 LIBO Rate Lending Unlawful. If any Lender shall determine
--------------------------
(which determination shall, upon notice thereof to the Borrower and the Lenders,
be conclusive and binding on the Borrower) that the introduction of or any
change in or in the interpretation of any law makes it unlawful, or any central
bank or other governmental authority asserts that it is unlawful, for such
Lender to make, continue or maintain any Loan as, or to convert any Loan into, a
LIBO Rate Loan of a certain type, subject to the provisions of Section 4.11
------------
hereof, the obligations of all Lenders to make, continue, maintain or convert
any such Loans shall, upon such determination, forthwith be
31
<PAGE>
suspended until such Lender shall notify the Agent that the circumstances
causing such suspension no longer exist, and all LIBO Rate Loans of such type
shall automatically convert into Base Rate Loans at the end of the then current
Interest Periods with respect thereto or sooner, if required by such law or
assertion.
SECTION 4.2 Deposits Unavailable. If the Agent shall have determined
--------------------
that
(a) Dollar certificates of deposit or Dollar deposits, as the case
may be, in the relevant amount and for the relevant Interest Period are not
available to a Lender in its relevant market; or
(b) by reason of circumstances affecting a Lender's relevant market,
adequate means do not exist for ascertaining the interest rate applicable
hereunder to LIBO Rate Loans of such type,
then, upon notice from the Agent to the Borrower and the Lenders, subject to the
provisions of Section 4.11 hereof, the obligations of all Lenders under Section
------------ -------
2.3 and Section 2.4 to make or continue any Loans as, or to convert any Loans
- --- -----------
into, LIBO Rate Loans of such type shall forthwith be suspended until the Agent
shall notify the Borrower and the Lenders that the circumstances causing such
suspension no longer exist.
SECTION 4.3 Increased LIBO Rate Loan Costs, etc. The Borrower agrees to
-----------------------------------
reimburse each Lender for any increase in the cost to such Lender of, or any
reduction in the amount of any sum receivable by such Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, LIBO Rate Loans, subject to the provisions of Section 4.11 hereof.
------------
Such Lender shall promptly notify the Agent and the Borrower in writing of the
occurrence of any such event, such notice to state, in reasonable detail, the
reasons therefor and the additional amount required fully to compensate such
Lender for such increased cost or reduced amount. Such additional amounts shall
be payable by the Borrower directly to such Lender within five days of its
receipt of such notice, and such notice shall, in the absence of manifest error,
be conclusive and binding on the Borrower.
SECTION 4.4 Funding Losses. In the event any Lender shall incur any loss
--------------
or expense (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such Lender to make,
continue or maintain any portion of the principal amount of any Loan as, or to
convert any portion of the principal amount of any Loan into, a LIBO Rate Loan)
as a result of;
(a) any conversion or repayment or prepayment of the principal amount
of any LIBO Rate Loans on a date other than the scheduled last day of the
Interest Period applicable thereto, whether pursuant to Section 3.1 or
-----------
otherwise;
32
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(b) any Loans not being made as LIBO Rate Loans in accordance with
the Borrowing Request therefor; or
(c) any Loans not being continued as, or converted into, LIBO Rate
Loans in accordance with the Continuation/ Conversion Notice therefor;
then, upon the written notice of such Lender (which notice shall be delivered
within thirty days of the incurrence thereof by such Lender) to the Borrower
(with a copy to the Agent), the Borrower shall, within five days of its receipt
thereof, pay directly to such Lender such amount as will (in the reasonable
determination of such Lender) reimburse such Lender for such loss or expense.
Such written notice (which shall include calculations in reasonable detail)
shall, in the absence of manifest error, be conclusive and binding on the
Borrower.
SECTION 4.5. Increased Capital Costs. If any change in, or the
-----------------------
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by any Lender or any Person controlling
such Lender, and such Lender determines (in its sole and absolute discretion)
that the rate of return on its or such controlling Person's capital as a
consequence of its Revolving Commitment or the Loans made by such Lender is
reduced to a level below that which such Lender or such controlling Person could
have achieved but for the occurrence of any such circumstance, then, in any such
case upon notice from time to time by such Lender to the Borrower, subject to
the provisions of Section 4.11 hereof, the Borrower shall immediately pay
------------
directly to such Lender additional amounts sufficient to compensate such Lender
or such controlling Person for such reduction in rate of return. A statement of
such Lender as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on the Borrower. In determining such amount, such Lender
may use any method of averaging and attribution that it (in its sole and
absolute discretion) shall deem applicable.
SECTION 4.6 Taxes. All payments by the Borrower of principal of, and
-----
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by any Lender's net
income or receipts (such non-excluded items being called "Taxes"). In the event
-----
that any withholding or deduction from any payment to be made by the Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then the Borrower will:
(a) pay directly to the relevant authority the full amount required
to be so withheld or deducted;
33
<PAGE>
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Lenders such additional
amount or amounts as is necessary to ensure that the net amount actually
received by each Lender will equal the full amount such Lender would have
received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Agent or any Lender
with respect to any payment received by the Agent or such Lender hereunder, the
Agent or such Lender may pay such Taxes and the Borrower will promptly pay such
additional amounts (including any penalties, interest or expenses, other than
those penalties, interest or expenses which are due to any delay by Agent or any
Lender) as is necessary in order that the net amount received by such person
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount such person would have received had not such Taxes been
asserted.
If the Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent, for the account of the respective
Lenders, the required receipts or other required documentary evidence, the
Borrower shall indemnify the Lenders for any incremental Taxes, interest or
penalties that may become payable by any Lender as a result of any such failure.
For purposes of this Section 4.6, a distribution hereunder by the Agent or any
-----------
Lender to or for the account of any Lender shall be deemed a payment by the
Borrower.
Upon the request of the Borrower or the Agent, each Lender that is
organized under the laws of a jurisdiction other than the United States shall,
prior to the due date of any payments under the Notes, execute and deliver to
the Borrower and the Agent, on or about the first scheduled payment date in each
Fiscal Year, one or more (as the Borrower or the Agent may reasonably request)
United States Internal Revenue Service Forms 4224 or Forms 1001 or such other
forms or documents (or successor forms or documents), appropriately completed,
as may be applicable to establish the extent, if any, to which a payment to such
Lender is exempt from withholding or deduction of Taxes.
SECTION 4.7 Payments, Computations, etc. Unless otherwise expressly
---------------------------
provided, all payments by the Borrower pursuant to this Agreement, the Notes or
any other Loan Document shall be made by the Borrower to the Agent for the pro
---
rata account of the Lenders entitled to receive such payment. All such payments
- ----
required to be made to the Agent shall be made, without setoff, deduction or
counterclaim, not later than 11:00 a.m., Chicago time, on the date due, in same
day or immediately available funds, to such account as the Agent shall specify
from time to time by notice to the Borrower. Funds received after that time
shall be deemed to have been received by the Agent on the next succeeding
Business Day. The Agent shall promptly remit in same day funds to each Lender
its share, if any, of such payments received by the Agent for the account of
such Lender. All interest and fees shall be computed on the basis of the actual
number of days (including
34
<PAGE>
the first day but excluding the last day) occurring during the period for which
such interest or fee is payable over a year comprised of 360 days (or, in the
case of interest on a Base Rate Loan, 365 days or, if appropriate, 366 days).
Whenever any payment to be made shall otherwise be due on a day which is not a
Business Day, such payment shall (except as otherwise required by clause (c) of
----------
the definition of the term "Interest Period" with respect to LIBO Rate Loans) be
---------------
made on the next succeeding Business Day and such extension of time shall be
included in computing interest and fees, if any, in connection with such
payment.
SECTION 4.8. Sharing of Payments. If any Lender shall obtain any payment
-------------------
or other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan (other than pursuant to the terms of Sections
--------
4.3, 4.4 and 4.5) in excess of its pro rata share of payments then or therewith
- --- --- --- --- ----
obtained by all Lenders, such Lender shall purchase from the other Lenders such
participations in Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of the excess
-------- -------
payment or other recovery is thereafter recovered from such purchasing Lender,
the purchase shall be rescinded and each Lender which has sold a participation
to the purchasing Lender shall repay to the purchasing Lender the purchase price
to the ratable extent of such recovery together with an amount equal to such
selling Lender's ratable share (according to the proportion of:
(a) the amount of such selling Lender's required repayment to the
purchasing Lender
to
- --
(b) the total amount so recovered from the purchasing Lender);
of any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section may,
to the fullest extent permitted by law, exercise all its rights of payment
(including pursuant to Section 4.9) with respect to such participation as fully
-----------
as if such Lender were the direct creditor of the Borrower in the amount of such
participation. If under any applicable bankruptcy, insolvency or other similar
law, any Lender receives a secured claim in lieu of a setoff to which this
Section applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the rights
of the Lenders entitled under this Section to share in the benefits of any
recovery on such secured claim.
SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of any
------
Default described in clauses (a) through (d) of Section 8.1.9 or, with the
----------- --- -------------
consent of the Required Lenders, upon the occurrence of any other Event of
Default, have the right to appropriate and apply to the payment of the
Obligations owing to it (whether or not then due), and (as security for such
Obligations) the Borrower hereby grants to each Lender a continuing security
interest in, any and all balances,
35
<PAGE>
credits, deposits, accounts or moneys of the Borrower then or thereafter
maintained with such Lender; provided, however, that any such appropriation and
-------- -------
application shall be subject to the provisions of Section 4.8. Each Lender
-----------
agrees promptly to notify the Borrower and the Agent after any such setoff and
application made by such Lender; provided, however, that the failure to give
-------- -------
such notice shall not affect the validity of such setoff and application. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff under applicable law or otherwise)
which such Lender may have.
SECTION 4.10. Use of Proceeds. The Borrower shall apply the proceeds of
---------------
each Borrowing in accordance with the third recital; without limiting the
----- -------
foregoing, no proceeds of any Loan will be used to acquire any equity security
of a class which is registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or any "margin stock", as defined in F.R.S. Board Regulation U.
SECTION 4.11. Changes to Other Branches; Equal Treatment of Borrower. If a
------------------------------------------------------
Lender claims any additional amounts payable or that its is unable to make LIBOR
Loans available, as described more fully in Sections 4.1 through 4.5 hereof,
------------ ---
such Lender shall (i) use its reasonable efforts (consistent with legal and
regulatory restrictions) to avoid the need for paying such additional amounts or
such unavailability, including changing the jurisdiction of its applicable
lending office or moving the applicable Loan(s) to an Affiliate or Subsidiary;
provided, that the taking of any such action would not, in the reasonable
- --------
judgment of such Lender, be disadvantageous to such Lender and (ii) treat the
Borrower, with respect to all such issues, in a manner consistent with the
treatment of other similarly situated borrowers with respect to such issues.
ARTICLE V
CONDITIONS TO BORROWING
SECTION 5.1 Initial Borrowing. The obligations of the Lenders to fund
-----------------
the initial Borrowing and the Letter of Credit Issuer to issue, and the Lenders
to participate in, any letter of Credit, shall be subject to the prior or
concurrent satisfaction of each of the conditions precedent set forth in this
Section 5.1.
- -----------
SECTION 5.1.1. Resolutions, etc. The Agent shall have received from each
----------------
Credit Party a certificate, dated the date of the initial Borrowing, of its
Secretary or Assistant Secretary as to:
(a) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance of this
Agreement, the Notes and each other Loan Document to be executed by it; and
(b) the incumbency and signatures of those of its officers authorized
to act with respect to this Agreement, the Notes and each other Loan
Document executed by it;
36
<PAGE>
upon which certificate each Lender may conclusively rely until it shall have
received a further certificate of the Secretary of such Credit Party canceling
or amending such prior certificate.
SECTION 5.1.2. Delivery of Notes. The Agent shall have received, for the
-----------------
account of each Lender, its Notes duly executed and delivered by the Borrower.
SECTION 5.1.3 Applicable Margin. The Agent shall receive a certificate,
-----------------
executed by an Authorized Officer of the Borrower, delineating the Applicable
Margin after giving pro forma effect to the Loans to be incurred on the Closing
Date.
SECTION 5.1.4. Guaranty. The Agent shall have received the Guaranty, dated
--------
the date hereof, duly executed by each Subsidiary of the Borrower.
SECTION 5.1.5. Pledge Agreements. The Agent shall have received executed
-----------------
counterparts of the Borrower Pledge Agreement and the Guarantor Pledge
Agreement, each dated as of the date hereof, duly executed by each Credit Party
party thereto, together with stock certificates, accompanied by undated stock
powers duly executed in blank, and promissory notes, duly endorsed in blank,
required to be delivered to the Agent pursuant to the Borrower Pledge Agreement
and the Guarantor Pledge Agreement.
SECTION 5.1.6. Security Agreements. The Agent shall have received executed
-------------------
counterparts of the Borrower Security Agreement and the Guarantor Security
Agreement, each dated as of the date hereof, duly executed by each Credit Party
thereto, together with:
(a) acknowledgment copies of properly filed Uniform Commercial Code
financing statements (Form UCC-1) naming the relevant Credit Party as the
debtor and the Agent as the secured party, or other similar instruments or
documents, filed under the Uniform Commercial Code of all jurisdictions as
may be necessary or, in the opinion of the Agent, desirable to perfect the
security interest of the Agent pursuant to such Security Agreement;
(b) executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person:
(i) in any collateral described in such Security Agreement
previously granted by any Person, and
(ii) securing any of the Indebtedness identified in Part A of
Schedule 6.17, together with such other Uniform Commercial Code Form UCC-3
-------------
termination statements as the Agent may reasonably request from such Credit
Party; and
37
<PAGE>
(c) copies of Uniform Commercial Code Requests for Information or
Copies (Form UCC-11), or a similar search report certified by a party
acceptable to the Agent, dated a date reasonably near to the date of the
initial Borrowing, listing all effective financing statements which name
each Credit Party (under its present name and any previous names) as the
debtor and which are filed in the jurisdictions in which filings were made
pursuant to clause (a) above, together with copies of such financing
----------
statements (none of which (other than those described in clause (a), if
----------
such Form UCC-11 or search report, as the case may be, is current enough to
list such financing statements described in clause (a)) shall cover any
----------
collateral described in such Security Agreement).
SECTION 5.1.7. Intellectual Property Assignment. The Agent shall have
--------------------------------
received executed counterparts of an Intellectual Property Assignment, dated the
date hereof, duly executed by each Credit Party.
SECTION 5.1.8 Opinions of Counsel. The Agent shall have received opinions,
-------------------
dated the date of the initial Borrowing and addressed to the Agent and all
Lenders, from Katten Muchin & Zavis, counsel to the Borrower and its
Subsidiaries, substantially in the form of Exhibit H hereto.
---------
SECTION 5.1.9. Agreements. The Agent shall have received true and correct
----------
copies, certified as such by an Authorized Officer of the Borrower, of each
agreement governing Indebtedness listed on Schedule 6.17 and each Service
-------------
Agreement and Employment Agreement listed on Schedule 6.18.
-------------
SECTION 5.1.10.Closing Fees, Expenses, etc. The Agent shall have received
---------------------------
for its own account, or for the account of each Lender, as the case may be, all
fees, costs and expenses due and payable on the Closing Date pursuant to Section
-------
3.3 and, to the extent invoiced on such date, Section 10.3.
- --- ------------
SECTION 5.2. All Borrowings and Letters of Credit. The obligation of each
-------------------------------------
Lender to fund any Loan on the occasion of any Borrowing (including the initial
Borrowing) and the obligation of the Letter of Credit Issuer to issue any Letter
of Credit shall be subject to the satisfaction of each of the conditions
precedent set forth in this Section 5.2.
-----------
SECTION 5.2.1 Compliance with Warranties, No Default, etc. Both before and
-------------------------------------------
after giving effect to any Borrowing (but, if any Default of the nature referred
to in Section 8.1.5 shall have occurred with respect to any other Indebtedness,
-------------
without giving effect to the application, directly or indirectly, of the
proceeds thereof) the following statements shall be true and correct:
(a) the representations and warranties set forth in Article VI shall
----------
be true and correct with the same effect as if then made (unless stated to
relate solely to an early date, in which case such representations and
warranties shall be true and correct as of such earlier date); and
38
<PAGE>
(b) no Default or Event of Default shall have then occurred and be
continuing.
SECTION 5.2.2. Borrowing Request; LC Notice. The Agent shall have received
----------------------------
a Borrowing Request for such Borrowing or LC Notice for the issuance of a Letter
of Credit. Each of the delivery of a Borrowing Request or LC Notice, as the
case may be, and the acceptance by the Borrower of the proceeds of such
Borrowing or the issuance of such Letter of Credit, as the case may be, shall
constitute a representation and warranty by the Borrower that on the date of
such Borrowing or the issuance of such Letter of Credit, as the case may be
(both immediately before and after giving effect to such Borrowing and the
application of the proceeds thereof or the issuance of such Letter of Credit, as
the case may be,) the statements made in Section 5.2.1 are true and correct.
-------------
SECTION 5.2.3. Satisfactory Legal Form. All documents executed or submitted
-----------------------
pursuant hereto by or on behalf of each Credit Party shall be reasonably
satisfactory in form and substance to the Agent and its counsel; the Agent and
its counsel shall have received all information, approvals, opinions, documents
or instruments as the Agent or its counsel may reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into this Agreement
and to make Loans hereunder, the Borrower represents and warrants unto the Agent
and each Lender as set forth in this Article VI.
----------
SECTION 6.1 Organization, etc. The Borrower and each of its
-----------------
Subsidiaries, including, without limitation, the Borrower, is validly organized
and existing and in good standing under the laws of the State of its
organization, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the nature of its business
requires such qualification, and has full power and authority and holds all
requisite governmental licenses, permits and other approvals to enter into and
perform its Obligations under this Agreement, the Notes and each other Loan
Document to which it is a party and to own and hold under lease its property and
to conduct its business substantially as currently conducted by it.
SECTION 6.2 Due Authorization, Non-Contravention, etc. The execution,
-----------------------------------------
delivery and performance by the Borrower and each of its Subsidiaries, including
without limitation, the Borrower, of this Agreement, the Notes and each other
Loan Document executed or to be executed by it, are within each such Credit
Party's powers, have been duly authorized by all necessary corporate action,
and do not:
(a) contravene such Credit Party's Organizational Documents;
39
<PAGE>
(b) contravene any contractual restriction, law or governmental
regulation or court decree or order binding on or affecting such Credit
Party, which contravention reasonably would be expected to have a Material
Adverse Effect; or
(c) result in, or require the creation or imposition of, any Lien on
any of such Credit Party's properties other than a Permitted Lien.
SECTION 6.3 Government Approval, Regulation, etc. No authorization or
------------------------------------
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by any Credit Party, including, without limitation, the
Borrower, of this Agreement, the Notes or any other Loan Document to which it is
a party, other than as described in Schedule 6.3 which have been obtained or
------------
delivered on or prior to the Closing Date. Neither the Borrower nor any of its
Subsidiaries, is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 6.4 Validity, etc. This Agreement constitutes, and the Notes and
-------------
each other Loan Document executed by each Credit Party thereto will, on the due
execution and delivery thereof, constitute, the legal, valid and binding
obligations of such Credit Party enforceable in accordance with their
respective terms, except that the validity or enforceability of any such Loan
Document may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforceability of creditors' rights generally
or by equitable principles, whether enforcement thereof is sought in a court of
law or equity.
SECTION 6.5 Financial Information. The audited financial statements of
---------------------
the the Borrower on a consolidated basis as at December 31, 1997, and the
unaudited financial statements of the Borrower on a consolidated basis as at
March 31, 1998, copies of which have been furnished to the Agent and each
Lender, have been prepared in accordance with GAAP consistently applied (subject
to ordinary, good faith year end audit adjustments), and present fairly the
consolidated financial condition of the Persons covered thereby as at the dates
thereof and the results of their operations for the periods then ended.
SECTION 6.6 No Material Adverse Change. Since December 31, 1998, there
--------------------------
has been no material adverse change in the financial condition, operations,
assets, business, properties or prospects of the Borrower and its Subsidiaries
taken as a whole.
SECTION 6.7 Litigation, Labor Controversies, etc. There is no pending
------------------------------------
or, to the knowledge of the Borrower, threatened litigation, action,
proceeding, or labor controversy affecting any Credit Party, or any of their
respective properties, businesses, assets or revenues, or any Person who
provided health care services under contract with any Credit Party, which
reasonably would
40
<PAGE>
be expected to have a Material Adverse Effect or which purports
to affect the legality, validity or enforceability of this Agreement, the Notes
or any other Loan Document.
SECTION 6.8. Subsidiaries. (a) The Borrower has no Subsidiaries, except
------------
those Subsidiaries:
(i) which are identified in Schedule 6.8; or
------------
(ii) which are permitted to have been acquired by the Borrower in
accordance with Section 7.2.5 or 7.2.8.
------------- -----
SECTION 6.9. Ownership of Properties. The Borrower and each of its
-----------------------
Subsidiaries owns good and marketable title (or valid leasehold title, with
respect to leasehold estates) to all of its properties and assets, real and
personal, tangible and intangible, of any nature whatsoever (including patents,
trademarks, trade names, service marks and copyrights), free and clear of all
Liens, charges or claims (including infringement claims with respect to patents,
trademarks, copyrights and the like) except as permitted pursuant to Section
-------
7.2.3.
- -----
SECTION 6.10. Taxes. Except as described on Schedule 6.10, the Borrower
-----
and each of its Subsidiaries has filed all tax returns and reports required by
law to have been filed by it and has paid all taxes and governmental charges
thereby shown to be owing, except any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books.
SECTION 6.11. Pension and Welfare Plans. During the twelve-consecutive-
-------------------------
month period prior to the Effective Date and prior to the date of any
Borrowing hereunder, no steps have been taken to terminate any Pension Plan, and
no contribution failure has occurred with respect to any Pension Plan sufficient
to give rise to a Lien under Section 302(f) of ERISA. No condition exists or
event or transaction has occurred with respect to any Pension Plan which
reasonably would be expected to result in the incurrence by the Borrower or any
member of the Controlled Group of any material liability, fine or penalty.
Neither the Borrower nor any member of the Controlled Group has any contingent
liability with respect to any post-retirement benefit under a Welfare Plan,
other than liability for continuation coverage described in Part 6 of Title I of
ERISA.
SECTION 6.12. Environmental Warranties. (a) All facilities and property
------------------------
(including underlying groundwater) owned or leased by the Borrower or any of its
Subsidiaries have been, and continue to be, owned or leased by the Borrower and
its Subsidiaries in material compliance with all applicable Environmental Laws.
(b) There have been no past (which have not been remedied or
resolved), and there are no pending or, to the best knowledge of the
Borrower, threatened:
41
<PAGE>
(i) claims, complaints, notices or requests for information
received by the Borrower or any of its Subsidiaries with respect to
any alleged material violation of any Environmental Law, or
(ii) complaints, notices or inquiries to the Borrower or any of
its Subsidiaries regarding potential material liability under any
Environmental Law.
(c) There have been no Releases of Hazardous Materials at, on or under
any property now or previously owned or leased by the Borrower or any of its
Subsidiaries that, singly or in the aggregate, have, or would reasonably be
expected to have, a Material Adverse Effect.
(d) The Borrower and its Subsidiaries have been issued and are in
material compliance with all material permits, certificates, approvals, licenses
and other material authorizations relating to environmental matters and
necessary or desirable for their businesses.
(e) No property now or previously owned or leased by the Borrower or
any of its Subsidiaries is listed or proposed for listing (with respect to
owned property only) on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any similar state list of sites requiring investigation or clean-
up.
(f) There are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or previously
owned or leased by the Borrower or any of its Subsidiaries.
(g) Neither the Borrower nor any of its Subsidiaries has directly
transported or directly arranged for the transportation of any Hazardous
Material to any location which is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list
or which is the subject of federal, state or local enforcement actions or other
investigations which reasonably would be expected to lead to material claims
against the Borrower or such Subsidiary thereof for any remedial work, damage
to natural resources or personal injury, including claims under CERCLA.
(h) To the best of the Borrower's knowledge after due inquiry, there
are no polychlorinated biphenyls or friable asbestos present at any property now
or previously owned or leased by the Borrower or any of its Subsidiaries.
(i) No conditions exist at, on or under any property now or previously
owned or leased by the Borrower or any of its Subsidiaries which, with the
passage of time, or the giving of notice or both, reasonably would be expected
to give rise to any material liability under any Environmental Law.
42
<PAGE>
SECTION 6.13. Regulations G, T, U and X. Neither the Borrower nor any of
-------------------------
its Subsidiaries is engaged in the business of extending credit for the purpose
of purchasing or carrying margin stock, and no proceeds of any Loans or any
Letter of Credit will be used for a purpose which violates, or would be
inconsistent with, F.R.S. Board Regulation G, U or X. Terms for which meanings
are provided in F.R.S. Board Regulation G, T, U or X or any regulations
substituted therefor, as from time to time in effect, are used in this Section
with such meanings.
SECTION 6.14. Accuracy of Information. All factual information heretofore
-----------------------
or contemporaneously furnished by or on behalf of any Credit Party in writing
to the Agent or any Lender for purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all other such factual
information hereafter furnished by or on behalf of any Credit Party to the Agent
or any Lender will be, true and accurate in every material respect on the date
as of which such information is dated or certified and as of the date of
execution and delivery of this Agreement by the Agent and such Lender, and such
information is not, or shall not be, as the case may be, incomplete by omitting
to state any material fact necessary to make such information not misleading.
SECTION 6.15. Solvency. As of the Effective Date, after giving effect
--------
to the consummation of the transaction contemplated by the Loan Documents and
the payment of all fees, costs and expenses payable by the Borrower with respect
to the transactions contemplated by the Loan Documents, the Borrower and its
Subsidiaries are Solvent on a consolidated basis.
SECTION 6.16. Collateral Documents. (a) Subject to the provisions of
--------------------
clause (b) below with respect to the requirement of the Agent to maintain
possession as the Pledged Collateral, the provisions of each of the Collateral
Documents are effective to create in favor of the Agent for the benefit of the
Lenders and the Agent, a legal, valid and enforceable first priority security
interest in all right, title and interest of each Credit Party in the Collateral
described therein; and financing statements have been filed in the offices in
all of the jurisdictions listed in the schedule to the Borrower Security
Agreement and the Guarantor Security Agreement, and each Intellectual Property
Assignment has been filed in the U.S. Patent and Trademark Office and the U.S.
Copyright Office.
(b) The provisions of the Borrower Pledge Agreement and the Guarantor
Pledge Agreement are effective to create, in favor of the Agent for the benefit
of the Lenders and the Agent, a legal, valid and enforceable first priority
security interest in all of the Collateral described therein; and the Pledged
Collateral was delivered to the Agent or its nominee in accordance with the
terms thereof. The Lien of the Borrower Pledge Agreement and the Guarantor
Pledge Agreement constitutes a perfected, first priority security interest in
all right, title and interest of the Credit Party thereto in the Pledged
Collateral described therein, prior and superior to all other Liens and
interests, provided the Agent maintains possession of the Pledged Collateral for
the term of each such Borrower Pledge Agreement or Guarantor Pledge Agreement,
as applicable.
(c) All representations and warranties of each Credit Party contained
in the Collateral Documents are true and correct as of the date on which made,
except to the extent such
43
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representations pertain to a prior date, in which case such representations and
warranties are true and correct as of such prior date.
SECTION 6.17. Indebtedness. Attached hereto as Schedule 6.17 is a complete
------------ -------------
and correct list of all Indebtedness of the Borrower and its Subsidiaries
outstanding on the Effective Date, showing the aggregate principal amount which
was outstanding on such date. The Borrower has delivered or caused to be
delivered to the Agent a true and complete copy of each instrument evidencing
any Indebtedness listed on Schedule 6.17 and of each document pursuant to which
-------------
any of such Indebtedness was issued.
SECTION 6.18. Service Agreements; Employment Agreements. As of the
-----------------------------------------
Effective Date, the Borrower has delivered to the Agent a true and complete copy
of each Service Agreement and Employment Agreement, and of each amendment of
modification thereof, listed on Schedule 6.18. Each such Service Agreement and
-------------
Employment Agreement is a valid and subsisting agreement and is in full force
and effect in accordance with the terms thereof, and no material default by the
Borrower or any of its Subsidiaries exists under any such Service Agreement or
such Employment Agreement and, to the best of the Borrower's knowledge, no party
to any Service Agreement or Employment Agreement has any accrued right to
terminate any such Service Agreement or Employment Agreement on account of a
default by the Borrower or any of its Subsidiaries.
SECTION 6.19. Other Agreements/Program Eligibility. Neither the Borrower
------------------------------------
nor any of its Subsidiaries, and to the knowledge of the Borrower's officers, no
Practice or Provider, is in default in the performance, observance or
fulfillment of any obligation, covenant or condition contained in or applicable
with respect to any Medicaid Provider Agreement, Medicare Provider Agreement,
other agreement or instrument to which the Borrower, a Subsidiary, Practice or
Provider is a party with a third party payor, or participation in medicare,
medicaid or a third party payor program in which the Borrower, a Subsidiary,
Practice or Provider participates, which default, if not remedied within any
applicable grace period, reasonably would be expected to (i) result in the
revocation, termination, cancellation, suspension or non-renewal of Medicaid
Certification, Medicare Certification, any similar certification of a material
third party payor, if any, a Medicare Provider Agreement, Medicaid Provider
Agreement or agreement with a third party payor, or eligibility to participate,
directly or indirectly, in medicare, medicaid or material third party payor
programs, or (ii) have a Material Adverse Effect.
SECTION 6.20. Reimbursement from Third Party Payors. The accounts
-------------------------------------
receivable of the Borrower, each of its Subsidiaries and, to the knowledge of
the Borrower's officers, each Practice, have been and will continue to be
adjusted reasonably to reflect reimbursement experiences with and policies of
third party payors such as Medicare, Medicaid, Blue Cross/Blue Shield, private
insurance companies, health maintenance organizations, preferred provider
organizations, alternative delivery systems, managed care systems, government
contracting agencies and other third party payors. In particular, accounts
receivable relating to such third party payors do not and shall not exceed
amounts any obligee is entitled to receive under any capitation arrangement, fee
44
<PAGE>
schedule, discount formula, cost-based reimbursement or other adjustment or
limitation to its usual charges.
SECTION 6.21. Legal Compliance. The Borrower and each of its Subsidiaries,
----------------
and to the knowledge of any of the Borrower's or any of its Subsidiaries'
officers, each Practice and each Provider, have duly complied and are in
compliance with all requirements, restrictions and prohibitions of law,
including, without limitation, any statute, law, treaty, rule, regulation,
manual, guidelines, rules of professional conduct, or order, decree, writ,
injunction or other determination of an arbitrator, court or other governmental
authority, in each case applicable to or binding upon such Person or any of its
property or to which such person or its property is subject and having the force
of law, other than those noncompliance with which would not reasonably be
expected to have a Material Adverse Effect.
SECTION 6.22. Licensing and Accreditation. Each of the Borrower and each
---------------------------
of its Subsidiaries, and, to the extent applicable, to the knowledge of the
Borrower's officers, each Practice and Provider has, to the extent applicable,
(i) obtained (or been duly assigned) all required certificates of need (other
than as described on Schedule 6.22) or determinations of need, as required by
-------------
the relevant state governmental authority, for the acquisition, construction,
expansion of, investment in or operation of its businesses or facilities as
currently operated; (ii) obtained and maintains in good standing all required
licenses; (iii) to the extent customary in the industry in which it is engaged,
obtained and maintains accreditation from all generally recognized accrediting
agencies; (iv) obtained and maintains Medicaid Certification, Medicare
Certification and any similar third party payor certification, if any; and (v)
entered into and maintains in good standing, if applicable, its Medicare
Provider Agreement, its Medicaid Provider Agreement and its agreements with
third party payors. To the knowledge of the Borrower's officers, each Provider
is duly licensed (where licensing is required) by each federal or state agency
or commission, or any other governmental authority having jurisdiction over the
provision of such services rendered by such Provider, and all such required
licenses are in full force and effect on the date hereof and have not been
revoked or suspended or otherwise limited.
SECTION 6.23. Subordination Provisions. Upon delivery of the notices
------------------------
referred to in Schedule 6.3, the subordination provisions contained in all
------------
notes, debentures and other instruments entered into or issued in respect of
Subordinated Debt are enforceable against the issuer of the respective security
and the holders thereof in accordance with their respective terms, and the Loans
and all other Obligations are within the definitions of "Senior Indebtedness",
or other comparable definition, included in such provisions.
SECTION 6.24. RICO. None of the Borrower nor any of its Subsidiaries is
----
engaged in or has engaged in any course of conduct that reasonably would be
expected to subject any of their respective properties to any Lien, seizure or
other forfeiture under any criminal law, racketeer influenced and corrupt
organizations law, civil or criminal, or other similar laws.
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<PAGE>
SECTION 6.25. IPO. On and as of the date of the completion of an IPO, (i)
---
all material consents and approvals of, and filings and registrations with, and
all other actions in respect of, all governmental agencies, authorities or
instrumentalities required to be obtained, given, filed or taken by the Borrower
or any other Credit Party in order to make or consummate each component of such
IPO will have been obtained, given, filed or taken and are or will be in full
force and effect (or effective judicial relief with respect thereto will have
been obtained) except for filings, consents or notices not required by federal
or state securities laws to be made at such time, which filings, consents or
notices have been or will be made during the period in which they are required
to be made and (ii) each component of such IPO shall have been consummated in
accordance, in all material respects, with all the applicable documents and in
compliance, in all material respects, with all applicable laws.
SECTION 6.26. Reorganization. On and as of the Reorganization Date, (i)
--------------
all material consents, approvals, filings, registrations and all other actions
required to be obtained, given, filed or taken by the Borrower or any other
Credit Party in order to make or consummate each component of the Reorganization
will have been obtained, given, filed or taken and are or will be in full force
and effect (or effective judicial relief with respect thereto will have been
obtained), except for filings, consents or notices not required by applicable
law to be made at such time, which filings, consents or notices have been or
will be made during the period in which they are required to be made, and (ii)
each component of the Reorganization shall have been consummated in accordance,
in all material respects, with all the applicable documents and in compliance,
in all material respects, with all applicable laws.
SECTION 6.27. Year 2000 Problem. The Borrower and each of its
-----------------
Subsidiaries have reviewed the areas within its business and operations, as such
business and operations exist as of the Effective Date, which reasonably would
be expected to be adversely affected by, and have developed or is developing a
program to address on a timely basis the risk that certain computer applications
used and controlled by such Person may be unable to recognize and perform
properly date-sensitive functions involving dates prior to and after December
31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem will not result, and
is not reasonably expected to result, in any Material Adverse Effect, or the
ability of any Credit Party to duly and punctually pay or perform its
obligations under this Agreement or under the other Loan Documents. With
respect to any Permitted Acquisition, the Borrower will use its best efforts to
ensure that any Year 2000 Problem which exists as a result of such Permitted
Acquisition will not result, and will not reasonably be expected to result, in
any Material Adverse Effect.
ARTICLE VII
COVENANTS
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<PAGE>
SECTION 7.1. Affirmative Covenants. The Borrower agrees with the Agent
---------------------
and each Lender that, until all Revolving Commitments have terminated and all
Obligations have been paid and performed in full, each Credit Party will
perform the obligations set forth in this Section 7.1 applicable to such Credit
-----------
Party.
SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower
--------------------------------------------
will furnish, or will cause to be furnished, to each Lender and the Agent copies
of the following financial statements, reports, notices and information:
(a) as soon as available and in any event within 45 days after the end
of each of the first three Fiscal Quarters (commencing with the Fiscal
Quarter ending June 30, 1999) of each Fiscal Year of the Borrower,
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such Fiscal Quarter and consolidated and
consolidating statements of earnings and cash flow of the Borrower and its
Subsidiaries for such Fiscal Quarter and for the period commencing at the
end of the previous Fiscal Year and ending with the end of such Fiscal
Quarter, certified by the Authorized Officer of the Borrower;
(b) as soon as available and in any event within 120 days after the
end of each Fiscal Year of the Borrower, a copy of the annual audit report
for such Fiscal Year for the Borrower and its Subsidiaries, including
therein consolidated and consolidating balance sheets of the Borrower and
its Subsidiaries (which consolidating balance sheets shall be prepared and
delivered under separate cover by the Borrower) as of the end of such
Fiscal Year and consolidated and consolidating statements of earnings and
cash flow of the Borrower and its Subsidiaries (which consolidating
statements shall be prepared and delivered under separate cover by the
Borrower) for such Fiscal Year, in the case of the consolidated financial
statements, certified (without any Impermissible Qualification) by Arthur
Andersen LLP or other independent public accountants reasonably acceptable
to the Agent and the Required Lenders, together with a certificate from
such accountants containing a computation of, and showing compliance with,
each of the financial ratios and restrictions contained in Section 7.2.4
-------------
and to the effect that, in making the examination necessary for the signing
of such annual report by such accountants, they have not become aware of
any Default or Event of Default that has occurred and is continuing, or, if
they have become aware of such Default or Event of Default, describing such
Default or Event of Default and the steps, if any, which they have been
advised are being taken to cure it;
(c) as soon as available and in any event within 45 days after the end
of each Fiscal Quarter, a certificate, executed by the chief financial
officer of the Borrower, showing (in reasonable detail and with appropriate
calculations and computations in all respects satisfactory to the Agent,
including, without limitation, the delivery of a Quarterly EBITDA
Certificate for each Reporting Person) compliance with the financial
covenants set forth in Section 7.2.4.;
-------------
47
<PAGE>
(d) as soon as possible and in any event within three Business Days
after the occurrence of each Default, a statement of the chief financial
officer of the Borrower setting forth details of such Default and the
action which the Borrower has taken and proposes to take with respect
thereto;
(e) as soon as possible and in any event within three Business Days
after (x) the occurrence of any adverse development with respect to any
litigation, action, proceeding, or labor controversy described in Section
-------
6.7 or (y) the commencement of any labor controversy, litigation, action,
---
proceeding of the type described in Section 6.7, any of which reasonably
-----------
would be expected to have a Material Adverse Effect, notice thereof and
copies of all documentation relating thereto;
(f) promptly after the sending or filing thereof, copies of all
material reports which the Borrower sends to any of its security holders,
and all material reports and registration statements which the Borrower or
any of its Subsidiaries files with the Securities and Exchange Commission
(including, without limitation, pursuant to Section 7.2.9(b)) or any
----------------
national securities exchange;
(g) immediately upon becoming aware of the institution of any steps by
the Borrower or any other Person to terminate any Pension Plan, or the
failure to make a required contribution to any Pension Plan if such failure
is sufficient to give rise to a Lien under Section 302(f) of ERISA, or the
taking of any action with respect to a Pension Plan which reasonably would
be expected to result in the requirement that the Borrower furnish a bond
or other security to the PBGC or such Pension Plan, or the occurrence of
any event with respect to any Pension Plan which reasonably would be
expected to result in the incurrence by the Borrower of any material
liability, fine or penalty, or any material increase in the contingent
liability of the Borrower with respect to any post-retirement Welfare Plan
benefit, notice thereof and copies of all documentation relating thereto;
(h) immediately upon becoming aware of any litigation or other
proceedings being instituted against any Credit Party or any Practice or
Provider to suspend, revoke or terminate any Medicaid Provider Agreement,
Medicaid Certification, Medicare Provider Agreement, Medicare
Certification, eligibility to participate in Medicare or Medicaid, or
agreement with or certification by, if any, or eligibility to participate
in a program of a third party payor, which suspension, revocation or
termination reasonably would be expected to have a Material Adverse Effect,
promptly deliver to the Agent written notice thereof stating the nature and
status of such litigation, dispute, proceeding, levy, execution or other
process; and
(i) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries or any
Practice as any Lender through the Agent may from time to time reasonably
request.
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<PAGE>
SECTION 7.1.2. Compliance with Laws, etc. (a) The Borrower will, and will
-------------------------
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, regulations and orders (including, without limitation,
Fraud and Abuse Laws, Medicare Regulations, Medicaid Regulations and the rules
and regulations established by any third party payor), such compliance to
include (without limitation):
(i) the maintenance and preservation of its corporate existence and
qualification as a foreign corporation, except to the extent no longer
necessary within the reasonable business judgement of the Borrower or such
Subsidiary, as applicable, or if otherwise terminated pursuant to a
transaction consummated in accordance with the provisions of Section 7.2.8;
-------------
and
(ii) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on its books.
(b) the Borrower will further use its reasonable best efforts, subject to
applicable laws, to assure the compliance by all Practices and Providers with
all applicable laws, including, but not limited to, medical licensure and Fraud
and Abuse Laws, relating to their providing of healthcare services in all
material respects.
SECTION 7.1.3. Maintenance of Properties. The Borrower will, and will
-------------------------
cause each of its Subsidiaries to, maintain, preserve, protect and keep its
properties in good repair, working order and condition, and make necessary and
proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times unless the
Borrower determines in good faith that the continued maintenance of any of its
properties is no longer economically desirable.
SECTION 7.1.4. Insurance. (a) Schedule 7.1.4 sets forth as of the date of
--------- --------------
this Agreement a true and complete listing of all insurance maintained by the
Borrower and each of its Subsidiaries and by each physician and non-physician
Provider. The Borrower will, and will cause each of its Subsidiaries to,
maintain or cause to be maintained with responsible insurance companies
insurance with respect to its properties and business (including business
interruption insurance) against at least such casualties and contingencies and
of at least such types and in at least such amounts as are described in
Schedule 7.1.4, and will, upon request of the Agent, furnish to each Lender at
- --------------
reasonable intervals (provided that, so long as no Event of Default shall have
occurred and be continuing, no such certification shall be required to be
delivered more than once in any Fiscal Year) a certificate of an Authorized
Officer of the Borrower setting forth the nature and extent of all insurance
maintained by the Borrower and its Subsidiaries in accordance with this Section.
49
<PAGE>
(b) The Borrower will, and with cause each of its Subsidiaries to,
maintain insurance for claims, however characterized, against them in connection
with the provision of medical services by Providers and/or ancillary services
provided by them for Practices covered by Service Agreements, in at least such
amounts per occurrence as are described in Schedule 7.1.4, which insurance shall
--------------
name the Agent and each Lender as a loss payee. The Borrower will further cause
each Practice to maintain medical malpractice insurance in at least such amounts
per occurrence as are described in Schedule 7.1.4.
--------------
SECTION 7.1.5. Books and Records. The Borrower will, and will cause each
-----------------
of its Subsidiaries to, keep books and records which accurately reflect all of
its business affairs and transactions and permit the Agent and each Lender or
any of their respective representatives, at reasonable times and intervals,
upon, so long as no Event of Default shall exist and be continuing, reasonable
prior notice delivered during regular business hours, to visit all of its
offices, to discuss its financial matters with its officers and independent
public accountant (and the Borrower hereby authorizes such independent public
accountant to discuss the Borrower's financial matters with each Lender or its
representatives, provided, so long as no Event of Default shall exist or be
continuing, a representative of the Borrower is present) and to examine (and, at
the expense of the Borrower, photocopy extracts from) any of its books or other
corporate records. The Borrower shall pay any fees of such independent public
accountant incurred in connection with the Agent's or any Lender's exercise of
its rights pursuant to this Section provided, however, that so long as no Event
of Default shall exist and be continuing, the Borrower shall not be liable for
the fees and expenses of such independent public accountant related to more than
one visit during any Fiscal Year. All visits conducted pursuant to this Section
-------
7.1.5 shall be conducted in such a manner so as not to disrupt the business
- -----
operations of the applicable office. All information obtained during any such
visit shall be subject to the provisions of Section 10.12.
-------------
SECTION 7.1.6. Environmental Covenant. The Borrower will, and will cause
----------------------
each of its Subsidiaries to:
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary material
permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and remain in material
compliance therewith, and handle all Hazardous Materials in material
compliance with all applicable Environmental Laws;
(b) immediately notify the Agent and provide copies upon receipt of
all written material claims, complaints, notices or inquiries relating to,
the condition of its facilities and properties or compliance with
Environmental Laws, and shall promptly cure and have dismissed with
prejudice to the reasonable satisfaction of the Agent any actions and
proceedings relating to compliance with Environmental Laws; and
50
<PAGE>
(c) provide such information and certifications which the Agent may
reasonably request from time to time to evidence compliance with this
Section 7.1.6.
-------------
SECTION 7.1.7. Changes to Certain Agreements. Without Required
-----------------------------
Lender's prior written consent, no Credit Party shall make any amendment,
supplement or modification to the Service Agreement with a Founding Affiliated
Practice or any agreements evidencing Subordinated Debt; provided, however, that
any such amendment which conforms with applicable law in all material respects
and is not materially adverse to the interests of the Lenders as Lenders under
the Loan Documents shall be permitted without any consent. Copies of such
amended agreements shall be delivered promptly to the Agent by the Borrower.
SECTION 7.1.8. Governmental Licenses. The Borrower will, and will
---------------------
cause each of its Subsidiaries to, obtain and maintain all material licenses,
permits, agreements, certifications and approvals of all applicable governmental
authorities as are required for the conduct of its business as currently
conducted and herein contemplated, Medicaid Certifications and Medicare
Certifications and certifications of third party payors, if any.
SECTION 7.1.9. Covenants Extending to Other Persons. The Borrower
------------------------------------
will, and will cause each of its Subsidiaries to, use its reasonable best
efforts, in accordance with applicable law (which shall include, without
limitation, the exercise of contractual rights and remedies available to the
Borrower and its Subsidiaries) to cause each Practice or Provider, as
appropriate to do with respect to itself, its business and its assets, each of
the things required of a Credit Party in Sections 7.1.2 through 7.1.8 inclusive,
-------------- -----
subject, however, in the case of Section 7.1.5 to any laws, rules or regulations
-------------
concerning the confidentiality of medical records.
SECTION 7.1.10. Solvency. The Borrower and its Subsidiaries on a
--------
consolidated basis shall at all times be Solvent.
SECTION 7.1.11. Further Assurances. (a) The Borrower shall ensure
------------------
that all written information, exhibits and reports furnished to the Agent or the
Lenders do not and will not contain any untrue statement of a material fact and
do not and will not omit to state any material fact or any fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which made, and will promptly disclose to the Agent and the
Lenders and correct any defect or error that may be discovered therein or in any
Loan Document or in the execution, acknowledgment or recordation thereof.
(b) Promptly upon request of the Agent or the Required Lenders, the
Borrower shall (and shall cause any of its Subsidiaries to) execute,
acknowledge, deliver, record, re-record, file, re-file, register and re-
register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments the Agent or such
Lenders, as the case may be, may reasonably require from time to
51
<PAGE>
time in order (i) to carry out more effectively the purposes of this Agreement
or any other Loan Document, (ii) to subject any of the properties, rights or
interests covered by any of the Collateral Documents to the Liens intended to be
created by any of the Collateral Documents, (iii) to perfect and maintain the
validity, effectiveness and priority of any of the Collateral Documents and the
Liens intended to be created thereby, and (iv) to better assure, convey, grant,
assign, transfer, preserve, protect and confirm to the Agent and the Lenders the
rights granted or now or hereafter intended to be granted to the Agent and the
Lenders under any Loan Document or under any other document executed in
connection therewith.
SECTION 7.1.12. New Subsidiaries. Within 10 Business Days after the
----------------
date of the acquisition or creation of any Subsidiary by the Borrower or Wholly-
Owned Subsidiary, such Person will cause to be delivered to the Agent for the
benefit of the Lenders each of the following:
(i) a joinder to the Guaranty, the Guarantor Pledge Agreement and
the Guarantor Security Agreement;
(ii) if such Subsidiary is a corporation, a limited liability company
or a partnership that has issued certificates evidencing ownership of
interests therein, the capital stock or, if applicable, certificates of
ownership of such limited liability company or partnership, as the case may
be, of such Person pertaining thereto, together with duly executed stock
powers or powers of assignment in blank affixed thereto;
(iii) if such Subsidiary is a limited liability company or a
partnership not described in clause (ii) immediately above, an
acknowledgment of security interest of such limited liability company or
partnership, as the case may be, with respect to the registration of the
Lien on membership or partnership interests in such Subsidiary, as the case
may be, of such Person which acknowledgment shall be in form and substance
satisfactory to the Agent;
(iv) a supplement to the appropriate schedules attached to the
Collateral Documents to reflect the acquisition by the Borrower or, a
Wholly-Owned Subsidiary of the Borrower, of such Subsidiary, certified as
true, correct and complete by the Authorized Officer of the relevant Credit
Party (provided that the failure to deliver such supplement shall not
impair the rights conferred under the Collateral Documents in after
acquired Collateral and Pledged Collateral);
(v) an opinion or opinions of counsel to the Borrower and such
Subsidiary, dated as of the date of delivery of the Guaranty, provided in
the foregoing clause (i) and addressed to the Agent and the Lenders, in
form and substance reasonably acceptable to the Agent (which opinion may
include assumptions and qualifications of similar effect to those contained
in the opinions of counsel delivered pursuant to Section 5.1.8), to the
-------------
effect that:
52
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(A) such Subsidiary is duly organized, validly existing and in
good standing in the jurisdiction of its organization, has the
requisite power and authority to own its properties and conduct its
business as then owned and then proposed to be conducted and is duly
qualified to transact business and is in good standing in each
jurisdiction listed on the schedule attached to such opinion;
(B) the execution, delivery and performance of the Guaranty, the
Guarantor Pledge Agreement and the Guarantor Security Agreement
described in clause (i) of this Section 7.1.12, have been duly
--------------
authorized by all requisite action (including any required
shareholder, member or partner approval), such agreement has been duly
executed and delivered and constitutes the valid and binding
obligation of such Subsidiary, enforceable against such Subsidiary in
accordance with its terms, except to the extent such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights and remedies
generally, or to general principles of equity, whether enforcement
thereof is considered in a court of law or equity; and
(C) all financing statements, instruments and documents are in a
form which is sufficient to create a security interest in favor of the
Agent in the Pledged Collateral and the Collateral, as the case may
be;
(vi) current copies of the charter documents, including, limited
liability agreements and certificates of formation, partnership agreements
and certificates of limited partnership, if applicable, and bylaws of such
Subsidiary, minutes of duly called and conducted meetings (or duly effected
consent actions) of the Board of Directors, members, partners, or
appropriate committees thereof (and, if required by such charter documents,
bylaws or by applicable laws, of the shareholders, members or partners) of
such Subsidiary authorizing the actions and the execution and delivery of
documents described in this Section 7.1.2 and evidence satisfactory to the
-------------
Agent (confirmation of the receipt of which will be provided by the Agent
to the Lenders) that such Subsidiary is Solvent as of such date and after
giving effect to the Guaranty.
SECTION 7.2 Negative Covenants. The Borrower agrees with the Agent and
------------------
each Lender that, until all Revolving Commitments have terminated and all
Obligations have been paid and performed in full, each Credit Party will perform
the obligations set forth in this Section 7.2.
-----------
SECTION 7.2.1. Business Activities. The Borrower will not, and will not
-------------------
permit any of its Subsidiaries, including, without limitation, any New
Subsidiary, to, engage in any business activity, except in the fields of
enterprise relating to ophthalmology as it is presently conducting and such
activities as may be incidental or related thereto and reasonable extensions
thereof.
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SECTION 7.2.2. Indebtedness. The Borrower will not, and will not permit
------------
any of its Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of the Loans and other Obligations;
(b) until the date of the initial Borrowing, Indebtedness identified
in Part A of Schedule 6.17;
-------------
(c) Indebtedness, including Subordinated Debt, existing as of the
Effective Date which is identified in Part B of Schedule 6.17, but without
-------------
giving effect to any extensions, renewals or refinancing thereof;
(d) Indebtedness in respect of Liens to the extent permitted in
Section 7.2.3(c);
----------------
(e) unsecured Indebtedness incurred in the ordinary course of business
(including open accounts extended by suppliers on normal trade terms in
connection with purchases of goods and services, but excluding Indebtedness
incurred through the borrowing of money or Contingent Liabilities);
(f) Indebtedness, in respect of Capitalized Lease Liabilities, at any
one time not to exceed in the aggregate $3,000,000.
(g) Indebtedness consisting of intercompany loans and advances made by
the Borrower to any Credit Party (other than Intermediate Parent or, on and
after the Reorganization Date, the Borrower) or by such Credit Party to the
Borrower or another Credit Party (other than Intermediate Parent or, on and
after the Reorganization Date, the Borrower) ("Intercompany Loans"),
provided that (i) the payor Credit Party shall have executed and delivered
--------
to the payee Credit Party a demand note (the "Intercompany Note") to
-----------------
evidence any such Intercompany Loan, which Intercompany Note shall be in
form and substance satisfactory to Agent pledged to the Agent pursuant to
the relevant Collateral Documents as additional collateral security for the
Obligations, (ii) the payee Credit Party shall record all Intercompany
Loans on its books and records in a manner satisfactory to Agent, (iii) at
the time any such Intercompany Loan is made by a payee Credit Party and
after giving effect thereto, each of the payee Credit Party and the payor
Credit Party shall be Solvent and (iv) the aggregate outstanding principal
amount of Intercompany Loans to Credit Parties that are non-Wholly-Owned
Subsidiaries of the Borrower shall not at any one time exceed in the
aggregate $500,000, provided, however, that the dollar limitation contained
-------- -------
in this clause (iv) shall not apply to any non-Wholly-Owned Subsidiary that
has executed and delivered to the Agent a guaranty, pledge agreement and
security agreement in form and substance similar to the forms of such
documents executed by Wholly-Owned Subsidiaries of the Borrower;
54
<PAGE>
(h) Subordinated Debt of the Borrower issued to a Provider in
connection with a Permitted Acquisition, such Indebtedness to be on terms
and conditions reasonably satisfactory to the Agent (the Agent hereby
acknowledges and agrees that the subordination provisions contained in the
Subordinated Debt existing as of the date hereof are satisfactory);
(i) Subordinated Debt of the Borrower, such Subordinated Debt to
mature no earlier than one year after the Maturity Date and shall otherwise
be on terms and conditions reasonably satisfactory to the Agent (the Agent
hereby acknowledges and agrees that the subordination provisions contained
in the Subordinated Debt existing as of the date hereof are satisfactory);
(j) Indebtedness of the Borrower constituting unpaid minority
interests to a Provider in connection with a Permitted Acquisition, such
Indebtedness to be on terms and conditions reasonably satisfactory to the
Agent;
(k) Indebtedness of a Practice which exists at the time such Practice
is the subject of a Permitted Acquisition, which Indebtedness is assumed by
the Credit Party which is a party to such Permitted Acquisition and is
otherwise permitted pursuant to this Section 7.2.2; and
-------------
(l) Indebtedness represented by the Investments described in Section
7.2.5(h);
provided, however, that no Indebtedness otherwise permitted by clauses (d), (e),
- -------- ------- ----------- ---
(f), (g), (h), (i), (j), (k) or (l) shall be permitted if, after giving effect
- --- ---- ---- --- --- --- ---
to the incurrence thereof, any Default shall have occurred and be continuing.
SECTION 7.2.3. Liens. The Borrower will not, and will not permit any of its
-----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of
its property, revenues or assets, whether now owned or hereafter acquired,
except:
(a) Liens securing payment of the Obligations, granted pursuant to any
Loan Document;
(b) until the date of the initial Borrowing; Liens securing payment of
Indebtedness of the type permitted and described in clause (b) of Section
---------- -------
7.2.2;
-----
(c) purchase money security interests, in addition to, and not in
limitation of, the Capitalized Lease Obligations described in clause (j)
hereof, on any property acquired or held by any Credit Party (other than
Intermediate Parent and, on and after the Reorganization Date, the
Borrower) in the ordinary course of business, securing Indebtedness
incurred or assumed for the purpose of financing all or any part of the
cost of
55
<PAGE>
acquiring such property; provided that (i) any such Lien attaches
-------- ----
to such property concurrently with or within 20 days after the acquisition
thereof, (ii) such Lien attaches solely to the property so acquired in such
transaction, (iii) the principal amount of the Indebtedness secured thereby
does not exceed 75% of the cost of such property and (iv) the principal
amount of the Indebtedness which is outstanding and which is secured by any
and all such purchase money security interests shall not at any time exceed
$3,500,000;
(d) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside
on its books;
(e) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being diligently contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books;
(f) Liens (other than any Lien imposed by ERISA) incurred in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance or other forms of governmental insurance or
benefits, or to secure performance of tenders, statutory obligations,
leases and contracts (other than for borrowed money) entered into in the
ordinary course of business or to secure obligations on surety or appeal
bonds;
(g) judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is bonded or covered in full (subject to a customary deductible)
by insurance maintained with responsible insurance companies;
(h) Liens in existence on the Effective Date and listed on Schedule
--------
7.2.3, but without giving effect to any extensions or renewals thereof; and
-----
(i) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the
property of the Person which is subject thereto;
(j) Liens in connection with Capitalized Lease Obligations in the
amount and to the extent permitted by Section 7.2.2(f);
----------------
(k) Liens on property leased by the Borrower or any Subsidiary or
other interest or title of the lessor under operating leases securing
obligations of the Borrower or such Subsidiary to the lessor under such
leases; and
56
<PAGE>
(l) Liens on property of a Practice which exist at the time such
Practice becomes the subject of a Permitted Acquisition to the extent such
Liens are otherwise permitted pursuant to this Section 7.2.3.
-------------
SECTION 7.2.4. Financial Condition. The Borrower will not permit:
-------------------
(a) Its Net Income as of the end of each Fiscal Quarter (other than
the Fiscal Quarter ending March 31, 1997) to be less than $0.
(b) Its Senior Leverage Ratio as of the end of each Fiscal Quarter to
be greater than 3.0:1.0.
(c) Its ratio of the Borrower's consolidated Indebtedness to EBITDA as
of the end of each Fiscal Quarter listed below for the twelve-month period
preceding such date to be greater than the ratio set forth opposite such
date:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----
<S> <C>
June 30, 1998 4.5:1.0
September 30, 1998 4.5:1.0
December 31, 1998 4.5:1.0
March 31, 1999 4.5:1.0
June 30, 1999 4.5:1.0
September 30, 1999 and each 4.0:1.0
Fiscal Quarter thereafter
</TABLE>
(d) Its Adjusted Net Worth at any time to be less than $40,000,000.
SECTION 7.2.5. Investments. The Borrower will not, and will not permit any
-----------
of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in
any other Person, except:
(a) Investments existing on the Effective Date and identified in
Schedule 7.2.5;
--------------
(b) Cash Equivalent Investments and cash, provided, however, that the
-------- -------
balance maintained in any deposit account not subject to a Lien of the
Agent shall not exceed $100,000 for a period of seven consecutive days;
57
<PAGE>
(c) without duplication, Investments permitted as Indebtedness
pursuant to Section 7.2.2;
-------------
(d) without duplication, Investments permitted as Capital Expenditures
pursuant to Section 7.2.7;
-------------
(e) in the ordinary course of business, Investments by the Borrower in
any of its Subsidiaries, or in any new Subsidiary created after the
Effective Date in connection with a Permitted Acquisition, or by any
Subsidiary in any of its Subsidiaries, by way of contributions to capital;
(f) Permitted Acquisitions by the Borrower or a Wholly-Owned
Subsidiary of the Borrower;
(g) the acquisition by the Borrower or a Wholly-Owned Subsidiary of
the Borrower of 100% of the minority interests held by a Provider in a non-
Wholly-Owned Subsidiary, provided that any such acquisition is made solely
--------
in connection with the merger of such non-Wholly-Owned Subsidiary into the
Borrower or a Wholly-Owned Subsidiary of the Borrower as permitted by
Section 7.2.8;
-------------
(h) Investments by the Borrower or any Subsidiary consisting of loans
to Providers in an amount not to exceed $300,000 individually or $2,000,000
in the aggregate outstanding at any one time; and
(i) Investments by a Practice which exist at the time such Practice is
the subject of a Permitted Acquisition to the extent such Investments are
otherwise permitted pursuant to this Section 7.2.5.
-------------
provided, however, that
- -------- -------
(j) any Investment which when made complies with the requirements of
the definition of the term "Cash Equivalent Investment" may continue to be
--------------------------
held notwithstanding that such Investment if made thereafter would not
comply with such requirements; and
(k) no Investment otherwise permitted by clause (e), (f), (g), (h),
---------- --- --- ---
(i) or (k) shall be permitted to be made if, immediately before or after
--- ---
giving effect thereto, any Default shall exist and be continuing.
58
<PAGE>
SECTION 7.2.6. Restricted Payments, etc. On and at all times after the
------------------------
Effective Date:
(a) The Borrower will not, and will not permit any of its Subsidiaries
to, declare, pay or make any dividend or distribution (in cash, property or
obligations) on any shares of any class of capital stock (now or hereafter
outstanding) of the Borrower or such Subsidiary or on any warrants, options
or other rights with respect to any shares of any class of capital stock
(now or hereafter outstanding) of the Borrower or such Subsidiary (other
than in the case of (I) the Borrower (x) dividends or distributions
payable in its common stock or warrants to purchase its common stock or
splitups or reclassifications of its stock into additional or other shares
of its common stock, (y) scheduled dividend payments on its preferred
stock so long as no Default or Event of Default has occurred and is
continuing both before and after giving effect to the payment of such
dividend and (z) distributions to any Subsidiary which is a limited
liability company of the Borrower solely to permit the members thereof to
make payment of its federal and state income tax liability attributable to
such limited liability company's taxable income, whether or not a Default
or an Event of Default then or (II) any Subsidiary which is a limited
liability company, distributions to members of any such Subsidiary solely
to permit such members to make payment of their federal and state income
tax liability attributably to such member's taxable income of such
Subsidiary whether or not a Default or an Event of Default than exists) or
apply, or permit any of its Subsidiaries to apply, any of its funds,
property or assets to the purchase, redemption, sinking fund or other
retirement of, or agree or permit any of its Subsidiaries to purchase or
redeem, any shares of any class of capital stock (now or hereafter
outstanding) of the Borrower, or warrants, options or other rights with
respect to any shares of any class of capital stock (now or hereafter
outstanding) of the Borrower, except that (A) except as otherwise approved
by the Lenders, the Borrower may redeem the Series A Preferred Stock at any
time on or prior to January 1, 1999 so long as (x) no Default or Event of
Default has occurred and is continuing both before and after giving effect
to such redemption and (y) the aggregate amount paid by the Borrower in
connection with such redemption shall not exceed the lesser of (I)
$6,000,000, and (II) the aggregate amount of any new equity issued by the
Borrower from the date hereof through and including January 1, 1999, (B),
in addition to distributions permitted pursuant to clause (a)(II) above,
--------------------
any Subsidiary of the Borrower may declare and pay cash dividends and
distributions to its equity holders and (C) so long as no Default or Event
of Default then exists or would result therefrom, the Borrower may redeem
or purchase shares of its stock held by former employees of the Borrower or
any of its Subsidiaries following their death, disability or the
termination of their employment;
(b) Borrower will not, and will not permit any of its Subsidiaries to:
(i) make any payment or prepayment of principal of, or make any
payment of interest on, any Subordinated Debt or on any put option
granted to a holder of Subordinated Debt on any day other than the
stated, scheduled date for such
59
<PAGE>
payment or prepayment set forth in the documents and instruments
memorializing such Subordinated Debt or such put option, or which
would violate the subordination provisions of such Subordinated Debt
or such put option, or while any Default or Event of Default exists
and is continuing both before and after giving effect to such payment;
or
(ii) redeem, purchase or defease any Subordinated Debt other than
Subordinated Debt held by a Provider or a Practice, so long as no
Default or Event of Default exists or is continuing both before and
after giving effect to such redemption, purchase or defeasance; and
(c) Borrower will not, and will not permit any Subsidiary to, make any
sinking fund payment or deposit for any of the foregoing purposes.
SECTION 7.2.7. Capital Expenditures, etc. The Borrower will not, and will
-------------------------
not permit any of its Subsidiaries to, make or commit to make Capital
Expenditures in any Fiscal Year, except Capital Expenditures during any Fiscal
Year which do not aggregate in excess of the greater of an amount equal to (i)
50% of EBITDA for the previous Fiscal Year and (ii) $5,000,000.
SECTION 7.2.8. Consolidation, Merger, etc. The Borrower will not, and will
--------------------------
not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with,
or merge into or with, any other corporation, or purchase or otherwise acquire
all or substantially all of the assets of any Person (or of any division
thereof) except:
(a) any such Subsidiary may liquidate or dissolve voluntarily into,
and may merge with and into, the Borrower or any Wholly-Owned Subsidiary of
the Borrower or any Guarantor, and the assets or stock of any Subsidiary
may be purchased or otherwise acquired by the Borrower or any Wholly-Owned
Subsidiary of the Borrower or any Guarantor;
(b) so long as no Default or Event of Default exists and is continuing
or would occur after giving effect thereto, the Borrower or any Wholly-
Owned Subsidiary of the Borrower may consummate a Permitted Acquisition;
and
(c) any Subsidiary may liquidate or dissolve into or merge with or
into any other Person, provided that, after giving effect thereto (i) no
Default or Event of Default shall exist or be continuing; (ii) the Net
Worth of the surviving Person shall be at least equal to the Net Worth of
the applicable Subsidiary immediately prior to the consummation of any such
liquidation, dissolution or merger and (iii) the surviving Person shall
assume all Obligations of the applicable Subsidiary under the Loan
Documents.
SECTION 7.2.9. Asset and Capital Stock Dispositions, etc.(a) The Borrower
-----------------------------------------
will not, and will not permit any of its Subsidiaries to, sell, transfer, lease,
contribute or otherwise convey, or
60
<PAGE>
grant options, warrants or other rights with respect to, all or any substantial
part of its assets (including accounts receivable and capital stock of
Subsidiaries) to any Person, unless:
(a) such sale, transfer, lease, contribution or conveyance is in
the ordinary course of its business or is permitted by Section
-------
7.2.9(b); or
--------
(b) the net book value of such assets, together with the net
book value of all other assets sold, transferred, leased, contributed
or conveyed otherwise than in the ordinary course of business by the
Borrower or any of its Subsidiaries pursuant to this clause since the
Effective Date, does not exceed $100,000 (exclusive of the value of
any transaction described in the preceding clause (i)).
(b) the Borrower will not, and will not permit any of its
Subsidiaries to, issue, sell, assign, pledge or otherwise encumber or
dispose of any shares of capital stock or other equity securities in the
Borrower or any such Subsidiary (other than pursuant to this Agreement or
any other Loan Document), including warrants, rights or options to acquire
shares or other equity securities of the Borrower or any of its
Subsidiaries; provided that, notwithstanding the foregoing, and so long as
--------
no Default or Event of Default will result therefrom,:
(i) (x) the Borrower may issue capital stock of the Borrower in
connection with a Permitted Acquisition and (y) a Subsidiary of the
Borrower may issue its capital stock in connection with a Permitted
Equity Ownership Sale;
(ii) the Borrower may issue common stock of the Borrower to a
Provider upon the conversion of Subordinated Debt held by such Provider
into common stock of the Borrower pursuant to the terms and conditions
contained in the documentation governing such Subordinated Debt;
(iii) the Borrower may issue common stock of the Borrower to
holders of preferred stock of the Borrower in connection with the
conversion of such preferred stock into common stock prior to, and/or
in contemplation of, an IPO;
(iv) the Borrower may issue common stock of the Borrower in
connection with an IPO, provided, however, that the Borrower shall
-------- -------
have delivered a certified copy of each agreement, document or other
instrument (including, without limitation, any registration statement
and underwriting agreement) entered into by the Borrower in connection
with such IPO;
(v) the Borrower may issue capital stock, and related options,
of the Borrower to any permitted participant under Borrower's stock
incentive plan or to
61
<PAGE>
any permitted participant under any future stock incentive plans
established by the Borrower and reasonably acceptable to the Agent;
(vi) the Borrower may issue capital stock (or warrants, rights
or options to purchase capital stock) of the Borrower so long as in
connection with a private placement of its capital stock the
consideration received by the Borrower in connection with such sale is
(x) for fair market value (as determined by the Board of Directors of
the Borrower) and (y) paid in immediately available funds;
(vii) the Borrower may issue securities contemplated by the
Securities Purchase Agreement, dated December 20, 1996, between the
Borrower and the several purchasers thereto or pursuant to its
Organizational Documents, in each case as in effect as of the date of
this Agreement;
(viii) the Borrower may issue its Series D preferred stock and
additional preferred stock on terms no more favorable to the holders
thereof with respect to rights to receive payments in cash than the
holder of Series D preferred stock; and
(ix) the Borrower may issue warrants to purchase its Series C
and Series D preferred stock and its preferred stock permitted to be
issued pursuant to the immediately preceding clause (viii).
To the extent the Required Lenders waive the provisions of this Section 7.2.9
-------------
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 7.2.9, such Collateral shall be sold free and clear of
-------------
the Liens created by the Collateral Documents and, if requested by the Borrower,
the Guarantor owner of such Collateral shall be released from the Guaranty, and
the portion of the Collateral owned by such Guarantor shall be released from the
Guarantor Security Agreement and the Agent shall be authorized to take any
actions deemed appropriate in order to effect the foregoing.
SECTION 7.2.10. Modification of Certain Agreements. Except as otherwise
----------------------------------
permitted pursuant to Section 7.1.7 hereof, the Borrower will not, and will not
-------------
permit any of its Subsidiaries to, consent to any amendment, supplement or other
modification of any of the terms or provisions contained in, or applicable to,
its Organizational Documents, any Service Agreement or Employment Agreement
listed on Schedule 6.18, any document, once entered into, relating to a
-------------
Permitted Acquisition, other than any amendment, supplement or other
modification that conforms with applicable laws in all material respects and is
not material or does not have an adverse effect on the Lenders as Lenders under
the Loan Documents, or any document or instrument evidencing or applicable to
any Subordinated Debt or any put option granted to the holders of Subordinated
Debt, other than any amendment, supplement or other modification which extends
the date or reduces the amount of any required repayment or redemption.
62
<PAGE>
SECTION 7.2.11. Transactions with Affiliates. The Borrower will not, and
----------------------------
will not permit any of its Subsidiaries to, enter into, or cause, suffer or
permit to exist any arrangement or contract with any of its other Affiliates
(other than a Wholly-Owned Subsidiary) unless such arrangement or contract is
fair and equitable to the Borrower or such Subsidiary and is an arrangement or
contract of the kind which would be entered into by a prudent Person in the
position of the Borrower or such Subsidiary with a Person which is not one of
its Affiliates.
SECTION 7.2.12. Negative Pledges, Restrictive Agreements, etc. The
---------------------------------------------
Borrower will not, and will not permit any of its Subsidiaries to, enter into
any agreement (excluding this Agreement, any other Loan Document and any
agreement governing any Indebtedness permitted either by clause (b) of Section
---------- -------
7.2.2 as in effect on the Effective Date or by clause (d) of Section 7.2.2 as to
- ----- ---------- -------------
the assets financed with the proceeds of such Indebtedness) prohibiting:
(a) the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired, or the ability
of any Credit Party to amend or otherwise modify this Agreement or any
other Loan Document; or
(b) the ability of any Subsidiary to make any payments, directly or
indirectly, to the Borrower by way of dividends, distributions, advances,
repayments of loans or advances, reimbursements of management and other
intercompany charges, expenses and accruals or other returns on
investments, or any other agreement or arrangement which restricts the
ability of any such Subsidiary to make any payment, directly or indirectly,
to the Borrower.
SECTION 7.2.13 Blue Ridge NovaMed, Inc.. Blue Ridge shall be subject to
------------------------
all of the restrictions set forth in each negative covenant contained in Section
-------
7.2 hereto, but shall not be entitled to any benefit set forth in any exception
- ----
to such restrictions.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following
----------------------------
events or occurrences described in this Section 8.1 shall constitute an "Event
----------- -----
of Default".
- ----------
SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall default in
--------------------------
the payment or prepayment when due of any principal of or interest on any Loan
or any reimbursement obligation when due, or the Borrower shall default (and
such default shall continue unremedied for a period of five days) in the payment
when due of any commitment fee or other fee or of any other Obligation.
63
<PAGE>
SECTION 8.1.2 Breach of Warranty. Any representation or warranty of any
------------------
Credit Party made or deemed to be made hereunder or in any other Loan Document
executed by it, any Letter of Credit or any other writing or certificate
furnished by or on behalf of any Credit Party to the Agent or any Lender for the
purposes of or in connection with this Agreement or any such other Loan Document
or Letter of Credit (including any certificates delivered pursuant to Article V)
---------
is or shall be incorrect when made in any material respect.
SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations. Any
----------------------------------------------------
Credit Party shall default in the due performance and observance of any of its
obligations under Sections 7.1.1, 7.1.7, 7.1.8, 7.1.11, 7.1.12 or Section 7.2.
-------------- ----- ----- ------ ------ -----------
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. Any
--------------------------------------------------
Credit Party shall default in the due performance and observance of any other
agreement contained herein or in any other Loan Document executed by it, and
such default shall continue unremedied for a period of 30 days after notice
thereof shall have been given to the Borrower by the Agent or any Lender.
SECTION 8.1.5. Default on Other Indebtedness. A default shall occur in
-----------------------------
the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in Section 8.1.1) of any Credit Party having a principal amount,
-------------
individually or in the aggregate, in excess of $200,000, or a default shall
occur in the performance or observance of any obligation or condition with
respect to such Indebtedness if the effect of such default is to accelerate the
maturity of any such Indebtedness or such default shall continue unremedied for
any applicable period of time sufficient to permit the holder or holders of such
Indebtedness, or any trustee or agent for such holders, to cause such
Indebtedness to become due and payable prior to its expressed maturity.
SECTION 8.1.6. Judgments. Any judgment or order for the payment of money
---------
in excess of $200,000 shall be rendered against any Credit Party and either:
(a) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order; or
(b) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect.
SECTION 8.1.7. Pension Plans. Any of the following events shall occur
-------------
with respect to any Pension Plan:
(a) the institution of any steps by the Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such termination, the Borrower or any such member reasonably
would be expected to be required to make a
64
<PAGE>
contribution to such Pension Plan, or would reasonably expect to incur a
liability or obligation to such Pension Plan, in excess of $200,000; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION 8.1.8. Change of Control. Any Change of Control shall occur.
-----------------
SECTION 8.1.9. Bankruptcy, Insolvency, etc. Any Credit Party shall:
---------------------------
(a) become insolvent or generally fail to pay, or admit in writing its
inability or unwillingness to pay, its debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for such Credit Party or
any property of such Credit Party, or make a general assignment for the
benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for such Credit Party or for a substantial
part of the property of such Credit Party, and such trustee, receiver,
sequestrator or other custodian shall not be discharged within 60 days,
provided that the Borrower hereby expressly authorizes the Agent and each
--------
Lender to appear in any court conducting any relevant proceeding during
such 60-day period to preserve, protect and defend their rights under the
Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of such Credit Party, and, if any such case or
proceeding is not commenced by such Credit Party, such case or proceeding
shall be consented to or acquiesced in by such Credit Party or shall result
in the entry of an order for relief or shall remain for 60 days
undismissed, provided that the Borrower hereby expressly authorizes the
--------
Agent and each Lender to appear in any court conducting any such case or
proceeding during such 60-day period to preserve, protect and defend their
rights under the Loan Documents; or
(e) take any action authorizing, or in furtherance of, any of the
foregoing.
SECTION 8.1.10. Impairment of Security, etc. Any Loan Document, or any
---------------------------
Lien granted thereunder, shall (except in accordance with its terms or pursuant
to Section 7.2.9), in whole or in part, terminate, cease to be effective or
-------------
cease to be the legally valid, binding and enforceable obligation of any Credit
Party thereto; any Credit Party or any other party shall, directly or
indirectly, contest in any manner the effectiveness, validity, binding nature or
enforceability of any
65
<PAGE>
Loan Document or Lien granted thereunder; or any Lien securing any Obligation
shall, in whole or in part, cease to be a perfected first priority Lien, subject
only to those exceptions expressly permitted by such Loan Document.
SECTION 8.1.11. Fraud and Abuse Laws. Receipt by any Credit Party,
--------------------
Practice or Provider of a notice from a governmental authority or third party
payor that it intends to disallow requested reimbursements, or intends to demand
or demands adjustment or repayment of past reimbursements in excess of two
percent (2%) of the gross revenues of the Borrower for the previous fiscal
quarter respecting amounts submitted for reimbursement or collected by such
Credit Party, Practice or Provider from participation in the Medicare, Medicaid
or third party payor programs if the gross revenues (determined in accordance
with GAAP) to such Credit Party arising from the affected Credit Party, Practice
or Provider exceed one-half percent ( 1/2%) of the gross revenues (determined in
accordance with GAAP) of the Borrower for the previous Fiscal Quarter.
SECTION 8.1.12. Certifications. (i) Revocation, suspension or involuntary
--------------
cancellation or termination of any Medicare Certification, Medicare Provider
Agreement, Medicaid Certification, Medicaid Provider Agreement or third party
payor certification, if any, or agreement of or affecting any Credit Party,
Practice or Provider, or (ii) the loss of any other permits, licenses,
authorizations, certifications or approval from any federal, state or local
governmental authority or termination of any contract with any such authority by
a Credit Party, Practice or Provider, in either case which cancellation,
revocation, suspension or termination, (x) continues for a period greater than
60 days and (y) results in the suspension or termination of operations of any
Credit Party or Practice or in the failure of any Credit Party, Practice or
Provider to be eligible to participate in Medicare, Medicaid or third party
payor programs or to accept assignments of rights to reimbursement under
Medicaid Regulations, Medicare Regulations or guidelines established by a third
party payor, provided that any such events described in this Section 8.1.12
-------- --------------
shall result either singly or in the aggregate in the termination, cancellation,
revocation, suspension or material impairment of operations or rights to
reimbursement which produce two percent (2%) or more of the Borrower's gross
revenues (determined in accordance with GAAP).
SECTION 8.1.13. Service Agreements. (a) The termination of any Service
------------------
Agreement by a Credit Party or Practice which, either individually, or when
aggregated with other Service Agreements that have been terminated during the
preceding twelve-month period (excluding for purposes hereof the termination of
the Service Agreement for Smith Perry Eyecenter, S.C.) constitutes more than
$1,500,000 in annual EBITDA of the Borrower; or (b) any Equity Provider or group
of Equity Providers within a given Practice cease to be employed or otherwise
retained by such Practice and such Equity Provider or group of Equity Providers
accounted for either (x) 30% or more of the net revenues of the Practice with
which such Equity Provider or group of Equity Providers was associated either
individually or when aggregated with the net revenues of other Equity Providers
who have left such Practice within the preceding twelve-month period or (y) 10%
or more of the consolidated net revenues (either individually, or when
aggregated with the net revenues of other Equity Providers who have ceased to be
employed or otherwise retained by
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Reporting Persons within the preceding twelve-month period) of the Borrower and
its Subsidiaries, in each case for the twelve-month period immediately preceding
the date of such termination.
SECTION 8.2. Action if Bankruptcy. If any Event of Default described in
--------------------
clauses (a) through (e) of Section 8.1.9 shall occur, the Revolving Commitments
- ----------- --- -------------
(if not theretofore terminated) and the obligation of the Letter of Credit
Issuer to issue Letters of Credit shall automatically terminate and the
outstanding principal amount of all outstanding Loans and all other Obligations
shall automatically be and become immediately due and payable, without notice or
demand.
SECTION 8.3. Action if Other Event of Default. If any Event of Default
--------------------------------
(other than any Event of Default described in clauses (a) through (e) of Section
----------- --- -------
8.1.9) shall occur for any reason, whether voluntary or involuntary, and be
- -----
continuing, the Agent, upon the direction of the Required Lenders, shall by
notice to the Borrower declare all or any portion of the outstanding principal
amount of the Loans and other Obligations to be due and payable and/or the
Revolving Commitments (if not theretofore terminated) and/or the obligation of
the Letter of Credit Issuer to issue Letters of Credit to be terminated,
whereupon the full unpaid amount of such Loans and other Obligations which shall
be so declared due and payable shall be and become immediately due and payable,
without further notice, demand or presentment, and/or, as the case may be, the
Revolving Commitments shall terminate.
SECTION 8.4. Letters of Credit. In addition to the foregoing, following
-----------------
the occurrence and during the continuance of an Event of Default, so long as any
Letter of Credit has not been fully drawn and has not been canceled or expired
by its terms, upon demand by the Lenders, the Borrower shall deposit in an
account (the "Letter of Credit Cash Collateral Account") maintained with
----------------------------------------
Northern in the name of the Agent, for the benefit of itself and the Lenders,
cash in an amount equal to the aggregate undrawn face amount of all outstanding
Letters of Credit and all fees and other amounts due or which may become due
with respect thereto. The Borrower shall have no control over funds in the
Letter of Credit Cash Collateral Account, which funds shall be invested by the
Agent from time to time in its discretion in certificates of deposit of Northern
having a maturity not exceeding thirty days. Such funds shall be promptly
applied by the Agent to reimburse the Letter of Credit Issuer for drafts drawn
from time to time under the Letters of Credit. Such funds, if any, remaining in
the Letter of Credit Cash Collateral Account following the payment of all
Obligations in full or the earlier termination of all Events of Default shall,
unless the Agent is otherwise directed by a court of competent jurisdiction, be
promptly paid over to the Borrower.
ARTICLE IX
THE AGENT
SECTION 9.1. Actions. Each Lender hereby appoints Northern as its Agent
-------
under and for purposes of this Agreement, the Notes and each other Loan
Document. Each Lender authorizes the
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Agent to act on behalf of such Lender under this Agreement, the Notes and each
other Loan Document and, in the absence of other written instructions from the
Required Lenders received from time to time by the Agent (with respect to which
the Agent agrees that it will comply, except as otherwise provided in this
Section or as otherwise advised by counsel), to exercise such powers hereunder
and thereunder as are specifically delegated to or required of the Agent by the
terms hereof and thereof, together with such powers as may be reasonably
incidental thereto. Each Lender hereby indemnifies (which indemnity shall
survive any termination of this Agreement) the Agent, pro rata according to such
--- ----
Lender's Percentage, from and against any and all liabilities, obligations,
losses, damages, claims, costs or expenses of any kind or nature whatsoever
which may at any time be imposed on, incurred by, or asserted against, the Agent
in any way relating to or arising out of this Agreement, the Notes and any other
Loan Document, including reasonable attorneys' fees, and as to which the Agent
is not reimbursed by the Borrower; provided, however, that no Lender shall be
-------- -------
liable for the payment of any portion of such liabilities, obligations, losses,
damages, claims, costs or expenses which are determined by a court of competent
jurisdiction in a final proceeding to have resulted solely from the Agent's
gross negligence or wilful misconduct. The Agent shall not be required to take
any action hereunder, under the Notes or under any other Loan Document, or to
prosecute or defend any suit in respect of this Agreement, the Notes or any
other Loan Document, unless it is indemnified hereunder to its satisfaction. If
any indemnity in favor of the Agent shall be or become, in the Agent's
determination, inadequate, the Agent may call for additional indemnification
from the Lenders and cease to do the acts indemnified against hereunder until
such additional indemnity is given.
SECTION 9.2. Funding Reliance, etc. Unless the Agent shall have been
---------------------
notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., Chicago
time, on the day prior to a Borrowing that such Lender will not make available
the amount which would constitute its Percentage of such Borrowing on the date
specified therefor, the Agent may assume that such Lender has made such amount
available to the Agent and, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If and to the extent that such Lender
shall not have made such amount available to the Agent, such Lender and the
Borrower severally, without duplication, agree to repay the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date the Agent made such amount available to the Borrower to the date
such amount is repaid to the Agent, at the interest rate applicable at the time
to Loans comprising such Borrowing.
SECTION 9.3. Exculpation. Neither the Agent nor any of its directors,
-----------
officers, employees or agents shall be liable to any Lender for any action taken
or omitted to be taken by it under this Agreement or any other Loan Document, or
in connection herewith or therewith, except for its own wilful misconduct or
gross negligence, nor responsible for any recitals or warranties herein or
therein, nor for the effectiveness, enforceability, validity or due execution of
this Agreement or any other Loan Document, nor for the creation, perfection or
priority of any Liens purported to be created by any of the Loan Documents, or
the validity, genuineness, enforceability, existence, value
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or sufficiency of any collateral security, nor to make any inquiry respecting
the performance by the Borrower of its obligations hereunder or under any other
Loan Document. Any such inquiry which may be made by the Agent shall not
obligate it to make any further inquiry or to take any action. The Agent shall
be entitled to rely upon advice of counsel concerning legal matters and upon any
notice, consent, certificate, statement or writing which the Agent believes to
be genuine and to have been presented by a proper Person.
SECTION 9.4. Successor. The Agent may resign as such at any time upon at
---------
least 30 days' prior notice to the Borrower and all Lenders. If the Agent at
any time shall resign, the Required Lenders, with, so long as no Default or
Event of Default exists and is continuing, the consent of the Borrower, may
appoint another Lender as a successor Agent which shall thereupon become the
Agent hereunder. If no successor Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within 30 days after
the retiring Agent's giving notice of resignation, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent, which shall be one of the
Lenders or a commercial banking institution organized under the laws of the U.S.
(or any State thereof) or a U.S. branch or agency of a commercial banking
institution, and having a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall be entitled to receive from the retiring Agent such
documents of transfer and assignment as such successor Agent may reasonably
request, and shall thereupon succeed to and become vested with all rights,
powers, privileges and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations under this Agreement. After
any retiring Agent's resignation hereunder as the Agent, the provisions of
(i) this Article IX shall inure to its benefit as to any actions
----------
taken or omitted to be taken by it while it was the Agent under this
Agreement; and
(ii) Section 10.3 and Section 10.4 shall continue to inure to its
------------ ------------
benefit.
SECTION 9.5. Loans by Northern. Northern shall have the same rights and
-----------------
powers with respect to (x) the Loans made by it or any of its Affiliates, and
(y) the Notes held by it or any of its Affiliates as any other Lender and may
exercise the same as if it were not the Agent. Northern and its Affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or Affiliate of Borrower as if
Northern were not the Agent hereunder.
SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has,
----------------
independently of the Agent and each other Lender, and based on such Lender's
review of the financial information of each Credit Party, this Agreement, the
other Loan Documents (the terms and provisions of which being satisfactory to
such Lender) and such other documents, information and investigations as such
Lender has deemed appropriate, made its own credit decision to extend its
Revolving Commitment. Each Lender also acknowledges that it will, independently
of the Agent and each other Lender, and
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based on such other documents, information and investigations as it shall deem
appropriate at any time, continue to make its own credit decisions as to
exercising or not exercising from time to time any rights and privileges
available to it under this Agreement or any other Loan Document.
SECTION 9.7. Copies, etc. The Agent shall give prompt notice to each
-----------
Lender of each notice or request required or permitted to be given to the Agent
by any Credit Party pursuant to the terms of this Agreement (unless concurrently
delivered to the Lenders by such Credit Party). The Agent will distribute to
each Lender each document or instrument received for its account and copies of
all other communications received by the Agent from any Credit Party for
distribution to the Lenders by the Agent in accordance with the terms of this
Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Waivers, Amendments, etc. The provisions of this Agreement
------------------------
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrower and the Required Lenders; provided, however, that no such
-------- -------
amendment, modification or waiver which would:
(a) modify any requirement hereunder that any particular action
be taken by all the Lenders or by the Required Lenders shall be effective
unless consented to by each Lender;
(b) modify this Section 10.1, change the definition of
------------
"Required Lenders", increase the Revolving Commitment Amount or the
-----------------
Percentage of any Lender, reduce any fees described in Article III, change
-----------
the schedule of repayments of Loans provided for in Section 3.1.2, release
-------------
any Guarantor from its obligations pursuant to any Guaranty, release all or
substantially all of the collateral security, except as otherwise
specifically provided in any Loan Document or extend the Revolving
Commitment Termination Date or Maturity Date shall be made without the
consent of each Lender and each holder of a Note;
(c) extend the due date for, or reduce the amount of, any
scheduled repayment or prepayment of principal of or interest on any Loan
(or reduce the principal amount of or rate of interest on any Loan) shall
be made without the consent of the holder of that Note evidencing such
Loan;
(d) affect adversely the interests, rights or obligations of
the Agent qua the Agent shall be made without consent of the Agent; or
---
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(e) modify Section 2.7 or 8.4 shall be made without the consent of the
----------- ---
Letter of Credit Issuer.
No failure or delay on the part of the Agent, any Lender or the holder of any
Note in exercising any power or right under this Agreement or any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power or right preclude any other or further exercise
thereof or the exercise of any other power or right. No notice to or demand on
any Credit Party in any case shall entitle it to any notice or demand in similar
or other circumstances. No waiver or approval by the Agent, any Lender or the
holder of any Note under this Agreement or any other Loan Document shall, except
as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 10.2. Notices. All notices and other communications provided to
-------
any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile transmission and addressed, delivered or transmitted to
such party at its address, facsimile number transmission set forth below in
Schedule 10.2 hereto or set forth in the Lender Assignment Agreement or at such
- -------------
other address, or facsimile transmission number as may be designated by such
party in a notice to the other parties. Any notice, if mailed and properly
addressed with postage prepaid or if properly addressed and sent by pre-paid
courier service, shall be deemed given when received; any notice, if transmitted
by facsimile transmission, shall be deemed given when transmitted, provided such
notice is delivered or facsimile transmitted during regular business hours on a
Business Day.
SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay
-----------------------------
on demand all reasonable expenses of the Agent (including the reasonable fees
and out-of-pocket expenses of counsel to the Agent and of local counsel, if any,
who may be retained by counsel to the Agent) in connection with:
(i) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from time
to time hereafter be required, whether or not the transactions contemplated
hereby are consummated, and
(ii) the filing, recording, refiling or rerecording of any Security
Document and/or any Uniform Commercial Code financing statements relating
thereto and all amendments, supplements and modifications to any thereof
and any and all other documents or instruments of further assurance
required to be filed or recorded or refiled or rerecorded by the terms
hereof or of such Security Document, and
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(iii) the preparation and review of the form of any document or
instrument required by this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save the Agent and the Lenders
harmless from all liability for, any stamp or other taxes which may be payable
in connection with the execution or delivery of this Agreement, the borrowings
hereunder, or the issuance of the Notes or any other Loan Documents. The
Borrower also agrees to reimburse the Agent and each Lender upon demand for all
reasonable out-of-pocket expenses (including reasonable attorneys' fees and
legal expenses) incurred by the Agent or such Lender in connection with (x) the
negotiation of any restructuring or "work-out", whether or not consummated, of
any Obligations and (y) the enforcement of any Obligations. Notwithstanding
anything contained herein to the contrary, the Borrower shall not be responsible
for any costs or expenses incurred by the Agent or any Lender in connection with
the transactions contemplated by either of Section 10.11(a) or 10.11(b) hereof.
---------------- --------
SECTION 10.4. Indemnification. In consideration of the execution and
---------------
delivery of this Agreement by each Lender and the extension of the Revolving
Commitments and the making of the Loans, the Borrower hereby indemnifies,
exonerates and holds the Agent and each Lender and each of their respective
officers, directors, employees and agents (collectively, the "Indemnified
-----------
Parties") free and harmless from and against any and all actions, causes of
- -------
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
-----------
Liabilities"), incurred by the Indemnified Parties or any of them as a result
- -----------
of, or arising out of, or relating to:
(i) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loan;
(ii) the entering into and performance of this Agreement and any
other Loan Document by any of the Indemnified Parties (including any action
brought by or on behalf of the Borrower as the result of any determination
by the Required Lenders pursuant to Article V not to fund any Borrowing);
---------
(iii) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower of all or any portion
of the stock or assets of any Person, whether or not the Agent or such
Lender is party thereto;
(iv) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the Release by Borrower or any of its
Subsidiaries of any Hazardous Material; or
(v) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrower
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or any Subsidiary thereof of any Hazardous Material (including any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or
arising under any Environmental Law), regardless of whether caused by, or
within the control of, the Borrower or such Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
SECTION 10.5. Survival. The obligations of the Borrower under Sections
-------- --------
4.3, 4.4, 4.5, 4.6 and 10.3 and 10.4, and the obligations of the Lenders under
--- --- --- ---- ----
Section 9.1, shall in each case survive any termination of this Agreement, the
- -----------
payment in full of all Obligations and the termination of all Revolving
Commitments. The representations and warranties made by the Borrower in this
Agreement and in each other Loan Document shall survive the execution and
delivery of this Agreement and each such other Loan Document.
SECTION 10.6. Severability. Any provision of this Agreement or any other
------------
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 10.7. Headings. The various headings of this Agreement and of
--------
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This
---------------------------------------------
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be executed by the Borrower and the Agent and be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement shall become effective when counterparts hereof
executed on behalf of the Borrower and each Lender (or notice thereof
satisfactory to the Agent) shall have been received by the Agent and notice
thereof shall have been given by the Agent to the Borrower and each Lender.
SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES
-------------------------------
AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS. This Agreement, the
Notes and the other Loan Documents constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto.
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SECTION 10.10. Successors and Assigns. This Agreement shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:
-------- -------
(i) the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of the Agent and
all Lenders; and
(ii) the rights of sale, assignment and transfer of the Lenders are
subject to Section 10.11.
-------------
SECTION 10.11. Sale and Transfer of Loans and Note; Participations in
------------------------------------------------------
Loans and Note. Each Lender may assign, or sell participations in, its Loans and
- --------------
Revolving Commitment to one or more other Persons in accordance with this
Section 10.11.
- -------------
SECTION 10.11.a. Assignments. Any Lender:
-----------
(i) with the written consent of the Agent and, provided no Event of
Default then shall exist or be continuing, the Borrower (which consent
shall not be unreasonably delayed or withheld) may at any time assign and
delegate to one or more commercial banks or other financial institutions,
and
(ii) with notice to the Borrower and the Agent, but without the
consent of the Borrower or the Agent, may assign and delegate to any of its
Affiliates or to any other Lender,
(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), all or any fraction of such Lender's total Loans and
---------------
Revolving Commitment (which assignment and delegation shall be of a constant,
and not a varying, percentage of all the assigning Lender's Loans and Revolving
Commitment) in a minimum aggregate amount of $5,000,000 (or such lesser amount
to the extent that after giving effect to such assignment such Lender's total
Loans and Revolving Commitment is reduced to zero); provided, however, that any
-------- -------
such Assignee Lender will comply, if applicable, with the provisions contained
in the penultimate sentence of Section 4.6, and provided further, however, that,
----------- -------- ------- -------
the Borrower and the Agent shall be entitled to continue to deal solely and
directly with such Lender in connection with the interests so assigned and
delegated to an Assignee Lender until:
(iii) written notice of such assignment and delegation, together with
payment instructions, addresses and related information with respect to
such Assignee Lender, shall have been given to the Borrower and the Agent
by such Lender and such Assignee Lender,
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(iv) such Assignee Lender shall have executed and delivered to the
Borrower and the Agent a Lender Assignment Agreement, accepted by the
Agent, and
(v) the processing fees described below shall have been paid.
From and after the date that the Agent accepts such Lender Assignment Agreement,
(x) the Assignee Lender thereunder shall be deemed automatically to have become
a party hereto and to the extent that rights and obligations hereunder have been
assigned and delegated to such Assignee Lender in connection with such Lender
Assignment Agreement, shall have the rights and obligations of a Lender
hereunder and under the other Loan Documents, and (y) the assignor Lender, to
the extent that rights and obligations hereunder have been assigned and
delegated by it in connection with such Lender Assignment Agreement, shall be
released from its obligations hereunder and under the other Loan Documents.
Within five Business Days after its receipt of notice that the Agent has
received an executed Lender Assignment Agreement, the Borrower shall execute and
deliver to the Agent (for delivery to the relevant Assignee Lender) a new Note
evidencing such Assignee Lender's assigned Loans and Revolving Commitment and,
if the assignor Lender has retained Loans and a Revolving Commitment hereunder,
a replacement Note in the principal amount of the Loans and Revolving Commitment
retained by the assignor Lender hereunder (such Note to be in exchange for, but
not in payment of, that Note then held by such assignor Lender). Each such Note
shall be dated the date of the predecessor Note. The assignor Lender shall mark
the predecessor Note "exchanged" and deliver it to the Borrower. Accrued
interest on that part of the predecessor Note evidenced by the new Note, and
accrued fees, shall be paid as provided in the Lender Assignment Agreement.
Accrued interest on that part of the predecessor Note evidenced by the
replacement Note shall be paid to the assignor Lender. Accrued interest and
accrued fees shall be paid at the same time or times provided in the predecessor
Note and in this Agreement. Such assignor Lender or such Assignee Lender must
also pay a processing fee to the Agent upon delivery of any Lender Assignment
Agreement in the amount of $3,000. Any attempted assignment and delegation not
made in accordance with this Section 10.11.1 shall be null and void.
---------------
SECTION 10.11.b. Participations. Any Lender may at any time sell to one
--------------
or more commercial banks or other Persons (each of such commercial banks and
other Persons being herein called a "Participant") participating interests in
-----------
any of the Loans, its Revolving Commitment, or other interests of such Lender
hereunder; provided, however, that:
-------- -------
(i) no participation contemplated in this Section 10.11 shall
-------------
relieve such Lender from its Revolving Commitment or its other obligations
hereunder or under any other Loan Document,
(ii) such Lender shall remain solely responsible for the performance
of its Revolving Commitment and such other obligations,
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(iii) the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and each of the other Loan Documents,
(iv) no Participant, unless such Participant is an Affiliate of such
Lender, or is itself a Lender, shall be entitled to require such Lender to
take or refrain from taking any action hereunder or under any other Loan
Document, except that such Lender may agree with any Participant that such
Lender will not, without such Participant's consent, take any actions of
the type described in clause (b) or (c) of Section 10.1, and
---------- --- ------------
(v) the Borrower shall not be required to pay any amount under
Section 4.6 that is greater than the amount which it would have been
-----------
required to pay had no participating interest been sold.
The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, shall be considered a
- ------------ --- --- --- --- --- ---- ----
Lender.
SECTION 10.12. Confidentiality. The Lenders shall hold all non-public
---------------
information (which has been identified as such by Borrower) obtained pursuant to
the requirements of this Agreement in accordance with their customary procedures
for handling confidential information of this nature and in accordance with safe
and sound banking practices and in any event may make disclosure to any of their
examiners, Affiliates, outside auditors, counsel and other professional advisors
in connection with this Agreement or as reasonably required by any bona fide
---- ----
transferee, participant or assignee or as required or requested by any
governmental agency or representative thereof or pursuant to legal process;
provided, however, that:
- -------- -------
(i) unless specifically prohibited by applicable law or court
order, each Lender shall notify the Borrower of any request by any
governmental agency or representative thereof (other than any such request
in connection with an examination of the financial condition of such Lender
by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information;
(ii) prior to any such disclosure pursuant to this Section 10.12,
-------------
each Lender shall require any such bona fide transferee, participant and
assignee receiving a disclosure of non-public information to agree in
writing:
(1) to be bound by this Section 10.12; and
-------------
(2) to require such Person to require any other Person to whom
such Person discloses such non-public information to be similarly
bound by this Section 10.12; and
-------------
76
<PAGE>
(iii) except as may be required by an order of a court of competent
jurisdiction and to the extent set forth therein, no Lender shall be
obligated or required to return any materials furnished by any Credit
Party.
SECTION 10.13. Other Transactions. Nothing contained herein shall
------------------
preclude the Agent or any other Lender from engaging in any transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which Borrower or such Affiliate
is not restricted hereby from engaging with any other Person.
SECTION 10.14. Forum Selection and Consent to Jurisdiction. ANY
-------------------------------------------
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE
LENDERS OR ANY CREDIT PARTY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
-------- -------
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE
LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO
ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY
FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION
OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH SUCH CREDIT PARTY
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
77
<PAGE>
SECTION 10.15. Waiver of Jury Trial. THE AGENT, THE LENDERS AND THE
--------------------
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER. THE
BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH
SUCH OTHER LOAN DOCUMENT.
SECTION 10.16 Amendment and Restatement.
-------------------------
(a) This Agreement amends and restates in its entirety the Credit
Agreement, dated as of May 20, 1997, among the Borrower, the lenders party
thereto and The Northern Trust Company, as agent (as amended through the date of
this Agreement, the "Prior Loan Document") and, upon effectiveness of this
Agreement the terms and provisions of the Prior Loan Document shall, subject to
this Section 10.16, be superseded hereby and thereby.
-------------
(b) Notwithstanding the amendment and restatement of the Prior Loan
Document by this Agreement, the Loans under, and as defined in, the Prior Loan
Document ("Continuing Loans") owing to The Northern Trust Company by the
Borrower remain outstanding as of the date hereof, constitute continuing
Obligations hereunder and shall continue to be secured by the Collateral.
The Continuing Loans and the Liens securing payment thereof shall in all
respects be continuing, and this Agreement shall not be deemed to evidence or
result in a novation or repayment and re-borrowing of the Continuing Loans. In
furtherance of and without limiting the foregoing (i) all amounts owing with
respect to the Continuing Loans, other than the principal amount thereof, but
including, accrued interest, fees and expenses with respect to the Continuing
Loans shall have been paid currently as the date hereof and (ii) from and after
the date hereof, the terms, conditions, and covenants governing the Continuing
Loans shall be solely as set forth in this Agreement, which shall supersede the
Prior Loan Document in its entirety.
* * *
78
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
NOVAMED HOLDINGS INC.
By /s/ Stephen J. Winjum
_________________________________
Title: President
THE NORTHERN TRUST COMPANY,
Individually as a Lender, as Letter of Credit
Issuer and as Agent
By /s/ Christopher J. Collins
_________________________________
Title: Second Vice President
PNC BANK, NATIONAL ASSOCIATION, as Agent
and Individually as a Lender
By: /s/ Frank Taucher
_________________________________
Title: Second Vice President
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ David Killpack
_________________________________
Title: Vice President
S-1
[TO AMENDED AND RESTATED CREDIT AGREEMENT]
<PAGE>
FIRST AMENDMENT TO
------------------
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of December ___, 1998 is entered into by and among NOVAMED
---------
HOLDINGS INC., an Illinois corporation ("Company"), THE NORTHERN TRUST COMPANY
-------
("Agent"), for itself as a Lender (as defined below) and as Agent for Lenders,
-----
and the financial institutions signatory hereto ("Lenders"). Unless otherwise
-------
specified herein, capitalized terms used in this Amendment shall have the
meanings ascribed to them by the Credit Agreement (as hereinafter defined).
RECITALS
--------
WHEREAS, the Company, the Agent and the Lenders have entered into that
certain Amended and Restated Credit Agreement, dated as of May 20, 1997 and as
amended and restated as of July 8, 1998 (as further amended, supplemented,
restated or otherwise modified from time to time, the "Credit Agreement"); and
----------------
WHEREAS, the Company, the Agent and the Lenders wish to enter into
certain amendments to the Credit Agreement, all as more fully set forth herein;
NOW THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
SECTION 1. Amendment to the Credit Agreement.
---------------------------------
(a) Section 1.1 of the Credit Agreement is hereby amended
by deleting the dollar amount "$20,000,000" contained in the definition
"Revolving Commitment Amount" and inserting in lieu thereof the dollar
amount "$25,000,000".
SECTION 2. Representations and Warranties. The Company represents
------------------------------
and warrants that:
(a) the execution, delivery and performance by the Company
of this Amendment has been duly authorized by all necessary corporate
action and that this Amendment is a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except as the enforcement thereof may be subject to (i) the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether such enforcement is sought in a proceeding in
equity or at law);
<PAGE>
(b) each of the representations and warranties contained in
the Credit Agreement is true and correct in all material respects on and as
of the date hereof as if made on the date hereof, except to the extent that
such representations and warranties expressly relate to an earlier date;
(c) neither the execution, delivery and performance of this
Amendment nor the consummation of the transactions contemplated hereby does
or shall contravene, result in a breach of, or violate (i) any provision of
the Company's certificate or articles of incorporation or bylaws, (ii) any
law or regulation, or any order or decree of any court or government
instrumentality or (iii) indenture, mortgage, deed of trust, lease,
agreement or other instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
or any of their property is bound, except in any such case to the extent
such conflict or breach, with respect to any such indenture, mortgage, deed
of trust, lease, agreement or other instrument, would not reasonably be
expected to have a Material Adverse Effect or has been waived by a written
waiver, a copy of which has been delivered to the Agent on or before the
date hereof; and
(d) no Default or Event of Default will exist or result
before and after giving effect to this Amendment.
SECTION 3. Reference to and Effect Upon the Credit Agreement.
-------------------------------------------------
(a) Except as specifically amended above, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of
the Agent or any Bank under the Credit Agreement or any Loan Document, nor
constitute a waiver of any provision of the Credit Agreement or any Loan
Document, except as specifically set forth herein. Upon the effectiveness
of this Amendment, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of similar import
shall mean and be a reference to the Credit Agreement as amended hereby.
SECTION 4. Costs and Expenses. As provided in Section 10.03 of
------------------ -------------
the Credit Agreement, the Company agrees to reimburse the Agent for all
reasonable, documented fees, costs and expenses, including the reasonable,
documented fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Amendment.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
2
<PAGE>
SECTION 6. Headings. Section headings in this Amendment are
--------
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purposes.
SECTION 7. Counterparts. This Amendment may be executed in any
------------
number of counterparts (including by facsimile), each of which when so executed
shall be deemed an original but all such counterparts shall constitute one and
the same instrument.
SECTION 8. Effectiveness. This Amendment shall become effective
-------------
upon receipt by the Agent of a fully executed copy of this Amendment.
[signature page follows]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and year first above written.
NOVAMED HOLDINGS INC.
By: /s/ Ronald G. Eidell
___________________________________________
Title: Executive Vice President Finance
___________________________________________
THE NORTHERN TRUST COMPANY, Individually and as
Agent
By: /s/ Christopher J. Collins
_________________________________________
Title: Second Vice President
________________________________________
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Frank Taucher
___________________________________________
Title: Senior Vice President
________________________________________
S-1
[To First Amendment]
<PAGE>
SECOND AMENDMENT AND CONSENT TO
-------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
This SECOND AMENDMENT AND CONSENT TO AMENDED AND RESTATED CREDIT
AGREEMENT (this "Amendment") dated as of May 21, 1999 is entered into by and
---------
among NOVAMED HOLDINGS INC., an Illinois corporation ("Borrower"), THE NORTHERN
--------
TRUST COMPANY and PNC BANK, NATIONAL ASSOCIATION each as Agent (as hereinafter
defined), and each for itself as a Lender (as defined below), and each as Agent
for the Lenders, and the financial institutions signatory hereto ("Lenders").
-------
Unless otherwise specified herein, capitalized terms used in this Amendment
shall have the meanings ascribed to them by the Credit Agreement (as hereinafter
defined).
RECITALS
--------
WHEREAS, the Borrower, the Agent and the Lenders have entered into
that certain Amended and Restated Credit Agreement, dated as of May 20, 1997 and
as amended and restated as of July 8, 1998 (as amended by that certain Letter
Agreement dated as of November 1, 1998 and by that certain First Amendment dated
as of December 23, 1998, and as the same may be further amended, supplemented,
restated or otherwise modified from time to time, the "Credit Agreement"); and
----------------
WHEREAS, the Borrower, the Agent and the Lenders wish to enter into
certain amendments to the Credit Agreement, all as more fully set forth herein;
NOW THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
SECTION 1. Amendments to the Credit Agreement.
----------------------------------
(A) Section 1.1 of the Credit Agreement is hereby amended by deleting
the definitions "Adjusted Net Worth", "Agent", "Change In Control", "EBITDA",
------------------ ----- ----------------- ------
"IPO", "Percentage", "Practice" and "Revolving Commitment Amount" in their
- ---- ---------- -------- ---------------------------
entirety and inserting each of the following definitions in appropriate
alphabetical order:
"Adjusted Net Worth" means at any time the sum of (a) Net Worth as of
------------------
the date of determination, plus (b) consolidated Subordinated Debt as of
----
the date of determination, plus (c) all amounts charged against Net Worth
----
with respect to the accretion of the Series C and Series D preferred stock
of Borrower, plus (d) any non-cash, non-recurring loss or negative net
----
income referred to in the last sentence of the definition of Net Income,
minus (e) an amount equal to 25% of the book value of any equity securities
-----
issued by Borrower in connection with a Permitted Acquisition after the
Effective Date and prior to the date of determination.
<PAGE>
"Agent" means (i)for funding purposes under the Loan Documents, PNC
-----
Bank, National Association; and (ii) for all other purposes under the Loan
Documents, The Northern Trust Company.
"Change of Control" means (a) any Person or any two or more Persons
-----------------
acting in concert (in any such case, excluding the Closing Date
Stockholders and their Affiliates) acquiring beneficial ownership (within
the meaning of Rule 13d-3 of the Securities and Exchange Commission under
the Exchange Act), directly or indirectly, of capital stock (or other
securities convertible into such capital stock) of Borrower representing
35% or more of the combined voting power of all capital stock of Borrower
entitled to vote in the election of directors, or (b) during any period of
12 consecutive calendar months, the ceasing of those individuals (the
"Continuing Directors") who (i) were directors of Borrower, on the first
--------------------
day of each such period or (ii) subsequently became directors of Borrower,
and whose initial election or initial nomination for election subsequent to
that date was approved either by (A) a majority of the Continuing Directors
then on the board of directors of the Borrower or (B) the shareholders who,
in accordance with the provisions of the Articles of Incorporation of
Borrower, are entitled to elect such director, to constitute a majority of
the board of directors of the Borrower.
"EBITDA" means, for any applicable computation period, Borrower's
------
consolidated Net Income on a consolidated basis from continuing operations,
plus (a) income and franchise taxes paid or accrued during such period, (b)
interest expenses paid or accrued during such period, and (c) amortization
and depreciation deducted in determining Net Income for such period. For
the purpose of determining compliance with Section 7.2.4(b) and (c) and
------------------------
Section 7.2.7, "EBITDA" shall be as adjusted pursuant to the formula
-------------
described in Schedule 2.
----------
"IPO" means a registered initial public offering by Borrower on Form
---
S-1 filed with the Securities and Exchange Commission pursuant to a firm
commitment underwriting agreement.
"Percentage" means, relative to any Lender, the percentage set forth
----------
opposite its name on Schedule 10.1 hereto or set forth in the Lender
-------------
Assignment Agreement, as such percentage may be adjusted from time to time
pursuant to Lender Assignment Agreement(s) executed by such Lender and its
Assignee Lender(s) and delivered pursuant to Section 10.11.
-------------
"Practice" means a medical or ophthalmology practice, ambulatory
--------
surgery center or management service center, optometry practice, optical
dispensory or optical laboratory, vision correction centers (including,
without limitation, laser vision correction centers), companies that own,
operate and/or manage vision correction centers (including, without
limitation, laser vision correction centers), clinical research
organizations or entities engaged in the provision of clinical research
and/or sight management services to ophthalmic device and/or pharmaceutical
companies, or reasonable extensions thereof (including any company
2
<PAGE>
which leases or sells equipment or provides services to any of the
foregoing), at a single location or various locations. Whenever in this
Agreement "Practice" is used in describing an acquisition by the Borrower
or a Wholly-Owned Subsidiary of Borrower of equity interests, such
reference is to the acquisition of the assets used in the operation of the
Practice that can lawfully be acquired by the Borrower or a Wholly-Owned
Subsidiary of Borrower or to the acquisition of the equity interests of a
Person that owns, as of the time of purchase, only those assets that can be
lawfully acquired by the Borrower or a Wholly-Owned Subsidiary of Borrower.
"Revolving Commitment Amount" means, on any date, $35,000,000. The
---------------------------
Revolving Commitment Amount then in effect may be reduced from time to time
pursuant to Section 2.2.
-----------
(b) Section 1.1 of the Credit Agreement is hereby further amended by
-----------
adding the following new definition thereto:
"Equity Provider" means any individual or group of individuals who had
---------------
an equity interest in (i) a Practice acquired in a Permitted Acquisition,
on the date of such Permitted Acquisition, or (ii) any other Practice with
which the Borrower has a Service Agreement, on the date of the execution of
any such Service Agreement."
(c) Section 1.1 of the Credit Agreement is hereby further amended by
-----------
deleting clause (d) of the definition of "Permitted Acquisition" and inserting
----------
in lieu thereof the following new clause (d):
----------
"(d) Borrower shall have delivered to the Agent, not later than 30
days after the closing of the acquisition (i) pro forma financial
statements or certificates demonstrating continued compliance with all
covenants in this Agreement following the inclusion of the target in
Borrower's consolidated enterprise, (ii) a copy of the related acquisition
agreement and Service Agreement and each Employment Agreement (all to the
extent applicable) and (iii) a fully executed Agreed EBITDA Form in form
and substance approved by the Agent."
(d) Section 3.2.1 of the Credit Agreement is hereby amended by deleting
-------------
the percentage ".250%" contained in the definition of "Applicable Margin"
appearing in said Section and inserting in lieu thereof the percentage ".375%".
(e) The definitions of "Level I" and "Level II" in Section 3.2.1 of the
-------------
Credit Agreement are hereby amended in their entirety by inserting in lieu
thereof the following new definitions:
"Level I" shall exist at any time the Senior Leverage Ratio is equal
-------
to or less than 3.00:1.0 but equal to or greater than 2.50:1.0.
3
<PAGE>
"Level II" shall exist at any time the Senior Leverage Ratio is less
--------
than 2.50:1.0 but equal to or greater than 2.00:1.0.
(f) Section 6.6 of the Credit Agreement is hereby amended in its entirety
-----------
by inserting in lieu thereof the following new Section 6.6:
-----------
"SECTION 6.6 No Material Adverse Change. Since December 31, 1998,
--------------------------
there has been no material adverse change in the financial condition,
operations, assets, business, properties or prospects of the Borrower and
its Subsidiaries taken as a whole."
(G) Section 7.1.1 of the Credit Agreement is hereby amended in its
-------------
entirety by (i) deleting clause (a) thereof and by relettering clauses (b)
-----------
through (j) thereof to reflect such deletion; (ii) by deleting the reference to
- -----------
"June 30, 1998" therein and by inserting in lieu thereof "June 30, 1999"; and
(iii) by deleting clause (g) thereof in its entirety and by inserting in lieu
----------
thereof the following new clause (g):
----------
"(g) promptly after the sending or filing thereof, copies of all
material reports which Borrower sends to any of its security holders, and
all material reports and registration statements which Borrower or any of
its Subsidiaries files with the Securities and Exchange Commission
(including, without limitation, pursuant to Section 7.2.9(b)) or any
----------------
national securities exchange;"
(h) Section 7.2.4(b) of the Credit Agreement is hereby amended in its
----------------
entirety by inserting in lieu thereof the following new Section 7.2.4(b):
----------------
"(b) Its Senior Leverage Ratio as of the end of each Fiscal Quarter
to be greater than 3.0:1.0."
(i) Section 7.2.5(b) of the Credit Agreement is hereby amended in its
----------------
entirety by inserting in lieu thereof the following new Section 7.2.5(b):
----------------
"(b) Cash Equivalent Investments and cash, provided, however, that
-------- -------
the balance maintained in any deposit account not subject to a Lien of the
Agent shall not exceed $100,000 for a period of seven consecutive days;"
(j) Section 7.2.8 of the Credit Agreement is hereby amended in its
-------------
entirety by inserting in lieu thereof the following new Section 7.2.8:
-------------
"Section 7.2.8. Consolidation, Merger, etc. Borrower will not, and
--------------------------
will not permit any of its Subsidiaries to, liquidate or dissolve,
consolidate with, or merge into or with, any other corporation, or purchase
or otherwise acquire all or substantially all of the assets of any Person
(or of any division thereof) except:
4
<PAGE>
(a) any such Subsidiary may liquidate or dissolve voluntarily into,
and may merge with and into, the Borrower or any Wholly-Owned Subsidiary of
the Borrower or any Guarantor, and the assets or stock of any Subsidiary
may be purchased or otherwise acquired by the Borrower or any Wholly-Owned
Subsidiary of the Borrower or any Guarantor;
(b) so long as no Default or Event of Default exists and is
continuing or would occur after giving effect thereto, the Borrower or any
Wholly-Owned Subsidiary of the Borrower may consummate a Permitted
Acquisition; and
(c) any Subsidiary may liquidate or dissolve into or merge with or
into any other Person, provided that, after giving effect thereto (i) no
Default or Event of Default shall exist or be continuing; (ii) the Net
Worth of the surviving Person shall be at least equal to the Net Worth of
the applicable Subsidiary immediately prior to the consummation of any such
liquidation, dissolution or merger and (iii) the surviving Person shall
assume all Obligations of the applicable Subsidiary under the Loan
Documents."
(k) Section 7.2.9 of the Credit Agreement is hereby amended in its
-------------
entirety by inserting in lieu thereof the following new Section 7.2.9:
-------------
"SECTION 7.2.9. Asset and Capital Stock Dispositions, etc. (a) the
-----------------------------------------
Borrower will not, and will not permit any of its Subsidiaries to, sell,
transfer, lease, contribute or otherwise convey, or grant options, warrants
or other rights with respect to, all or any substantial part of its assets
(including accounts receivable and capital stock of Subsidiaries) to any
Person, unless:
(i) such sale, transfer, lease, contribution or conveyance is in
the ordinary course of its business or is permitted by Section
--------
7.2.9(b); or
---------
(ii) the net book value of such assets, together with the net
book value of all other assets sold, transferred, leased, contributed
or conveyed otherwise than in the ordinary course of business by the
Borrower or any of its Subsidiaries pursuant to this clause since the
Effective Date, does not exceed $100,000 (exclusive of the value of
any transaction described in the preceding clause (i)).
(b) the Borrower will not, and will not permit any of its
Subsidiaries to, issue, sell, assign, pledge or otherwise encumber or
dispose of any shares of capital stock or other equity securities in the
Borrower or any such Subsidiary (other than pursuant to this Agreement or
any other Loan Document), including warrants, rights or options to acquire
shares or other equity securities of the Borrower or any of its
Subsidiaries; provided that, notwithstanding the foregoing, and so long as
--------
no Default or Event of Default will result therefrom,:
5
<PAGE>
(i) (x) the Borrower may issue capital stock of the Borrower
in connection with a Permitted Acquisition and (y) a Subsidiary of the
Borrower may issue its capital stock in connection with a Permitted
Equity Ownership Sale;
(ii) the Borrower may issue common stock of the Borrower to a
Provider upon the conversion of Subordinated Debt held by such Provider
into common stock of the Borrower pursuant to the terms and conditions
contained in the documentation governing such Subordinated Debt;
(iii) the Borrower may issue common stock of the Borrower to
holders of preferred stock of the Borrower in connection with the
conversion of such preferred stock into common stock prior to, and/or
in contemplation of, an IPO;
(iv) the Borrower may issue common stock of the Borrower in
connection with an IPO, provided, however, that the Borrower shall
-------- -------
have delivered a certified copy of each agreement, document or other
instrument (including, without limitation, any registration statement
and underwriting agreement) entered into by the Borrower in connection
with such IPO;
(v) the Borrower may issue capital stock, and related
options, of the Borrower to any permitted participant under Borrower's
stock incentive plan or to any permitted participant under any future
stock incentive plans established by the Borrower and reasonably
acceptable to the Agent;
(vi) the Borrower may issue capital stock (or warrants, rights
or options to purchase capital stock) of the Borrower so long as in
connection with a private placement of its capital stock the
consideration received by the Borrower in connection with such sale is
(x) for fair market value (as determined by the Board of Directors of
the Borrower) and (y) paid in immediately available funds;
(vii) the Borrower may issue securities contemplated by the
Securities Purchase Agreement, dated December 20, 1996, between the
Borrower and the several purchasers thereto or pursuant to its
Organizational Documents, in each case as in effect as of the date of
this Agreement;
(viii) the Borrower may issue its Series D preferred stock and
additional preferred stock on terms no more favorable to the holders
thereof with respect to rights to receive payments in cash than the
holder of Series D preferred stock; and
(ix) the Borrower may issue warrants to purchase its Series C
and Series D preferred stock and its preferred stock permitted to be
issued pursuant to the immediately preceding clause (viii).
6
<PAGE>
To the extent the Required Lenders waive the provisions of this Section 7.2.9
-------------
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 7.2.9, such Collateral shall be sold free and clear of
-------------
the Liens created by the Collateral Documents and, if requested by the Borrower,
the Guarantor owner of such Collateral shall be released from the Guaranty, and
the portion of the Collateral owned by such Guarantor shall be released from the
Guarantor Security Agreement and the Agent shall be authorized to take any
actions deemed appropriate in order to effect the foregoing."
(l) Section 7.2.10 of the Credit Agreement is hereby amended in its
--------------
entirety by inserting in lieu thereof the following new Section 7.2.10:
--------------
"SECTION 7.2.10. Modification of Certain Agreements. Except as
----------------------------------
otherwise permitted pursuant to Section 7.1.7 hereof, Borrower will not,
-------------
and will not permit any of its Subsidiaries to, consent to any amendment,
supplement or other modification of any of the terms or provisions
contained in, or applicable to, its Organizational Documents, any Service
Agreement or Employment Agreement listed on Schedule 6.18, any document,
-------------
once entered into, relating to a Permitted Acquisition, other than any
amendment, supplement or other modification that conforms with applicable
laws in all material respects and is not material or does not have an
adverse effect on the Lenders as Lenders under the Loan Documents, or any
document or instrument evidencing or applicable to any Subordinated Debt or
any put option granted to the holders of Subordinated Debt, other than any
amendment, supplement or other modification which extends the date or
reduces the amount of any required repayment or redemption."
(m) Section 8.1.13 of the Credit Agreement is hereby amended in its
--------------
entirety by inserting in lieu thereof the following new Section 8.1.13:
--------------
"SECTION 8.1.13. Service Agreements. (a) The termination of any
------------------
Service Agreement by a Credit Party or Practice which, either individually,
or when aggregated with other Service Agreements that have been terminated
during the preceding twelve-month period (excluding for purposes hereof the
termination of the Service Agreement for Smith Perry Eyecenter, S.C.)
constitutes more than $1,500,000 in annual EBITDA of the Borrower; or (b)
any Equity Provider or group of Equity Providers within a given Practice
cease to be employed or otherwise retained by such Practice and such Equity
Provider or group of Equity Providers accounted for either (x) 30% or more
of the net revenues of the Practice with which such Equity Provider or
group of Equity Providers was associated either individually or when
aggregated with the net revenues of other Equity Providers who have left
such Practice within the preceding twelve-month period or (y) 10% or more
of the consolidated net revenues (either individually, or when aggregated
with the net revenues of other Equity Providers who have ceased to be
employed or otherwise retained by Reporting Persons within the preceding
twelve-month period) of the Borrower and its Subsidiaries, in each case for
the twelve-month period immediately preceding the date of such
termination."
7
<PAGE>
(n) Each reference to "Parent" in any Loan Document shall be a reference
to "Borrower".
(o) Each reference to "New Parent" in any Loan Document shall be amended
by either (i) deleting such reference in its entirety; or (ii) deleting such
reference in its entirety and by inserting in lieu thereof the phrase "the
Borrower", in each case as the context may so require.
(p) Schedule 2 to the Credit Agreement is hereby amended in its entirety
----------
by inserting in lieu thereof the new Schedule 2 attached hereto as Exhibit A.
---------- ---------
SECTION 2. Consent. The Lenders hereby consent to the migratory
-------
merger of the Borrower with and into NovaMed Eyecare, Inc., a Delaware
corporation ("Eyecare") (the "Merger"); provided, (i) that no Default or Event
------- ------ --------
of Default will exist or result before and after giving effect to the Merger and
(ii) Borrower agrees to deliver to Agent, promptly upon receipt thereof,
certified copies of each of (a) the merger agreement between Borrower and
Eyecare; (b) the certificate of incorporation of Eyecare; (c) articles of
incorporation and bylaws of Eyecare; (d) an incumbency certificate indicating
the officers of Eyecare authorized to sign on behalf of Eyecare; (e) any
resolutions adopted by either Borrower or Eyecare in connection with the Merger;
and (f) any other documents which the Agent shall reasonably request in
connection with the Merger or the IPO.
SECTION 3. New Lender.
----------
La Salle National Bank (the "New Lender") hereby acknowledges and
confirms that it has received a copy of the Credit Agreement and the exhibits
related thereto, together with copies of the documents which were required to be
delivered under the Credit Agreement as a condition to the making of the Loans
thereunder. New Lender further confirms and agrees that in becoming a Lender
under the Credit Agreement and in making its Revolving Commitment and Loans
under the Credit Agreement, such actions have and will be made without recourse
to, or representation or warranty by, Agent or the other Lenders.
Effective of the date of this Amendment the New Lender shall be deemed
automatically to have become a party to the Credit Agreement, have all the
rights and obligations of a "Lender" under the Credit Agreement and the other
Loan Documents as if it were an original signatory thereto; and (ii) agrees to
be bound by the terms and conditions set forth in the Credit Agreement and the
other Loan Documents as if it were an original signatory thereto.
After giving effect to the foregoing the New Lender's Percentage for
the purposes of the Credit Agreement is as set forth opposite its name on
Schedule 10.1 to this Amendment.
SECTION 4. Representations and Warranties. The Borrower
------------------------------
represents and warrants that:
8
<PAGE>
(a) the execution, delivery and performance by the Borrower of
this Amendment has been duly authorized by all necessary corporate action
and that this Amendment is a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms,
except as the enforcement thereof may be subject to (i) the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether such enforcement is sought in a proceeding in
equity or at law);
(b) each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of
the date hereof as if made on the date hereof, except to the extent that
such representations and warranties expressly relate to an earlier date;
(c) neither the execution, delivery and performance of this
Amendment nor the consummation of the transactions contemplated hereby does
or shall contravene, result in a breach of, or violate (i) any provision of
the Borrower's certificate or articles of incorporation or bylaws, (ii) any
law or regulation, or any order or decree of any court or government
instrumentality or (iii) indenture, mortgage, deed of trust, lease,
agreement or other instrument to which the Borrower or any of its
Subsidiaries is a party or by which the Borrower or any of its Subsidiaries
or any of their property is bound, except in any such case to the extent
such conflict or breach, with respect to any such indenture, mortgage, deed
of trust, lease, agreement or other instrument, would not reasonably be
expected to have a Material Adverse Effect or has been waived by a written
waiver, a copy of which has been delivered to the Agent on or before the
date hereof; and
(d) no Default or Event of Default will exist or result before
and after giving effect to this Amendment.
SECTION 5. Reference to and Effect Upon the Credit Agreement.
-------------------------------------------------
(a) Except as specifically amended above, the Credit Agreement
and the other Loan Documents shall remain in full force and effect and are
hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Agent or
any Bank under the Credit Agreement or any Loan Document, nor constitute a
waiver of any provision of the Credit Agreement or any Loan Document,
except as specifically set forth herein. Upon the effectiveness of this
Amendment, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of similar import shall mean and
be a reference to the Credit Agreement as amended hereby.
SECTION 6. Costs and Expenses. As provided in Section 10.03 of
------------------ -------------
the Credit Agreement, the Borrower agrees to reimburse the Agent for all
reasonable, documented fees, costs
9
<PAGE>
and expenses, including the reasonable, documented fees, costs and expenses of
counsel or other advisors for advice, assistance, or other representation in
connection with this Amendment.
SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
SECTION 8. Headings. Section headings in this Amendment are
--------
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purposes.
SECTION 9. Counterparts. This Amendment may be executed in any
------------
number of counterparts (including by facsimile), each of which when so executed
shall be deemed an original but all such counterparts shall constitute one and
the same instrument.
SECTION 10. Effectiveness. This Amendment shall become effective
-------------
upon receipt by the Agent of a fully executed copy of (i) this Amendment and
(ii) Notes, for the account of each Lender.
SECTION 11. Amendment and Restatement of Credit Agreement. The
---------------------------------------------
Credit Agreement is hereby amended and restated to read as set forth on Annex A
hereto.
[signature page follows]
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and year first above written.
NOVAMED HOLDINGS INC.
By: /s/ Ronald G. Eidell
----------------------------------------
Title: Executive Vice President Finance
-------------------------------------
THE NORTHERN TRUST COMPANY, Individually and as
Agent
By: /s/ Christopher J. Collins
----------------------------------------
Title: Second Vice President
-------------------------------------
PNC BANK, NATIONAL ASSOCIATION, Individually and as
Agent
By: /s/ Frank Taucher
----------------------------------------
Title: Senior Vice President
-------------------------------------
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ David Killpack
----------------------------------------
Title: Vice President
-------------------------------------
S-1
[TO SECOND AMENDMENT]
<PAGE>
SCHEDULE 10.1
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Bank Commitment Amount Percentage
- ---------------------------------------------------------------------------
<S> <C> <C>
The Northern Trust Company $12,500,000.00 35.71%
- ---------------------------------------------------------------------------
PNC Bank, National
Association $12,500,000.00 35.71%
- ---------------------------------------------------------------------------
LaSalle Bank National $10,000,000.00 28.57%
Association
- ---------------------------------------------------------------------------
Totals $35,000,000.00 100%
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
Schedule 2
----------
AGREED EBITDA FORMULA
---------------------
For the purpose of determining compliance with Section 7.2.4.(b) and
7.2.4(c), "EBITDA" shall be defined as an amount equal to Combined Adjusted
EBITDA as of the date of determination for the twelve- month period preceding
the date of determination.
The following terms when used in this Schedule 2 or in the Agreement have
the following meanings:
"Adjusted EBITDA" shall mean for each Fiscal Quarter, an amount equal to
---------------
either (x) EBITDA for a Reporting Person as of the end of such Fiscal Quarter or
(y) the Allocated EBITDA, if any, for such Reporting Person as of the end of
such Fiscal Quarter.
"Agreed EBITDA" shall mean with respect to each Practice acquired pursuant
-------------
to a Permitted Acquisition, the EBITDA of such practice as agreed upon between
Parent and the Agent prior to the consummation of the acquisition of such
Practice by the Borrower and specified in the related Agreed EBITDA Form.
"Agreed EBITDA FORM" shall mean the form attached as Annex A to this
------------------
Schedule 2.
"Allocated EBITDA" shall mean, for each Fiscal Quarter, an amount equal to
----------------
the product of (x) Agreed EBITDA of a Reporting Person for such Fiscal Quarter
multiplied by (y) the Allocated Percentage for such Reporting Person for such
Fiscal Quarter.
"Allocated Percentages" shall mean with respect to each Practice acquired
---------------------
pursuant to a Permitted Acquisition, the percentage for each Fiscal Quarter
allocated to such Practice as agreed to between Parent and the Agent prior to
the consummation of the acquisition of such Practice by the Borrower and
specified in the related Agreed EBITDA Form.
"Combined Adjusted EBITDA" shall mean for each Fiscal Quarter, (A) the
------------------------
aggregate amount of Adjusted EBITDA of each Reporting Person as of the end of
such Fiscal Quarter as disclosed on a Quarterly EBITDA Certificate less (B) an
amount equal to the (i) EBITDA calculated for each Reporting Person that has
terminated its Service Agreement or (ii) terminated Provider EBITDA (as agreed
to by the Borrower and the Agent) for any Provider having net revenues for the
prior twelve-month period in excess of $1,000,000 that has ceased to be employed
or otherwise retained by any Reporting Person. Provided that for purpose of
clause (B) hereof, such determination shall be made within thirty days of the
- ----------
applicable termination.
2-1
<PAGE>
"Quarterly EBITDA Certificate" shall mean the certificate attached as Annex
----------------------------
B to this Schedule 2.
2-2
<PAGE>
ANNEX A
AGREED EBITDA FORM
Date: ______
Name of Practice: ________________
I. Allocated EBITDA
A. Agreed EBITDA for the 12 months ended ____________: ________
B. Allocation Percentages: Quarter Ending: __/__/__ ________
__/__/__ ________
__/__/__ ________
__/__/__ ________
NOVAMED EYECARE MANAGEMENT, LLC
By: ________________________
Title: _____________________
AGREED AND ACCEPTED
THIS _____ day of _____, ___:
THE NORTHERN TRUST COMPANY,
as Agent
By: ___________________________
Title: ________________________
A-1
<PAGE>
ANNEX B
QUARTERLY EBITDA CERTIFICATE
Date: ______
Name of Practice: ________________
I. Allocated EBITDA
A. Agreed EBITDA for the 12 months ended __________: _______
B. Allocation Percentages: Quarter Ending: __/__/__ _______
__/__/__ _______
__/__/__ _______
__/__/__ _______
C. Allocated EBITDA: Quarter Ending: __/__/__ ________(a)
(I.A. x I.B.) __/__/__ ________(b)
__/__/__ ________(c)
__/__/__ ________(d)
II. ACTUAL EBITDA
Quarter Ending: __/__/__ ________(e)
__/__/__ ________(f)
__/__/__ ________(h)
__/__/__ ________(i)
B-1
<PAGE>
III. TOTAL ADJUSTED EBITDA
A. Calculation Quarter Ending: __/__/__ ________
__/__/__ ________
__/__/__ ________
__/__/__ ________
B. Total ________
The undersigned certifies and warrants to the Agent and the Lenders that the
contents of this certificate are true and accurate as of the date set forth
above.
NOVAMED HOLDINGS, INC.
By: ________________________
Title: _____________________
B-2
<PAGE>
[LOGO OF NORTHERN TRUST APPEARS HERE] The Northern Trust Company
50 South Lasalle Street
Chicago, Illinois 60675
USA
Tel 312.630.6000
November 1, 1998
NOVAMED HOLDINGS, INC.
980 North Michigan Avenue
Suite 1620
Chicago, Illinois 60611
Attention: John W. Lawrence, Jr.
Re: $20,000,000 Amended and Restated Credit Agreement, dated as of July 8,
1998, by and among NOVAMED HOLDINGS, INC. ("Borrower"), certain commercial
lending institutions ("Lenders") and the Northern Trust Company as Agent
("Agent") (the "Agreement"; capitalized terms not otherwise defined herein
shall have the meaning ascribed thereto in the Agreement).
Ladies and Gentlemen:
At your request, and subject to the following terms and conditions hereof, the
Lenders agree to:
(a) Waive any default, event of default or similar event arising (i) as a
result of any failure to comply with the terms and conditions of Section 7.1.12
of the Agreement, and (ii) in connection with the Louisville Optical transaction
consummated on September 24, 1998, provided that all items required to be
delivered with the above referenced transaction shall have been duly delivered
not later than December 2, 1998; and
(b) Amend the provisions of the definition of "Interest Period" appearing
on page 11 of the Agreement to insert between the phrases "and shall end on (but
exclude)" and "the day which" appearing in the third line thereof the following
additional language:
"either (i) the day one week subsequent to such day, or (ii)"
The amendment and waiver contained herein shall (a) be effective only to the
extent specifically set forth herein and shall not be construed to be a waiver
of or consent to any further amendment to the Agreement, and (b) are expressly
preconditioned upon the Borrower's representation and warranty to the Agent and
the Lenders as of the date of this letter that after giving effect to the waiver
and amendment herein, (i) no Event of Default (nor event which, with the
passing time, or the giving of notice, or both, would
<PAGE>
The Northern Trust Company
become an Event of Default) has occurred or is continuing under the Agreement;
(ii) the Borrower is in compliance with all covenants contained in the
Agreement; and (iii) the representations and warranties of the Borrower set
forth in the Agreement are true and correct on and of the date of this letter as
though made on the date hereof.
Except as amended hereby, the provisions of the Agreement remain unwaived and
unamended and in full force and effect. Nothing contained in this letter
constitutes nor shall be construed to constitute any agreement or willingness of
the Lenders to consent to any further waiver or amendment of the terms of the
Agreement. Please confirm your agreement with and consent to the above
amendment, terms and conditions and your making of the above representation and
warranties by executing, as provided below, the three enclosed copies of this
letter and returning two copies of this letter to us, signed as provided herein
and addressed to the attention of the undersigned on or prior to December 15,
1998 (after which date, if not so accepted, this offer of waivers and amendments
shall be automatically revoked), and the amendment contained herein shall
thereupon become effective as of the date hereof upon receipt by the Lenders and
the Agent of such executed copies and shall become an agreement binding upon the
Agent, the Lenders, the Borrower and their respective successors and assigns.
Very truly yours,
THE NORTHERN TRUST COMPANY,
As Agent and a Lender
By:/s/ Christopher J. Collins
---------------------------
Its: SECOND VICE PRESIDENT
--------------------------
PNC BANK, National Association,
As a Lender
By: /s/ Frank Taucher
----------------------------
Its: SECOND VICE PRESIDENT
---------------------------
Acknowledged, accepted and agreed:
NOVAMED HOLDINGS, INC.,
As Borrower
By: /s/ Ronald G. Eidell
-----------------------------------
Its: EXECUTIVE VICE PRESIDENT FINANCE
----------------------------------
<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.
14
<PAGE>
(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
15
<PAGE>
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.
16
<PAGE>
(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
17
<PAGE>
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
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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
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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
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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.
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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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(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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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
---
30
<PAGE>
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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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;
34
<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
35
<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.
37
<PAGE>
(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.
38
<PAGE>
(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
39
<PAGE>
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
<PAGE>
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
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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;
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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:
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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
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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.
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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
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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
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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. 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 1.33(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
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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
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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
9
<PAGE>
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.
10
<PAGE>
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.
13
<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
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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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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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<PAGE>
(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
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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
32
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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
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<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>
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:
-2-
<PAGE>
(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,
-3-
<PAGE>
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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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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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(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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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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(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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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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<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 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
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<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;
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<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>
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)
if you have any comments or questions.
<PAGE>
EXHIBIT 6.1
EQUIPMENT LEASE
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
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<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
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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
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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.
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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.
14
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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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<PAGE>
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
23
<PAGE>
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.
24
<PAGE>
(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.
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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.
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(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":
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(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
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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 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 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;
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(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:
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(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
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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.
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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.
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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,
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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
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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
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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>
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 10.15
THE PRINCIPAL
FINANCIAL GROUP
PROTOTYPE
BASIC
SAVINGS PLAN
BASIC PLAN NO.: 03 TO BE USED WITH
ADOPTION AGREEMENT PLAN NOS.: 001-002
APPROVED: OCTOBER 26, 1992
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INTRODUCTION .............................................................................. 1
Article I Format And Definitions ......................................................... 1
SECTION 1.01 - FORMAT
SECTION 1.02 - DEFINITIONS
Article II Membership ..................................................................... 19
SECTION 2.01 - ACTIVE MEMBERSHIP
SECTION 2.02 - CEASING ACTIVE MEMBERSHIP
SECTION 2.03 - ADOPTING EMPLOYERS - SEPARATE PLANS
SECTION 2.04 - ADOPTING EMPLOYERS - SINGLE PLAN
Article III Contributions ................................................................ 22
SECTION 3.01 - EMPLOYER CONTRIBUTIONS
SECTION 3.02 - VOLUNTARY CONTRIBUTIONS BY MEMBERS
SECTION 3.03 - ROLLOVER CONTRIBUTIONS
SECTION 3.04 - FORFEITURES AND RESTORATION
SECTION 3.05 - ALLOCATION
SECTION 3.06 - CONTRIBUTION LIMITATION
SECTION 3.07 - EXCESS AMOUNTS
Article IV Investment Of Contributions .................................................. 44
SECTION 4.01 - INVESTMENT OF CONTRIBUTIONS
SECTION 4.02 - PURCHASE OF INSURANCE
SECTION 4.03 - TRANSFER OF OWNERSHIP
SECTION 4.04 - TERMINATION OF INSURANCE
Article V Benefits ....................................................................... 47
SECTION 5.01 - RETIREMENT BENEFITS
SECTION 5.02 - DEATH BENEFITS
SECTION 5.03 - VESTED BENEFITS
SECTION 5.04 - WHEN BENEFITS START
SECTION 5.05 - WITHDRAWAL BENEFITS
SECTION 5.06 - LOANS TO MEMBERS
Article VI Distribution Of Benefits ...................................................... 55
SECTION 6.01 - AUTOMATIC FORMS OF DISTRIBUTION
SECTION 6.02 - OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS
SECTION 6.03 - ELECTION PROCEDURES
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 6.04 - NOTICE REQUIREMENTS
SECTION 6.05 - TRANSITIONAL RULES
Article VII Termination Of Plan .......................................................... 69
Article VIII Administration Of Plan ....................................................... 69
SECTION 8.01 - ADMINISTRATION
SECTION 8.02 - RECORDS
SECTION 8.03 - INFORMATION AVAILABLE
SECTION 8.04 - CLAIM AND APPEAL PROCEDURES
SECTION 8.05 - UNCLAIMED VESTED ACCOUNT PROCEDURES
SECTION 8.06 - DELEGATION OF AUTHORITY
Article VIIIA Trust Provisions ............................................................ 72
SECTION 8A.01 - THE TRUST AND TRUST FUND
SECTION 8A.02 - THE TRUSTEE
SECTION 8A.03 - DUTIES OF TRUSTEE
SECTION 8A.04 - POWERS OF TRUSTEE
SECTION 8A.05 - EXPENSES
SECTION 8A.06 - ACCOUNTING
Article IX General Provisions ........................................................... 75
SECTION 9.01 - AMENDMENTS
SECTION 9.02 - MERGERS AND DIRECT TRANSFERS
SECTION 9.03 - PROVISIONS RELATING TO THE INSURER AND
OTHER PARTIES
SECTION 9.04 - EMPLOYMENT STATUS
SECTION 9.05 - RIGHTS TO PLAN ASSETS
SECTION 9.06 - BENEFICIARY
SECTION 9.07 - NONALIENATION OF BENEFITS
SECTION 9.08 - CONSTRUCTION
SECTION 9.09 - LEGAL ACTIONS
SECTION 9.10 - SMALL AMOUNTS
SECTION 9.11 - WORD USAGE
SECTION 9.12 - TRANSFERS BETWEEN PLANS
SECTION 9.13 - PARTNERSHIP OR SOLE PROPRIETORSHIP
SECTION 9.14 - QUALIFICATION OF PLAN
Article X Top-Heavy Plan Requirements ....................................................... 83
SECTION 10.01 - APPLICATION
SECTION 10.02 - DEFINITIONS
SECTION 10.03 - MODIFICATION OF VESTING REQUIREMENTS
SECTION 10.04 - MODIFICATION OF CONTRIBUTIONS
SECTION 10.05 - MODIFICATION OF CONTRIBUTION LIMITATION
</TABLE>
<PAGE>
INTRODUCTION
The provisions of this Plan apply as of the date specified in Item A or such
other dates as may be specified in this Plan with the following exceptions:
1. The provisions included to comply with the technical corrections to the
Deficit Reduction Act and the Retirement Equity Act (REA) contained in the
Tax Reform Act of 1986 are effective as if included in the respective bills
to which the corrections apply.
2. The provisions included to comply with the provisions of the Tax Reform Act
of 1986 other than the technical corrections to DEFRA and REA are effective
as of the dates specified in the law.
3. The provisions included to comply with the provisions of the Omnibus Budget
Reconciliation Act of 1986 (OBRA 86) are effective as of the dates
specified in the law.
4. The provisions included to comply with the provisions of the Omnibus Budget
Reconciliation Act of 1987 (OBRA 87) are effective as of the dates
specified in the law.
5. The provisions included to comply with the final regulations on optional
forms of benefit issued July 11, 1988, are effective as of the effective
date prescribed by such regulations.
6. The provisions included to comply with the final REA regulations issued
August 22, 1988, are effective as of the effective date prescribed by such
regulations.
7. The provisions included to comply with the provisions of the Technical and
Miscellaneous Revenue Act of 1988 are effective as of the dates specified
in the law.
8. The provisions included to comply with the final regulations on loans
issued July 20, 1989, are effective as of the effective date prescribed by
such regulations.
Article I
Format And Definitions
SECTION 1.01 - FORMAT.
Our retirement plan is set out in this document, the attached Adoption Agreement
which we signed, and any amendments to these documents.
Words and phrases defined in Section 1.02 shall have that defined meaning when
used in this Plan, unless the context clearly indicates otherwise. These words
and phrases have initial capital letters to aid in identifying them as defined
terms. References to "Section" are references to parts of this document;
references to "Item" are references to parts of the Adoption Agreement.
<PAGE>
Some of the defined terms and phrases in Section 1.02 and some of the provisions
contained in the following articles do not apply to our Plan and shall have no
meaning when used in our Plan. The provisions of the attached Adoption Agreement
shall determine whether or not the terms apply.
SECTION 1.02 - DEFINITIONS.
Account means a Member's share of the Investment Fund plus the cash value of any
insurance coverage on his life under this Plan. Separate accounting records
shall be kept for those parts of the Member's Account resulting from the
following:
(a) Required Contributions, if any.
(b) Nondeductible Voluntary Contributions, if any.
(c) Deductible Voluntary Contributions if any.
(d) Rollover Contributions, if any.
(e) Elective Deferral Contributions.
(f) Qualified Matching Contributions.
(g) Matching Contributions that are not Qualified Matching Contributions.
(h) Qualified Nonelective Contributions.
(i) All other Employer Contributions.
If the Member's Vesting Percentage is less than 100% as to any of these
Contributions, a separate accounting record will be kept for any part of
his Account resulting from such Contributions and, if there has been a
prior Forfeiture Date, from such Contributions made before a prior
Forfeiture Date.
The Account shall be reduced by any distribution of the Member's Vested Account
and by any Forfeitures. The Account shall participate in the earnings credited,
expenses charged and any appreciation or depreciation of the Investment Fund.
The Account is subject to any minimum guarantees applicable under the Annuity
Contract or other investment arrangement.
Accrual Service Period means the period defined in Item Q of the Adoption
Agreement - Plus.
Active Member means an Eligible Employee who is actively participating in the
Plan according to the provisions of Section 2.01.
2
<PAGE>
Additional Contributions means additional contributions we make to fund this
Plan. (See Item P and Section 3.01.)
Adjustment Factor means the cost of living adjustment factor prescribed by the
Secretary of the Treasury under Section 415(d) of the Code for years beginning
after December 31, 1987, as applied to such items and in such manner as the
Secretary shall provide.
Adopting Employer means an employer controlled by or affiliated with us and
listed in Item Z of the Adoption Agreement - Plus. If the Adoption Agreement -
Plus is not used, all members of the Controlled Group and the Affiliated Service
Group, whether or not listed in Item Y, shall be Adopting Employers
participating in a single plan.
Adoption Agreement means the attached document which contains our selections and
specifications for our Plan.
Affiliated Service Group means any group of corporations, partnerships or other
organizations of which we are a part and which is affiliated within the meaning
of Code Section 414(m) and regulations thereunder. Such a group includes at
least two organizations one of which is either a service organization (that is,
an organization the principal business of which is performing services), or an
organization the principal business of which is performing management functions
on a regular and continuing basis. Such service is of a type historically
performed by employees. In the case of a management organization, the Affiliated
Service Group shall include organizations related, within the meaning of Code
Section 144(a)(3), to either the management organization or the organization for
which it performs management functions. The term Controlled Group, as it is used
in our Plan, shall include the term Affiliated Service Group.
Annual Pay means the Employee's annual pay as defined in Item M.
Annuity Contract means the annuity contract or contracts into which the Trustee
enters (into which we enter, if our Plan is not trusteed) with the Insurer for
the investment of Contributions and the payment of benefits under this Plan. The
term Annuity Contract as it is used in this Plan shall include the plural unless
the context clearly indicates the singular is meant.
Annuity Starting Date means, for a Member, the first day of the first period for
which an amount is payable as an annuity or any other form.
Beneficiary means the person or persons named by a Member to receive any
benefits under the Plan when the Member dies. (See Section 9.06.)
Claimant means any person who makes a claim for benefits under this Plan. (See
Section 8.04.)
Code means the Internal Revenue Code of 1986, as amended.
3
<PAGE>
Contingent Annuitant means an individual named by a Member to receive a lifetime
benefit according to a survivorship life annuity after the Member dies.
Contributions means Elective Deferral, Additional, Discretionary, Matching,
Qualified Nonelective, Voluntary and Rollover Contributions, and Required
Contributions made under the Prior Plan, unless the context clearly indicates
only one is, or certain of these are, meant.
Controlled Group means any group of corporations, trades or businesses of which
we are a part that are under common control. A Controlled Group includes any
group of corporations, trades or businesses, whether or not incorporated, which
is either a parent-subsidiary group, a brother-sister group or a combined group
within the meaning of Code Section 414(b), Code Section 414(c) and regulations
thereunder and, for the purpose of determining contribution limitations under
Section 3.06, as modified by Code Section 415(h) and, for the purpose of
identifying Leased Employees, as modified by Code Section 144(a)(3).
The term Controlled Group, as it is used in our Plan, shall include the term
Affiliated Service Group.
Discretionary Contributions means discretionary contributions we make to fund
this Plan. (See Item P and Section 3.01.)
Early Retirement Date means the date a Member selects for beginning his early
retirement benefit. Early retirement benefits may begin whether the Member met
the age requirement, if any, before or after ceasing to be an Employee. (See
Item X.)
Effective Date means the date in Item D.
Elective Deferral Contributions means Contributions we make to fund this Plan in
accordance with elective deferral agreements between Eligible Employees and us.
Elective deferral agreements shall be made, changed, or terminated according to
the provisions of Item N. (See Item N and Section 3.01.)
A Member's Account resulting from Elective Deferral Contributions may not be
distributed before the Member's separation from service, death, the date the
Member becomes Totally Disabled, before the events described in the last
paragraph of Section 5.04, or before termination of the Plan as described in
Article VII. Elective Deferrals (but no earnings credited after December 31,
1988) may be withdrawn in the case of hardship if Item W(2) is selected.
Eligible Employee means an Employee who meets the requirements specified in Item
J.
Employee means an individual who is employed by us or any other employer
required to be aggregated with us under Code Sections 414(b), (c), (m) or (o). A
Controlled Group member is required to be aggregated with us.
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The term Employee shall also include any Leased Employee deemed to be an
employee of any employer described in the preceding paragraph as provided in
Code Sections 414(n) or 414(o).
Employer means the Employer named in Item B and any successor corporation, trade
or business which will, by written agreement, assume the obligations of this
Plan or any Predecessor which maintained this Plan. The terms we, us, and ours
as they are used in this Plan refer to the Employer.
Employer Contributions means the Contributions made by us to fund the Plan. (See
Section 3.01.)
Entry Break means, when the elapsed time method is used, a one-year Period of
Severance beginning on an Employee's Severance Date. An Employee incurs an Entry
Break on the last day of a one-year Period of Severance,
When the hours method is used, Entry Break is defined in Item K. However, if the
Adoption Agreement - Plus is not used, Entry Break means an Entry Service Period
in which an Employee does not have more than one-half of the Hours of Service
required in Item K for a year of Entry Service. An Employee incurs an Entry
Break on the last day of the Entry Service Period in which he has an Entry
Break.
Entry Date means the date an Employee first enters the Plan as an Active Member.
(See Item L and Section 2.01.)
Entry Service means an Employee's service as defined in Item K. Entry Service
shall include service with a Controlled Group member while we are both members
of the Controlled Group.
Entry Service shall include a Period of Military Duty. If the elapsed time
method is used, the entire Period of Military Duty shall be included to the
extent it has not already been counted as Entry Service. If the hours method is
used, an Hour of Service shall be credited (without regard to the 501 Hours of
Service limitation) for each hour the Employee would normally have been
scheduled to work for us during such Period of Military Duty to the extent such
hour has not already been counted for purposes of Entry Service.
If the elapsed time method is used and an Employee has more than one countable
Period of Service, Entry Service shall be determined by adjusting his Hire Date
so that the Employee has one continuous period of Entry Service equal to the
total of all his countable Periods of Service. This period of Entry Service
shall be expressed as whole years (on the basis that 365 days equal one year)
and days.
If the elapsed time method is used, Entry Service shall include a Period of
Severance (service spanning rule) if
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(a) the Period of Severance immediately follows a period during which an
Employee is not absent from work and ends within twelve months, or
(b) the Period of Severance immediately follows a period during which an
Employee is absent from work for any reason other than quitting, being
discharged, or retiring (such as a leave of absence or layoff) and ends
within twelve months of the date he was first absent.
If the hours method is used and the Entry Service Period shifts to the Plan
Year, an Employee will be credited with two years of Entry Service if he has the
Hours of Service required for a year of Entry Service in both his first and
second Entry Service Periods.
If the method of crediting Entry Service changes, the provisions of Section 9.12
shall apply.
Entry Service Period means the period defined in Item K. However, if the
Adoption Agreement -Plus is not used, Entry Service Period means a 12-
consecutive month period beginning on an Employee's Hire Date and each following
12-consecutive month period beginning on an anniversary of that Hire Date. If
an Employee has a Rehire Date, a new Entry Service Period shall begin on that
date in the same manner as if it were a Hire Date.
ERISA means the Employee Retirement Income Security Act of 1974.
Family Member means an individual described in Code Section 414(q)(6)(B).
Fiscal Year means our taxable year. (See Item F.)
Forfeiture means the part, if any, of a Member's Account which is forfeited.
(See Section 3.04.)
Forfeiture Date means, as to a Member, the date the Member incurs five
consecutive Vesting Breaks. Before the first Yearly Date in 1985, the Forfeiture
Date is the date the Member incurs a Vesting Break.
Highly Compensated Employee means a highly compensated active Employee or a
highly compensated former Employee.
A highly compensated active Employee means any Employee who performs service for
us during the determination year and who, during the look-back year:
(a) received compensation from us in excess of $75,000 (as adjusted pursuant to
Code Section 415(d));
(b) received compensation from us in excess of $50,000 (as adjusted pursuant to
Code Section 415(d)) and was a member of the top-paid group for such year;
or
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(c) was an officer of ours and received compensation during such year that is
greater than 50 percent of the dollar limitation in effect under Code
Section 415(b)(1)(A).
The term Highly Compensated Employee also means:
(d) Employees who are both described in the preceding sentence if the term
"determination year" is substituted for the term "look-back year" and the
Employee is one of the 100 Employees who received the most compensation
from us during the determination year; and
(e) Employees who are 5 percent owners at any time during the look-back year or
determination year.
If no officer has satisfied the compensation requirement of (c) above during
either a determination year or look-back year, the highest paid officer for such
year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The look-back
year shall be the twelve-month period immediately preceding the determination
year.
A highly compensated former Employee means any Employee who separated from
service (or was deemed to have separated) prior to the determination year,
performs no service for us during the determination year, and was a highly
compensated active Employee for either the separation year or any determination
year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a family
member of either a 5 percent owner who is an active or former Employee or a
Highly Compensated Employee who is one of the 10 most highly compensated
Employees ranked on the basis of compensation paid by us during such year, then
the family member and the 5 percent owner or top-ten highly compensated Employee
shall be aggregated. In such case, the family member and 5 percent owner or
top-ten highly compensated Employee shall be treated as a single Employee
receiving compensation and Plan contributions or benefits equal to the sum of
such compensation and contributions or benefits of the family member and 5
percent owner or top-ten highly compensated Employee. For purposes of this
definition, family member includes the spouse, lineal ascendants and descendants
of the Employee or former Employee and the spouses of such lineal ascendants and
descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers and the
compensation that is considered, will be made in accordance with Code Section
414(q) and the regulations thereunder.
Hire Date means the date an Employee first performs an Hour of Service.
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Hour Of Service means, for the elapsed time method of crediting service in this
Plan, each hour for which an Employee is paid, or entitled to payment, for
performing duties for us. Hour of Service means, for the hours method of
crediting service in this Plan, the following:
(a) Each hour for which an Employee is paid, or entitled to payment, for
performing duties for us during the applicable service period.
(b) Each hour for which an Employee is paid, or entitled to payment, by us on
account of a period of time in which no duties are performed (irrespective
of whether the employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability), layoff, jury duty,
military duty, or leave of absence. Notwithstanding the preceding
provisions of this subparagraph (b) no credit shall be given to the
Employee
(1) for more than 501 Hours of Service under this subparagraph (b) on
account of any single continuous period in which the Employee performs
no duties (whether or not such period occurs in a single service
period); or
(2) for an Hour of Service for which the Employee is directly or indirectly
paid, or entitled to payment, on account of a period in which no duties
are performed if such payment is made or due under a plan maintained
solely for the purpose of complying with applicable worker's or
workmen's compensation, or unemployment compensation or disability
insurance laws; or
(3) for an Hour of Service for a payment which solely reimburses the
Employee for medical or medically related expenses incurred by him.
For purposes of this subparagraph (b), a payment shall be deemed to be made
by or due from us regardless of whether such payment is made by or due from
us directly or indirectly through, among others, a trust fund or insurer,
to which we contribute or pay premiums and regardless of whether
contributions made or due to the trust fund, insurer, or other entity are
for the benefit of particular employees or are on behalf of a group of
employees in the aggregate.
(c) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by us. The same Hour of Service shall not be
credited under both this subparagraph (c) and under either subparagraph (a)
or (b) above. Crediting of Hours of Service for back pay awarded or agreed
to with respect to periods described in subparagraph (b) above shall be
subject to the limitations set forth in that subparagraph.
The crediting of Hours of Service above shall be applied under the rules of
paragraphs (b) and (c) of the Department of Labor Regulation 2530.200b-2
(including any interpretations or opinions implementing said rules); which
rules, by this reference, are specifically incorporated in full within this
Plan. The reference to paragraph (b) applies to the special rule for determining
hours of service for reasons other than the performance of duties such as
payments calculated (or not
8
<PAGE>
calculated) on the basis of units of time and the rule against double credit.
The reference to paragraph (c) applies to the crediting of hours of service to
service periods.
Hours of Service shall be credited for employment with any other employer
required to be aggregated with us under Code Section 414(b), (c), (m) or (o) and
the regulations thereunder for purposes of entry, vesting and, when the Adoption
Agreement - Plus is not used, for purposes of determining eligibility for
contributions. Hours of Service shall also be credited for any individual who is
considered an employee for purposes of this Plan pursuant to Code Section 414(n)
or Code Section 414(o) and the regulations thereunder.
Solely for purposes of determining whether a one-year break in service has
occurred for entry or vesting purposes, during a Parental Absence an Employee
shall be credited with the Hours of Service which would otherwise have been
credited to the Employee but for such absence, or in any case in which such
hours cannot be determined, eight Hours of Service per day of such absence. The
Hours of Service credited under this paragraph shall be credited in the service
period in which the absence begins if the crediting is necessary to prevent a
break in service in that period; or in all other cases, in the following service
period.
Inactive Member means a former Active Member who has an Account. (See Section
2.02.)
Insurance Policy means, for trusteed plans, the life insurance policy or
policies issued by the Insurer as provided in Item T and Article IV. The term
Insurance Policy as it is used in this Plan is deemed to include the plural
unless the context clearly indicates the singular is meant.
Insurer means Principal Mutual Life Insurance Company and, if our Plan is
trusteed, any other insurance company or companies named by the Trustee.
Integration Level means the Integration Level defined in Item P. If a Member
also participates in a Controlled Group member's plan which uses an integration
level to determine the allocation or amount of contributions, his Integration
Level shall be adjusted based upon the ratio of the Member's Pay from us to his
total pay from us and the Controlled Group member.
Investment Fund means that part of the Plan assets held under the Trust,
excluding the cash values of any Insurance Policy. (See Article VIIIA.)
If our Plan is not trusteed, Investment Fund means the total assets held under
the Annuity Contract which result from Contributions made under our Plan. The
Investment Fund shall be valued at current fair market value as of the last day
of the last calendar month ending in the Plan Year and, at the discretion of the
Insurer, may be valued more frequently. The valuation shall take into
consideration investment earnings credited, expenses charged, payments made, and
changes in the values of the assets held in the fund.
The Investment Fund shall be allocated at all times to Members. The Account of a
Member shall be credited with its share of the gains and losses of the
Investment Fund. That part of a Member's
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<PAGE>
Account invested in a funding arrangement which establishes an account or
accounts for such Member thereunder shall be credited with the gain or loss from
such account or accounts. That part of a Member's Account which is invested in
other funding arrangements shall be credited with a proportionate share of the
gain or loss of such investments. The share shall be determined by multiplying
the gain or loss of the investment by the ratio of the part of the Member's
Account invested in such funding arrangement to the total of the Investment Fund
invested in such funding arrangement.
Investment Manager means any fiduciary (other than a Trustee or Named Fiduciary)
(a) who has the power to manage, acquire, or dispose of any assets of the plan;
(b) who (1) is registered as an investment adviser under the Investment
Advisers Act of 1940, or (2) is a bank, as defined in the Investment
Advisers Act of 1940, or (3) is an insurance company qualified to perform
services described in subparagraph (a) above under the laws of more than
one state; and
(c) who has acknowledged in writing being a fiduciary with respect to the Plan.
Item means the specified item in the Adoption Agreement we signed.
Late Retirement Date means the first day of any month which is after a Member's
Normal Retirement Date and on which retirement benefits begin. If a Member
continues to work for us after Normal Retirement Date, his Late Retirement Date
shall be the earliest first day of the month on or after he ceases to be an
Employee. An earlier or a later Retirement Date may apply if the Member so
elects. An earlier Retirement Date may apply if the Member is 70 1/2. (See
Section 5.04.)
Leased Employee means any person (other than an employee of the recipient) who
pursuant to an agreement between the recipient and any other person ("leasing
organization") has performed services for the recipient (or for the recipient
and related persons determined in accordance with Code Section 414(n)(6)) on a
substantially full time basis for a period of at least one year, and such
services are of a type historically performed by employees in the business field
of the recipient employer. Contributions or benefits provided a Leased Employee
by the leasing organization which are attributable to service performed for the
recipient employer shall be treated as provided by the recipient employer.
A Leased Employee shall not be considered an employee of the recipient if:
(a) such employee is covered by a money purchase pension plan providing (1) a
nonintegrated employer contribution rate of at least 10 percent of
compensation, as defined in Code Section 415(c)(3), but including amounts
contributed pursuant to a salary reduction agreement which are excludable
from the employee's gross income under Code Sections
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125, 402(a)(8), 402(h) or 403(b), (2) immediate participation, and (3) full
and immediate vesting and
(b) Leased Employees do not constitute more than 20 percent of the recipient's
nonhighly compensated workforce.
Loan Administrator means the person or positions named in Item T(b)(iii).
Matching Contributions means matching contributions we make to fund this Plan.
(See Item O and Section 3.01.)
Maximum Integration Rate means the Maximum Integration Rate defined in Item P.
Member means either an Active Member or an Inactive Member.
Member Contributions means Voluntary Contributions and Required Contributions
made under the Prior Plan, if any, unless the context clearly indicates only one
is meant.
Monthly Date means the Yearly Date and the same day of each following month
during the Plan Year which begins on that Yearly Date.
Named Fiduciary means the person named in Item G.
Net Profits means our current or accumulated net earnings, determined according
to generally accepted accounting practices, before any Contributions made by us
under this Plan and before any deduction for Federal or state income tax,
dividends on our stock, and capital gains or losses. If we are a nonprofit
organization under Code Section 501 (c)(3), Net Profits means excess revenues
(excess of receipts over expenditures).
Nonhighly Compensated Employee means an Employee of the Employer who is neither
a Highly Compensated Employee nor a Family Member.
Nonvested Account means the excess, if any, of a Member's Account over his
Vested Account.
Normal Form means a single life annuity with installment refund.
Normal Retirement Age means, for a Member, the age defined in Item X.
Normal Retirement Date means the earliest first day of the month on or after a
Member reaches Normal Retirement Age. Retirement benefits shall begin on Normal
Retirement Date if the Member is not an Employee, has a Vested Account, and has
not elected to have retirement benefits begin later. However, retirement
benefits shall not begin before the later of age 62 or Normal Retirement Age
unless the qualified election procedures of Article VI are met. Even if the
Member is an Employee on his Normal Retirement Date, he may choose to have
retirement
11
<PAGE>
benefits begin on such date. An earlier Retirement Date may apply if the Member
is 70 1/2. (See Section 5.04.)
Parental Absence means an Employee's absence from work which begins on or after
the first Yearly Date after December 31, 1984
(a) by reason of pregnancy of the Employee,
(b) by reason of birth of a child of the Employee,
(c) by reason of the placement of a child with the Employee in connection with
adoption of such child by such Employee, or
(d) for purposes of caring for such child for a period beginning immediately
following such birth or placement.
Pay means the pay defined in Item M. For any Plan Year beginning after December
31, 1988, the annual Pay of each Member taken into account for determining all
benefits provided under the Plan for any determination period shall not exceed
$200,000. This limitation shall be adjusted by the Secretary at the same time
and in the same manner as under Code Section 415(d), except that the dollar
increase in effect on January 1 of any calendar year is effective for years
beginning in such calendar year and the first adjustment to the $200,000
limitation is effected on January 1, 1990. If the Plan determines Pay on a
period of time that contains fewer than 12 calendar months, then the annual Pay
limit is an amount equal to the annual Pay limit for the calendar year in which
the pay period begins multiplied by the ratio obtained by dividing the number of
full months in the period by 12.
In determining the Pay of a Member for purposes of this limitation, the rules of
Code Section 414(q)(6) shall apply, except that in applying such rules, the term
"family" shall include only the spouse of the Member and any lineal descendants
of the Member who have not attained age 19 before the close of the Plan Year.
If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then (except for purposes of determining the portion of
Pay up to the Integration Level if this Plan provides for permitted disparity),
the limitation shall be prorated among the affected individuals in proportion to
each such individual's Pay as determined under this definition prior to the
application of this limitation.
If Pay for any prior Plan Year is taken into account in determining an
Employee's contributions or benefits for the current year, the Pay for such
prior year is subject to the applicable annual Pay limit in effect for that
prior year. For this purpose, for years beginning before January 1, 1990, the
applicable annual Pay limit is $200,000.
Pay means, for a Leased Employee, Pay for the services the Leased Employee
performs for us, determined in the same manner as the Pay of Employees who are
not Leased Employees, regardless of whether such Pay is received directly from
us or from the leasing organization.
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Pay Year means the period defined in Item M of the Adoption Agreement - Plus.
Period of Military Duty means, for an Employee
(a) who served as a member of the armed forces of the United States, and
(b) who was reemployed by us at a time when the Employee had a right to
reemployment in accordance with seniority rights as protected under Section
2021 through 2026 of Title 38 of the United States Code,
the period of time from the date the Employee was first absent from work for us
because of such military duty to the date the Employee was reemployed.
Period of Service means a period of time beginning on an Employee's Hire or
Rehire Date, whichever applies, and ending on his Severance Date.
Period of Severance means a period beginning on an Employee's Severance Date and
ending on the date he again performs an Hour of Service.
A one-year Period of Severance means a Period of Severance of 12 consecutive
months.
Solely for purposes of determining whether a one-year Period of Severance has
occurred for entry or vesting purposes, the 12-consecutive month period
beginning on the first anniversary of the first date of a Parental Absence shall
not be a one-year Period of Severance.
Plan means our retirement plan set forth in the attached Adoption Agreement and
this document, including any later amendments to them. If this Plan is trusteed,
the term Plan shall include the term Trust, unless the context clearly indicates
otherwise.
Plan Administrator means the person named in Item H.
Plan Year means a 12-consecutive month period beginning on a Yearly Date and
ending on the day before the next Yearly Date. If the Yearly Date changes, the
change will result in a short Plan Year. If a service period or the Pay Year is
based on the Plan Year, corresponding years before the Effective Date shall be
included.
Predecessor means a Predecessor designated in Item I.
Prior Plan means a retirement plan of ours or of a Predecessor which was
qualifiable under Code Section 401(a), and of which this Plan is a restatement,
as specified in the initial Adoption Agreement. If, because of a merger,
consolidation or transfer of assets or liabilities, this Plan is a continuation
of a plan which was qualifiable under Code Section 401(a), that plan shall be a
Prior Plan. If, with the approval of any governmental agency to which it is
subject, the assets of
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a terminated plan of ours which was qualified under Code Section 401(a) are
transferred to this Plan, that terminated plan shall be deemed to be the Prior
Plan.
Prior Plan Assets means the assets accumulated under the Prior Plan which have
not been distributed and which are held under this Plan.
Qualified Joint and Survivor Form means, for a Member who has a spouse, a
survivorship life annuity with installment refund, where the Contingent
Annuitant is the Member's spouse and the survivorship percentage is 50%. A
former spouse will be treated as the spouse to the extent provided under a
qualified domestic relations order as described in Code Section 414(p). If a
Member does not have a spouse, the Qualified Joint and Survivor Form means the
Normal Form.
The amount of the benefit payable under the Qualified Joint and Survivor Form
shall be the amount of benefit which may be provided by the Member's Vested
Account.
Qualified Matching Contributions means Matching Contributions which are 100%
vested when made and which (including investment gain) may not be distributed
before the Member's separation from service, death, the date the Member becomes
Totally Disabled, before the events described in the last paragraph of Section
5.04, or before termination of Plan as described in Article VII. Our Matching
Contributions shall be Qualified Matching Contributions if so elected in Item O.
Qualified Nonelective Contributions means Employer Contributions which are 100%
vested when made and which (including investment gain) may not be distributed
before the Member's separation from service, death, the date the Member becomes
Totally Disabled, before the events described in the last paragraph of Section
5.04, or before termination of the Plan as described in Article VII. (See Item P
of the Adoption Agreement - Plus and Section 3.01.)
Qualified Preretirement Survivor Annuity means a life annuity with installment
refund payable to the surviving spouse of a Member who dies before his Annuity
Starting Date. A former spouse will be treated as the surviving spouse to the
extent provided under a qualified domestic relations order as described in Code
Section 414(p).
Quarterly Date means each Yearly Date and the third, sixth and ninth Monthly
Date after each Yearly Date which is within the same Plan Year.
Reentry Date means the date a former Active Member reenters the Plan. (See
Section 2.01.)
Rehire Date means the date an Employee first performs an Hour of Service
following an Entry Break, when the hours method is used, or a Period of
Severance, when the elapsed time method is used.
Required Contributions means nondeductible contributions required from a Member
in order to participate in the Prior Plan.
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Restatement Date means the date our retirement plan was last restated. (See Item
A of the initial Adoption Agreement.)
Retirement Date means the date a retirement benefit will begin and is a Member's
Early, Normal or Late Retirement Date, as the case may be.
Rollover Contributions means the Rollover Contributions which are made by or for
a Member. (See Section 3.03.)
Semi-yearly Date means each Yearly Date and the sixth Monthly Date after each
Yearly Date which is within the same Plan Year.
Severance Date means the earlier of
(a) the date on which an Employee quits, retires, dies or is discharged, or
(b) the first anniversary of the date an Employee begins a one-year absence
from service (with or without pay). This absence may be the result of any
combination of vacation, holiday, sickness, disability, leave of absence,
or layoff.
Solely to determine whether a one-year Period of Severance has occurred for
entry or vesting purposes for an Employee who is absent from service beyond the
first anniversary of the first day of a Parental Absence, Severance Date is the
second anniversary of the first day of the Parental Absence. The period between
the first and second anniversaries of the first day of the Parental Absence is
not a Period of Service and is not a Period of Severance.
Taxable Wage Base means the maximum amount of earnings which may be considered
wages for a year under Code Section 3121(a)(1).
TEFRA means the Tax Equity and Fiscal Responsibility Act of 1982.
TEFRA Compliance Date means the date our Plan is to comply with the provisions
of TEFRA. The TEFRA Compliance Date as used in this Plan is,
(a) for purposes of determining the Maximum Permissible Amount and contribution
limitations of Section 3.06,
(1) if this Plan was in effect on July 1, 1982, the first day of the first
Limitation Year which begins after December 31, 1982, or
(2) if this Plan was not in effect on July 1, 1982, the first day of the
first Limitation Year which ends after July 1, 1982.
(b) for all other purposes, the first Yearly Date after December 31, 1983.
15
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Totally Disabled means that a Member is disabled, as a result of sickness or
injury, to the extent that he is prevented from engaging in any substantial
gainful activity, and is eligible for and receives a disability benefit under
Title 11 of the Federal Social Security Act.
If our Employees are not covered under Title 11 of the Federal Social Security
Act, Totally Disabled means that a Member is disabled as a result of sickness or
injury, to the extent that he is completely prevented from performing any work,
engaging in any occupation for wage or profit and has been continuously disabled
for six months. Initial written proof that the disability exists and has
continued for at least six months must be furnished to the Plan Administrator by
the Member within one year after the date the disability begins. The Plan
Administrator, upon receipt of any notice of proof of a Participant's total
disability, shall have the right and opportunity to have physician it designates
examine the Member when and as often as it may reasonably require, but not more
than once each year after the disability has continued uninterruptedly for at
least two years beyond the date of furnishing the first proof.
Trust means, for trusteed plans, the Agreement of Trust set out in Article
VIIIA.
Trust Fund means, for trusteed plans, the total funds held under the Trust as
provided in Article VIIIA.
Trustee means, for trusteed plans, the party or parties named in Item T. The
term Trustee as it is used in this Plan shall include the plural unless the
context clearly indicates the singular is meant.
Vested Account means, on any date, the vested part of a Member's Account
(including the cash values of any insurance coverage on his life under this
Plan). If the Member's Vesting Percentage is 100%, the Vested Account equals his
Account. If the Member's Vesting Percentage is not 100%, the Vested Account
equals the sum of (a) and (b) below:
(a) The part of the Member's Account resulting from vested Employer
Contributions made before any prior Forfeiture Date, and from Member
Contributions and Rollover Contributions. The Member is fully (100%) vested
in this part of his Account.
(b) The balance of the Member's Account in excess of the amount in (a) above
multiplied by his Vesting Percentage.
If the Member has withdrawn any part of his Account resulting from our
Contributions, other than vested Employer Contributions included in (a)
above, the amount determined under this subparagraph (b) shall be equal to
P(AB + D) - D as defined below:
P The Member's Vesting Percentage.
AB the balance of the Member's Account in excess of the amount in (a)
above.
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D The amount of withdrawal resulting from our Contributions, other than
our vested Contributions included in (a) above.
Vesting Break means, when the elapsed time method is used, a one-year Period of
Severance. An Employee incurs a Vesting Break on the last day of a one-year
Period of Severance.
When the hours method is used, Vesting Break is defined in Item V. However, if
the Adoption Agreement - Plus is not used, Vesting Break means a Vesting Service
Period in which an Employee does not have more than one-half of the Hours of
Service required in Item V for a year of Vesting Service. An Employee incurs a
Vesting Break on the last day of the Vesting Service Period in which he has a
Vesting Break.
Vesting Percentage means the Vesting Percentage of a Member determined under
Item U. If the computation of Vesting Percentage is changed (whether directly or
--
indirectly), a Member's Vesting Percentage as of the day before the change shall
not be reduced due to the change. Indirect changes include, but are not limited
to, changes in Early Retirement Date requirements or the method of crediting
Vesting Service. The provisions of Section 9.01 regarding changes in the
computation of Vesting Percentage shall apply.
Vesting Service means an Employee's service determined under Item V. Vesting
Service is subject to the modifications selected under that item. Vesting
Service shall include service with a Controlled Group member while we are both
members of the Controlled Group.
If, under Item V(4), Vesting Service is determined under the Prior Plan
provisions, service before the date the Prior Plan became subject to ERISA may
be disregarded if such service would have been disregarded under the Prior Plan
break in service rules as in effect on the day before such date.
Vesting Service shall include a Period of Military Duty. If the elapsed time
method is used, the entire Period of Military Duty shall be included to the
extent it has not already been counted as Vesting Service. If the hours method
is used, an Hour of Service shall be credited (without regard to the 501 Hours
of Service limitation) for each hour the Employee would normally have been
scheduled to work for us during such Period of Military Duty, to the extent such
hour has not already been credited as Vesting Service.
If the elapsed time method is used and the Employee has more than one countable
Period of Service or if all or a part of a Period of Service is not counted,
Vesting Service shall be determined by adjusting his Hire Date so that the
Employee has one continuous period of Vesting Service equal to the total of all
his countable Periods of Service. This period of Vesting Service shall be
expressed as whole years (on the basis that 365 days equal one year) and days.
If the elapsed time method is used, Vesting Service shall include a Period of
Severance (service spanning rule) if
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(a) the Period of Severance immediately follows a period during which an
Employee is not absent from work and ends within twelve months, or
(b) the Period of Severance immediately follows a period during which, an
Employee is absent from work for any reason other than quitting, being
discharged, or retiring (such as a leave of absence or layoff) and ends
within twelve months of the date he was first absent.
If the Prior Plan applied the rule of parity before the first Yearly Date in
1985, an Employee's Vesting Service, accumulated before a Vesting Break which
occurred before that date, shall be excluded according to the Prior Plan
provisions if (a) his Vesting Percentage is zero, and (b) his latest period of
consecutive Vesting Breaks equals or exceeds his prior Vesting Service
(disregarding any Vesting Service that was excluded because of a previous period
of Vesting Breaks).
For a Member who is not credited with an Hour of Service on or after the first
Yearly Date in 1985, Vesting Service accrued before such date and before an age
greater than 18 (before the beginning of the Vesting Service Period in which he
attained that age, when the hours method is used) shall be excluded if the Prior
Plan excluded such service.
If the method of crediting Vesting Service changes, the provisions of Sections
9.01 and 9.12 shall apply.
Vesting Service Period means the period defined in Item V. However, if the
Adoption Agreement - Plus is not used, Vesting Service Period means a 12-
consecutive month period ending on the last day of the Plan Year.
Voluntary Contributions means the Contributions by a Member that are not
required as a condition of employment or membership or for obtaining additional
benefits from our Contributions. (See Item S and Section 3.02.)
Yearly Date means the Yearly Date defined in Item E.
Years of Service means an Employee's Vesting Service as defined in Item V,
disregarding any modifications which exclude service.
If Vesting Service is not defined in Item V, then for purposes of determining
Years of Service, Vesting Service shall be deemed to be determined using the
elapsed time method.
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Article II
Membership
SECTION 2.01 - ACTIVE MEMBERSHIP.
An Employee shall first become an Active Member (begin active participation in
the Plan) on the earliest date specified in Item L on which he is an Eligible
Employee and has met all of the entry requirements selected in Item K. This date
is the Member's Entry Date.
Each Employee who was an active member under the Prior Plan on the day before
the Restatement Date shall become an Active Member under this Plan on the
Restatement Date if he is still an Eligible Employee. The Member's entry date
under the Prior Plan is deemed to be his Entry Date under this Plan.
If a person has been an Eligible Employee who has met all of the entry
requirements selected in Item K but is not an Eligible Employee on the date
which would have been his Entry Date, he shall become an Active Member on the
date he again becomes an Eligible Employee. This date is the Member's Entry
Date.
A former Active Member shall reenter the Plan as an Active Member on the date he
again performs an Hour of Service as an Eligible Employee. This date is the
Member's Reentry Date. An Inactive Member ceases to be an Inactive Member on his
Reentry Date.
A Member's benefits under this Plan shall not be duplicated because of more than
one period as an Active Member.
SECTION 2.02 - CEASING ACTIVE MEMBERSHIP.
An Active Member shall become an Inactive Member (stop accruing benefits under
the Plan) on the earlier of the following:
(a) The date the Member ceases to be an Eligible Employee (his Retirement Date
if he ceases to be an Eligible Employee within one month of his Retirement
Date).
(b) The effective date of complete termination of the Plan under Article VII.
An Employee or former Employee who was an inactive member under the Prior Plan
on the day before the Restatement Date shall become an Inactive Member under
this Plan on the Restatement Date. Eligibility for any benefits payable to the
Member or on his behalf and the amount of the benefits shall be determined
according to the provisions of the Prior Plan.
A Member shall cease to be a Member on the date he is no longer an Eligible
Employee and his Account is zero.
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SECTION 2.03 - ADOPTING EMPLOYERS - SEPARATE PLANS.
If Item Z(1)(a)(i) of the Adoption Agreement - Plus is selected, each Adopting
Employer listed in Item Z maintains this Plan as a separate and distinct plan
for the exclusive benefit of its employees. If Item Z(1)(a)(ii) of the Adoption
Agreement - Plus is selected, each Adopting Employer identified in Item
Z(1)(a)(ii) maintains this Plan as a separate and distinct plan for the
exclusive benefit of its employees. An Adopting Employer's adoption of the Plan
shall be in writing. If the Adopting Employer did not maintain a Prior Plan, the
date of adoption specified in Item Z is the Effective Date of its Plan. This
date is the first Yearly Date for the Adopting Employer's Plan and shall be the
Entry Date for any of its employees who have met the requirements in Section
2.01 as of that date. If the Adopting Employer did maintain a Prior Plan, the
date of adoption is the Restatement Date of its Plan.
An Adopting Employer shall be deemed to be the Employer but only with respect to
its Plan and for those Employees who are on its payroll. In interpreting the
Adoption Agreement and this document as to an Adopting Employer, the terms
Employer, we, us, and ours shall be deemed to refer to the Adopting Employer and
the Adopting Employer's fiscal year is deemed to be the Fiscal Year. The primary
Employer in Item B is deemed to be an Adopting Employer for purposes of the
following two paragraphs.
The Contributions made by an Adopting Employer, and Forfeitures arising from
such Contributions, shall not be used to fund the benefits for Employees of any
other Adopting Employer. Service with an Adopting Employer shall be included as
service with all other Adopting Employers and transfer of employment, without
interruption, between Adopting Employers shall not be an interruption of
service. If an Active Member ceases to be an Employee of an Adopting Employer on
other than the last day of the Plan Year and immediately becomes an Employee of
another Adopting Employer, he shall be an Active Member under the first Adopting
Employer's Plan until the next annual Contribution, if any, is due, regardless
of whether he has also become an Active Member in the other Adopting Employer's
Plan. Both Adopting Employers' Contributions on his behalf will be
proportionately reduced on that date based upon his period of employment with
and Pay from each.
If an integrated allocation formula is in effect and a Member received Pay from
more than one Adopting Employer during a Pay Year, the Integration Level used to
determine the allocation of an Adopting Employer's Contributions is equal to his
Integration Level multiplied by the ratio of (a) the Member's Pay from the
Adopting Employer for that year to (b) the Member's Pay from all Adopting
Employers for that year.
Any amendment to the Plan by the primary Employer in Item B of the Adoption
Agreement shall be deemed to be an amendment to each Adopting Employer's Plan.
Without the consent of any other Adopting Employer, an Adopting Employer may
restate its Plan in the form of a separate document at any time and, in that
event, cease to be an Adopting Employer. An employer shall not be an Adopting
Employer if it ceases to be controlled by us or affiliated with us. Such an
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employer may continue its Plan by restating it in the form of a separate
document. This Plan shall be amended to delete a former Adopting Employer from
Item Z of the Adoption Agreement.
If the Plan of the Adopting Employer terminates, the provisions of Article VII
shall apply to its Plan.
SECTION 2.04 - ADOPTING EMPLOYERS - SINGLE PLAN.
If the Adoption Agreement - Plus is not used, each Adopting Employer listed in
Item Y and each Controlled Group member, whether or not listed in that item,
shall be an Adopting Employer who participates with us in this Plan. If Item
Z(1)(b)(i) of the Adoption Agreement - Plus is selected, each Adopting Employer
listed in Item Z participates with us in this Plan. If Item Z(1)(b)(ii) of the
Adoption Agreement - Plus is selected, each Adopting Employer identified in Item
Z(1)(b)(ii) participates with us in this Plan. An Adopting Employer's agreement
to participate in this Plan shall be in writing. Employees of Adopting Employers
who do not make such written agreement shall be eligible to become Members and
shall be entitled to Contributions in the same manner as if their employers had
agreed to participate in the Plan. An Adopting Employer has no rights or
privileges under this Plan.
If the Adopting Employer did not maintain a Prior Plan, the date of
participation in Item Z (Item Y) shall be the Entry Date for any of its
employees who have met the requirements in Section 2.01 as of that date. Service
with and pay from an Adopting Employer shall be included as service with and pay
from us. Transfer of employment, without interruption, between an Adopting
Employer and another Adopting Employer or us shall not be considered an
interruption of service. Our Fiscal Year in Item F shall be the Fiscal Year used
in interpreting this Plan for Adopting Employers.
Contributions made by an Adopting Employer shall be treated as Contributions
made by us. Forfeitures arising from those Contributions shall be used for the
benefit of all Members.
An employer shall not be an Adopting Employer if it ceases to be controlled by
us or affiliated with us. Such an employer may continue a retirement plan for
its employees in the form of a separate document. This Plan shall be amended to
delete a former Adopting Employer from the list of Adopting Employers in the
Adoption Agreement.
If an employer ceases to be an Adopting Employer and does not continue a
retirement plan for the benefit of its employees, partial termination may result
and the provisions of Article VII apply.
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Article III
Contributions
SECTION 3.01 - EMPLOYER CONTRIBUTIONS.
Our Contributions are conditioned on initial qualification of the Plan. If the
Plan is denied initial qualification, the provisions of Section 9.14 shall
apply.
The amount of our Contributions is specified in the Adoption Agreement. Our
Contributions are made from Net Profits unless otherwise specified in Item O.
Notwithstanding the foregoing, the Plan shall continue to be designed to qualify
as a profit sharing plan for purposes of Code Sections 401(a), 402, 412, and
417.
No Member shall be permitted to have Elective Deferral Contributions, as defined
in Section 3.07, made under this Plan, or any other qualified plan maintained by
us, during any taxable year, in excess of the dollar limitation contained in
Code Section 402(g) in effect at the beginning of such taxable year.
If Matching Contributions, Additional Contributions or Qualified Nonelective
Contributions under Item P(1)(a) of the Adoption Agreement - Plus are made from
Net Profits, Item Q, and our Net Profits are not sufficient to provide such
Contributions, such Contributions shall be proportionately reduced.
Our Contributions are allocated according to the provisions of Section 3.05.
If Item Q(2)(a) is selected, we may make all or part of our annual Contributions
before the end of the Plan Year. Such Contributions shall be allocated when made
in a manner which approximates the allocation which would otherwise have been
made as of the last day of the Plan Year. Succeeding allocations shall take into
account amounts previously allocated for the Plan Year. The percentage of our
Contributions allocated to the Member for the Plan Year shall be the same
percentage which would have been allocated to him if the entire allocation had
been made as of the last day of the Plan Year.
We shall pay to the insurer or Trustee our Contributions used to determine the
Actual Deferral Percentage, as defined in Section 3.07 (Elective Deferral
Contributions, Qualified Nonelective Contributions, and Qualified Matching
Contributions) to the Plan for each Plan Year not later than the end of the
twelve-month period immediately following the Plan Year for which they are
deemed to be paid. Any such Contributions accumulated through payroll deductions
shall be paid within 90 days of the date withheld or the date it is first
reasonably practical for us to do so, if earlier.
A portion of the Plan assets resulting from our Contributions (but not more than
the original amount of those Contributions) may be returned if our Contributions
are made because of a mistake of fact or are more than the amount deductible
under Code Section 404 (excluding any
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amount which is not deductible because the Plan is disqualified). The amount
involved must be returned to us within one year after the date our Contributions
are made by mistake of fact or the date the deduction is disallowed, whichever
applies. Except as provided under this paragraph and Articles VII and IX, the
assets of the Plan shall never be used for our benefit and are held for the
exclusive purpose of providing benefits to Members and their Beneficiaries and
for defraying reasonable expenses of administering the Plan.
Prior Plan Assets which result from contributions made by us shall be treated in
the same manner as Employer Contributions made under this Plan. They shall be
treated in the same manner as Employer Contributions made under this Plan before
a Forfeiture Date if the Prior Plan Assets are transferred from a terminated
plan.
SECTION 3.02 - VOLUNTARY CONTRIBUTIONS BY MEMBERS.
If permitted under Item S, an Active Member may make Voluntary Contributions.
Voluntary Contributions shall be made according to nondiscriminatory procedures
and limitations set up by the Plan Administrator.
A Member's membership in the Plan is not affected by stopping or changing
Voluntary Contributions. An Active Member's request to start, change, or stop
Voluntary Contributions must be in writing on a form furnished for that purpose.
The form must be delivered to the Plan Administrator before the date the Member
is to start, change, or stop Voluntary Contributions.
The part of the Member's Account resulting from Voluntary Contributions is fully
(100%) vested and nonforfeitable at all times.
Prior Plan Assets which result from voluntary contributions made by the Member
shall be treated in the same manner as Voluntary Contributions made under this
Plan. These Prior Plan Assets may include deductible Voluntary Contributions
which were made according to the provisions of the Prior Plan.
SECTION 3.03 - ROLLOVER CONTRIBUTIONS.
With our consent, a Rollover Contribution may be made by or for an Eligible
Employee if the following conditions are met:
(a) The Contribution is a rollover contribution which the Code permits to be
transferred to a plan that meets the requirements of Code Section 401(a).
(b) If the Contribution is made by the Eligible Employee, it is made within
sixty days after he receives the distribution.
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(c) The Eligible Employee furnishes evidence satisfactory to the Plan
Administrator that the proposed transfer is in fact a rollover contribution
which meets conditions (a) and (b) above.
The Rollover Contribution may be made by the Eligible Employee or the Eligible
Employee may direct the trustee or named fiduciary of another plan to transfer
the funds which would otherwise be a Rollover Contribution directly to this
Plan. Such transferred funds shall be called a Rollover Contribution. The
Contribution shall be made according to procedures set up by the Plan
Administrator.
If an Eligible Employee participated in a retirement plan which met the
requirements of Code Section 401(a), with our consent, the trustee or named
fiduciary of that plan may transfer funds which could not have been a Rollover
Contribution to this Plan on behalf of the Eligible Employee. The transferred
funds shall be called a Rollover Contribution. If such Rollover Contributions
were made for a period when the Eligible Employee was a five-percent owner of
the employer that maintained the plan, the Rollover Contributions shall be
treated in the same manner as if they were Contributions made under this Plan
for a period when he was a five-percent owner of us.
If the Eligible Employee is not an Active Member when the Rollover Contribution
is made, he shall be deemed to be an Active Member only for the purpose of
investment and distribution of the Rollover Contribution. Our Contributions
shall not be made for or allocated to the Eligible Employee and he may not make
Member Contributions, until the time he meets all of the requirements to become
an Active Member.
Rollover Contributions made by or for an Eligible Employee shall be credited to
his Account. The part of the Member's Account resulting from Rollover
Contributions is fully (100%) vested and nonforfeitable at all times. A separate
accounting record shall be maintained for that part of his Rollover Contribution
consisting of voluntary contributions which were deducted from the Member's
gross income for Federal income tax purposes.
Prior Plan Assets which result from the Member's rollover contributions shall be
treated in the same manner as Rollover Contributions made under this Plan.
SECTION 3.04 - FORFEITURES AND RESTORATION.
The Nonvested Account of a Member shall be forfeited as of the earlier of the
following: the date the Member dies, if prior to such date he had ceased to be
an Employee; or his Forfeiture Date. All or part of a Member's Nonvested Account
will be forfeited if, after he ceases to be an Employee, he receives a
distribution of his entire Vested Account or a distribution of his Vested
Account derived from our Contributions which were not 100% vested when made
according to the provisions of Section 5.03 or Section 9.10. If a Member's
Vested Account is zero on the date he ceases to be an Employee, he shall be
deemed to have received a distribution of his entire Vested Account on such
date. The forfeiture will occur as of the date he receives the distribution or
on the date such provision became effective, if later. If he receives a
distribution of his entire Vested Account, his entire Nonvested Account will be
forfeited. If he receives a distribution
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<PAGE>
of his Vested Account from our Contributions which were not 100% vested when
made, but less than his entire Vested Account, the amount to be forfeited will
be determined by multiplying his Nonvested Account by a fraction. The numerator
of the fraction is the amount of the distribution derived from our Contributions
which were not 100% vested when made and the denominator of the fraction is his
entire Vested Account derived from such Contributions on the date of the
distribution.
If the Adoption Agreement - Plus is used, Forfeitures shall be allocated as of
the last day of the Plan Year in which such Forfeitures arise or applied to
reduce the earliest Employer Contribution made after the Forfeitures are
determined as provided in Item P(4). Forfeitures shall be determined at least
once during each taxable year of ours. If the Adoption Agreement - Plus is not
used and Item P(2) is selected, Forfeitures shall be allocated with our
Discretionary Contributions and deemed to be Discretionary Contributions as of
the last day of the Plan Year in which such Forfeitures arise. If the Adoption
Agreement - Plus is not used and Item P(2) is not selected, Forfeitures shall be
applied to reduce the earliest Employer Contribution made after the Forfeitures
are determined. Forfeitures of Matching Contributions which relate to excess
amounts shall be applied as provided in Section 3.07.
Forfeitures may first be applied to pay expenses under the Plan which would
otherwise be paid by us before they are applied or allocated as provided above.
Upon their application or allocation, such Forfeitures shall be deemed to be
Employer Contributions.
If a Member again becomes an Eligible Employee after receiving a distribution
which caused his Nonvested Account to be forfeited, he shall have the right to
repay to the Plan the entire amount of the distribution he received (excluding
any amount of such distribution resulting from Contributions which were 100%
vested when made). The repayment must be made before the earlier of the date
five years after the date he again becomes an Eligible Employee or the end of
the first period of five consecutive Vesting Breaks which begin after the date
of the distribution.
If the Member makes the repayment provided above, the Plan Administrator shall
restore to his Account an amount equal to his Nonvested Account which was
forfeited on the date of distribution, unadjusted for any investment gains or
losses. If the Member was deemed to have received a distribution because his
Vested Account was zero or the Plan did not have the repayment provisions in
effect on the date the distribution was made and he again performs an Hour of
Service as an Eligible Employee within the repayment period, the Plan
Administrator shall restore the Member's Account as if he had made a required
repayment on the date he performed such Hour of Service. Restoration of the
Member's Account shall include restoration of all Code Section 411(d)(6)
protected benefits with respect to the restored Account, according to applicable
Treasury regulations. Provided, however, the Plan Administrator shall not
restore the Nonvested Account if a Forfeiture Date has occurred after the date
of the distribution and on or before, the date of repayment and that Forfeiture
would result in a complete forfeiture of the amount the Plan Administrator would
otherwise restore.
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The Plan Administrator shall restore the Member's Account by the close of the
Plan Year following the Plan Year in which repayment is made.
SECTION 3.05 - ALLOCATION.
Our Contributions which are not subject to the requirements of Item Q(2) shall
be allocated to the Members for whom they were made and credited to the Members'
Accounts. Our Contributions which are subject to the requirements of Item Q(2)
plus any Forfeitures released for allocation for the Plan Year, shall be
allocated among all persons meeting the requirements in Items P and Q. The
amount allocated to such a person shall be determined under the allocation
formula selected in the Adoption Agreement and Article X.
In determining the amount of our Contributions allocated to a Member who is a
Leased Employee, contributions and benefits provided by the leasing organization
which are attributable to services such Leased Employee performs for us shall be
treated as provided by us. Those contributions or benefits shall not be
duplicated under this Plan.
SECTION 3.06 - CONTRIBUTION LIMITATION.
(a) For the purpose of determining the contribution limitation set forth in
this section, the following terms are defined:
Annual Additions mean the sum of the following amounts credited to a
Member's account for the Limitation Year:
(1) employer contributions,
(2) employee contributions,
(3) forfeitures, and
(4) amounts allocated, after March 31, 1984, to an individual medical
account, as defined in Code Section 415(l)(2), which is part of a pension
or annuity plan maintained by the Employer.
These amounts are treated as Annual Additions to a defined contribution
plan. Also amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits, allocated to the separate
account of a key employee, as defined in Code Section 419A(d)(3), under a
welfare benefit fund, as defined in Code Section 419(e), maintained by the
Employer are treated as Annual Additions to a defined contribution plan.
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For this purpose, any Excess Amount applied under (d) and (j) below in the
Limitation Year to reduce Employer Contributions will be considered Annual
Additions for such Limitation Year.
Compensation means one of the following as elected in Item M for purposes
of this section and as defined below:
(1) Information required to be reported under Code Sections 6041 and 6051
(Wages, Tips and Other Compensation Box on Form W-2). Compensation is
defined as a Member's wages within the meaning of Code Section 3401(a)
and all other payments of compensation to an Employee by us (in the
course of our trade or business), for which we are required to furnish
the Employee a written statement under Code Section 6041(d) and
6051(a)(3), which is actually paid or made available by us for a
specified period.
Compensation is determined without regard to any rules under Code
Section 3401(a) that limit the remuneration included in wages based on
the nature or location of the employment or services performed (such
as the exception for agricultural labor in Code Section 3401(a)(2)).
(2) Code Section 3401(a) wages (Wages for purposes of income tax
withholding). Compensation is defined as a Member's wages within the
meaning of Code Section 3401(a), for the purpose of income tax
withholding at the source, which is actually paid or made available by
us for a specified period. Compensation is determined without regard
to any rules under Code Section 3401(a) that limit the remuneration
included in wages based on the nature or location of the employment or
the services performed (such as the exception for agricultural labor
in Code Section 3401(a)(2)).
(3) 415 safe-harbor compensation. Compensation is defined as a Member's
wages, salaries, and fees for professional service and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal service actually rendered in the course of employment with the
employer maintaining the plan to the extent that the amounts are includable
in gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe benefits and
reimbursements or other expense allowances under a nonaccountable plan (as
described in Section 1.62-2(c) of the regulations)), and excluding the
following:
(i) Employer contributions to a plan of deferred compensation to the
extent contributions are not included in the gross income of the
Employee for the taxable year in which contributed, or employer
contributions under a simplified employee pension plan to the
extent such contributions are
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<PAGE>
deductible by the Employee, or any distributions from a plan of
deferred compensation.
(ii) Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by an
Employee becomes freely transferable or is no longer subject to a
substantial risk of forfeiture.
(iii) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option.
(iv) Other amounts which receive special tax benefits, or
contributions made by the employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in Code
Section 403(b) (whether or not the contributions are actually excludible
from the gross income of the Employee).
For any self-employed individual Compensation will mean earned income.
For Limitation Years beginning after December 31, 1991, for purposes of
applying the limitations of this section, Compensation for a Limitation
Year is the Compensation actually paid or made available during such
Limitation Year.
For any Limitation Year beginning after December 31, 1988, only the first
$200,000 (multiplied by the Adjustment Factor) of the Member's Compensation
shall be taken into account under the Plan.
Defined Benefit Plan Fraction means a fraction, the numerator of which is
the sum of the Member's Projected Annual Benefits under all the defined
benefit plans (whether or not terminated) maintained by the Employer, and
the denominator of which is the lesser of 125 percent of the dollar
limitation determined for the Limitation Year under Code Sections 415(b)
and (d) or 140 percent of the Highest Average Compensation, including any
adjustments under Code Section 415(b).
Notwithstanding the above, if the Member was a member as of the first day
of the first Limitation Year beginning after December 31, 1986, in one or
more defined benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction will not be less
than 125 percent of the sum of the annual benefits under such plans which
the Member had accrued as of the close of the last Limitation Year
beginning before January 1, 1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986. The preceding sentence applies
only if the defined benefit plans individually and in the aggregate
satisfied the requirements of Code Section 415 for all Limitation Years
beginning before January 1, 1987.
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Defined Contribution Dollar Limitation means $30,000 or if greater, one-
fourth of the defined benefit dollar limitation set forth in Code Section
415(b)(1) as in effect for the Limitation Year.
Defined Contribution Plan Fraction means a fraction, the numerator of which
is the sum of the Annual Additions to the Member's account under all the
defined contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years (including the
Annual Additions attributable to the Member's nondeductible employee
contributions to all defined benefit plans, whether or not terminated,
maintained by the Employer, and the Annual Additions attributable to all
welfare benefit funds, as defined in Code Section 419(e), and individual
medical accounts, as defined in Code Section 415(l)(2), maintained by the
Employer), and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior Limitation Years of service with the
Employer (regardless of whether a defined contribution plan was maintained
by the Employer). The maximum aggregate amount in any Limitation Year is
the lesser of 125 percent of the dollar limitation determined under Code
Section 415(b) and (d) in effect under Code Section 415(c)(1)(A) of the
Code or 35 percent of the Member's Compensation for such year.
If the Member was a member as of the end of the first Limitation Year
beginning after December 31, 1986, in one or more defined contribution
plans maintained by the Employer which were in existence on May 6, 1986,
the numerator of this fraction shall be adjusted if the sum of this
fraction and the Defined Benefit Plan Fraction would otherwise exceed 1.0
under the terms of this Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions over 1.0 times (2)
the denominator of this fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated using the
fractions as they would be computed as of the end of the last Limitation
Year beginning before January 1, 1987, and disregarding any changes in the
terms and conditions of the plan made after May 5, 1986, but using the Code
Section 415 limitations applicable to the first Limitation Year beginning
on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before January 1,
1987, shall not be recomputed to treat all employee contributions as Annual
Additions.
Employer means the employer that adopts this Plan and all members of a
controlled group of corporations (as defined in Code Section 414(b) as
modified by Code Section 415(h)), all commonly controlled trades or
businesses (as defined in Code Section 414(c) as modified by Code Section
415(h)) or affiliated service groups (as defined in Code Section 414(m)) of
which the adopting employer is a part, and any other entity required to be
aggregated with the employer pursuant to regulations under Code Section
414(o).
Excess Amount means the excess or the Member's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
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Highest Average Compensation means the average Compensation for the three
consecutive Years of Service (see Section 1.02) with the Employer that
produces the highest average.
Limitation Year means a calendar year or the 12-consecutive month period
elected by the Employer in Item R. If the Limitation Year ends on the last
day of the Fiscal Year and the Fiscal Year is a 52-53 week period, then the
Limitation Year shall be such period. All qualified plans maintained by the
Employer must use the same Limitation Year. If the Limitation Year is
amended to a different 12-consecutive month period, the new Limitation Year
must begin on a date within the Limitation Year in which the amendment is
made.
Master or Prototype Plan means a plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
Maximum Permissible Amount means the maximum Annual Addition that may be
contributed or allocated to a Member's Account under the Plan for any
Limitation Year. This amount shall not exceed the lesser of:
(1) the Defined Contribution Dollar Limitation, or
(2) 25 percent of the Member's Compensation for the Limitation Year.
The compensation limitation referred to in (2) shall not apply to any
contribution for medical benefits (within the meaning of Code Section
401(h) or Code Section 419A(f)(2)) which is otherwise treated as an Annual
Addition under Code Section 415(l)(1) or 419A(d)(2).
If a short Limitation Year is created because of an amendment changing the
Limitation Year to a different 12-consecutive month period, the Maximum
Permissible Amount will not exceed the Defined Contribution Dollar
Limitation multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
Projected Annual Benefit means the annual retirement benefit (adjusted to
an actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or qualified joint
and survivor form) to which the Member would be entitled under the terms of
the plan assuming:
(1) the Member will continue employment until normal retirement age under
the plan (or current age, if later), and
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(2) the Member's Compensation for the current Limitation Year and all other
relevant factor used to determine benefits under the plan will remain
constant for all future Limitation Years.
(b) If the Member does not participate in, and has never participated in
another qualified plan maintained by the Employer or a welfare benefit
fund, as defined in Code Section 419(e) maintained by the Employer, or an
individual medical account, as defined in Code Section 415(l)(2) of the
Code, maintained by the Employer, which provides an Annual Addition, the
amount of Annual Additions which may be credited to the Member's Account
for any Limitation Year will not exceed the lesser of the Maximum
Permissible amount or any other limitation contained in this Plan. If the
Employer Contribution that would otherwise be contributed or allocated to
the Member's Account would cause the Annual Additions for the Limitation
Year to exceed the Maximum Permissible Amount, the amount contributed or
allocated will be reduced so that the Annual Additions for the Limitation
Year will equal the Maximum Permissible Amount.
(c) Prior to determining the Member's actual Compensation for the Limitation
Year, the Employer may determine the Maximum Permissible Amount for a
Member on the basis of reasonable estimation of the Member's Compensation
for the Limitation Year, uniformly determined for all Members similarly
situated.
(d) As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year will be
determined on the basis of the Members actual Compensation for the
Limitation Year.
(e) If pursuant to (d) above, as a result of the allocation of forfeitures, or
as a result of a reasonable error in determining the amount of Elective
Deferrals (within the meaning of Code Section 402(g)(3)) that may be made
with respect to any individual under the limits of Code Section 415, there
is an Excess Amount, the excess will be disposed of as follows:
(1) Any nondeductible voluntary employee contributions, to the extent they
would reduce the excess amount, will be returned to the Member;
(2) Any Elective Deferral Contributions, to the extent they would reduce
the excess amount, will be returned to the Member;
(3) If after the application of (1) and (2) above an Excess Amount still
exists, and the Member is covered by the Plan at the end of the Limitation
Year, the Excess Amount in the Member's Account will be used to reduce
Employer Contributions (including any allocation of forfeitures) for such
Member in the next Limitation Year, and each succeeding Limitation Year if
necessary.
(4) If after the application of (1) and (2) above an excess amount still
exists, and the Member is not covered by the Plan at the end of a
Limitation Year, the Excess
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Amount will be held unallocated in a suspense account. The suspense account
will be applied to reduce future Employer Contributions for all remaining
Members in the next Limitation Year, and each succeeding Limitation Year if
necessary.
(5) If a suspense account is in existence at any time during a Limitation
Year pursuant to this (e), it will participate in the allocation of the
trust's investment gains or losses. If a suspense account is in existence
at any time during a particular Limitation Year, all amounts in the
suspense account must be allocated and reallocated to Member's Accounts
before any Employer or any Member contributions may be made to the Plan for
that Limitation Year. Excess amounts may not be distributed to Members or
former Members.
(f) This (i) applies if, in addition to this Plan, the Member is covered under
another qualified defined contribution Master or Prototype Plan maintained
by the Employer, a welfare benefit fund, as defined in Code Section 419(e),
maintained by the Employer, or an individual medical account, as defined in
Code Section 415(l)(2), maintained by the Employer, which provides an
Annual Addition, during any Limitation Year. The Annual Additions which may
be credited to a Member's Account under this Plan for any such Limitation
Year will not exceed the Maximum Permissible Amount reduced by the Annual
Additions credited to a Member's account under the other plans and welfare
benefit funds for the same Limitation Year. If the Annual Additions with
respect to the Member under other defined contribution plans and welfare
benefit funds maintained by the Employer are less than the Maximum
Permissible Amount and the Employer Contribution that would otherwise be
contributed or allocated to the Member's Account under this Plan would
cause the Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated will be reduced so that the
Annual Additions under all such plans and funds for the Limitation Year
will equal the Maximum Permissible Amount. If the Annual Additions with
respect to the Member under such other defined contribution plans and
welfare benefit funds in the aggregate are equal to or greater than the
Maximum Permissible Amount, no amount will be contributed or allocated to
the Member's Account under this Plan for the Limitation Year.
(g) Prior to determining the Member's actual Compensation for the Limitation
Year, the Employer may determine the Maximum Permissible Amount for a
Member in the manner described in (c) above.
(h) As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year will be
determined on the basis of the Member's actual Compensation for the
Limitation Year.
(i) If pursuant to (h) above, as a result of the allocation of forfeitures, or
as a result of a reasonable error in determining the amount of Elective
Deferrals (within the meaning of the Code Section 402(g)(3)) that may be
made with respect to any individual under the limits of Code Section 415, a
Member's Annual Additions under this Plan and such other
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plans would result in an Excess Amount for a Limitation Year, the Excess
Amount will be deemed to consist of the Annual Additions last allocated,
except that Annual Additions attributable to a welfare benefit fund or
individual medical account will be deemed to have been allocated first
regardless of the actual allocation date.
(j) If an Excess Amount was allocated to a Member on an allocation date of this
Plan which coincides with an allocation date of another plan, the Excess
Amount attributed to this Plan will be the product of,
(1) the total Excess Amount allocated as of such date, times
(2) the ratio of (i) the Annual Additions allocated to the Member for the
Limitation Year as of such date under this Plan to (ii) the total
Annual Additions allocated to the Member for the Limitation Year as of
such date under this and all the other qualified defined contribution
Master and Prototype Plans.
(k) Any excess amount attributed to this Plan will be disposed in the manner
described in (e) above.
(1) If the Member is covered under another qualified defined contribution plan
maintained by the Employer which is not a Master or Prototype Plan, Annual
Additions which may be credited to the Member's Account under this Plan for
any Limitation Year will be limited in accordance with (f) through (k)
above as though the other plan were a Master or Prototype Plan unless the
Employer provides other limitations in Item R.
(m) If the Employer maintains, or at any time maintained, a qualified defined
benefit plan covering any Member in this Plan, the sum of the Member's
Defined Benefit Plan Fraction and Defined Contribution Plan Fraction will
not exceed 1.0 in any Limitation Year. The Annual Additions credited to the
Member's Account under this Plan for any Limitation Year will be limited in
accordance with Item R.
SECTION 3.07 - EXCESS AMOUNTS.
(a) For the purposes of this section, the following terms are defined:
Actual Deferral Percentage means the ratio (expressed as a percentage) of
Elective Deferral Contributions under this Plan on behalf of the Eligible
Member for the Plan Year to the Eligible Member's Pay for the Plan Year
(whether or not the Eligible Member was a Member for the entire Plan Year).
For the first Plan Year of the cash or deferred arrangement, the amount of
Pay for the entire 12-month period ending on the last day of such Plan Year
shall be taken into account. If selected in Item M and in modification of
the foregoing, Pay shall be limited to the Pay received while an Active
Member of the Plan. The Elective Deferral Contributions used to determine
the Actual Deferral Percentage shall include Excess Elective Deferrals
(other than Excess Elective Deferrals
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of Nonhighly Compensated Employees that arise solely from Elective Deferral
Contributions made under this Plan or any other plans of ours or a
Controlled Group member), but shall exclude Elective Deferral Contributions
that are used in computing the Contribution Percentage (provided the
Average Actual Deferral Percentage test is satisfied both with and without
exclusion of these Elective Deferral Contributions). Under such rules as
the Secretary of the Treasury shall prescribe, we may elect to include
Qualified Nonelective Contributions and Qualified Matching Contributions
under this Plan in computing the Actual Deferral Percentage. For an
Eligible Member for whom such Contributions on his behalf for the Plan Year
are zero, the percentage is zero.
Aggregate Limit means the sum of
(1) 125 percent of the greater of the Average Actual Deferral Percentage
of the Nonhighly Compensated Employees for the Plan Year or the
Average Contribution Percentage of Nonhighly Compensated Employees
under the Plan subject to Code Section 401(m) for the Plan Year
beginning with or within the Plan Year of the cash or deferred
arrangement and
(2) the lesser of 200% or two plus the lesser of such Average Actual
Deferral Percentage or Average Contribution Percentage.
For Plan Years beginning before January 1, 1992, or such later date as
provided in Internal Revenue Service regulations, the Aggregate Limit shall
be the greater of the sum above or the sum of
(3) 125 percent of the lesser of the Average Actual Deferral Percentage of
the Nonhighly Compensated Employees for the Plan Year or the Average
Contribution Percentage of Nonhighly Compensated Employees under the Plan
subject to Code Section 401(m) for the Plan Year beginning with or within
the Plan Year of the cash or deferred arrangement and
(4) the lesser of 200% or two plus the greater of such Average Actual
Deferral Percentage or Average Contribution Percentage.
Average Actual Deferral Percentage means the average (expressed as a
percentage) of the Actual Deferral Percentages of the Eligible Members in a
group.
Average Contribution Percentage means the average (expressed as a
percentage) of the Contribution Percentages of the Eligible Members in a
group.
Contribution Percentage means the ratio (expressed as a percentage) of the
Eligible Member's Contribution Percentage Amounts to the Eligible Member's
Pay for the Plan Year (whether or not the Eligible Member was a Member for
the entire Plan Year). For the first Plan Year of the Plan, the amount of
Pay for the entire 12-month period ending
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on the last day of such Plan Year shall be taken into account. If selected
in Item M and in modification of the foregoing, Pay shall be limited to the
Pay received while an Active Member of the Plan. For an Eligible Member for
whom such Contribution Percentage Amounts for the Plan Year are zero, the
percentage is zero.
Contribution Percentage Amounts means the sum of the Member Contributions
and Matching Contributions (that are not Qualified Matching Contributions)
under this Plan on behalf of the Eligible Member for the Plan Year. On and
after the first Yearly Date in 1993, such Contribution Percentage Amounts
shall not include Matching Contributions that are forfeited either to
correct Excess Aggregate Contributions or because the Contributions to
which they relate are Excess Elective Deferrals, Excess Contributions or
Excess Aggregate Contributions. Under such rules as the Secretary of the
Treasury shall prescribe, we may elect to include Qualified Nonelective
Contributions and Qualified Matching Contributions under this Plan which
were not used in computing the Actual Deferral Percentage in computing the
Contribution Percentage. We may also elect to use Elective Deferral
Contributions in computing the Contribution Percentage so long as the
Average Actual Deferral Percentage test is met before the Elective Deferral
Contributions are used in the Average Contribution Percentage test and
continues to be met following the exclusion of those Elective Deferral
Contributions that are used to meet the Average Contribution Percentage
test.
Elective Deferral Contributions means employer contributions made on behalf
of a member pursuant to an election to defer under any qualified cash or
deferred arrangement as described in Code Section 401(k), any simplified
employee pension cash or deferred arrangement as described in Code Section
402(h)(1)(B), any eligible deferred compensation plan under Code Section
457, any plan as described under Code Section 501(c)(18), and any employer
contributions made on behalf of a member for the purchase of an annuity
contract under Code Section 403(b) pursuant to a salary reduction
agreement. Elective Deferral Contributions shall not include any deferrals
properly distributed as excess Annual Additions.
Eligible Member means, for purposes of determining the Actual Deferral
Percentage, any Employee who is otherwise authorized under the terms of the
Plan to have Elective Deferral Contributions made on his behalf for the
Plan Year. Eligible Member means, for purposes of determining the Average
Contribution Percentage, any Employee who is otherwise authorized under the
terms of the Plan to have Member Contributions or Matching Contributions
made on his behalf for the Plan Year.
Excess Aggregate Contributions means, with respect to any Plan Year, the
excess of:
(1) The aggregate Contributions taken into account in computing the
numerator of the Contribution Percentage actually made on behalf of Highly
Compensated Employees for such Plan Year, over
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<PAGE>
(2) The maximum amount of such Contributions permitted by the Average
Contribution Percentage test (determined by reducing Contributions made on
behalf of Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages).
Such determination shall be made after first determining Excess Elective
Deferrals and then determining Excess Contributions.
Excess Contributions means, with respect to any Plan Year, the excess of:
(1) The aggregate amount of Contributions actually taken into account in
computing the Actual Deferral Percentage of Highly Compensated Employees
for such Plan Year, over
(2) The maximum amount of such Contributions permitted by the Actual
Deferral Percentage test (determined by reducing Contributions made on
behalf of Highly Compensated Employees in order of the Actual Deferral
Percentages, beginning with the highest of such percentages).
Such determination shall be made after first determining Excess Elective
Deferrals.
Excess Elective Deferrals means those Elective Deferral Contributions that
are includable in a Member's gross income under Code Section 402(g) to the
extent such Member's Elective Deferral Contributions for a taxable year
exceed the dollar limitation under such Code section. Excess Elective
Deferrals shall be treated as Annual Additions under the Plan, unless such
amounts are distributed no later than the first April 15 following the
close of the Member's taxable year.
Matching Contributions means employer contributions made to this or any
other defined contribution plan, or to a contract described in Code Section
403(b), on behalf of a member on account of a Member Contribution made by
such member, or on account of a member's Elective Deferral Contributions,
under a plan maintained by the employer.
Member Contributions means contributions made to any plan by or on behalf
of a member that are included in the member's gross income in the year in
which made and that are maintained under a separate account to which
earnings and losses are allocated.
Qualified Matching Contributions means Matching Contributions which are
subject to the distribution and nonforfeitability requirements under Code
Section 401(k) when made.
Qualified Nonelective Contributions means any employer contributions (other
than Matching Contributions) which an employee may not elect to have paid
to him in cash instead of being contributed to the plan and which are
subject to the distribution and nonforfeitability requirements under Code
Section 401(k).
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<PAGE>
(b) A Member may assign to this Plan any Excess Elective Deferrals made
during a taxable year of the Member by notifying the Plan
Administrator in writing on or before the first following March 1 of
the amount of the Excess Elective Deferrals to be assigned to the
Plan. On and after the first Yearly Date in 1993, a Member is deemed
to notify the Plan Administrator of any Excess Elective Deferrals that
arise by taking into account only those Elective Deferral
Contributions made to this Plan and any other plan of ours. The
Member's claim for Excess Elective Deferrals shall be accompanied by
the Member's written statement that if such amounts are not
distributed, such Excess Elective Deferrals, when added to amounts
deferred under other plans or arrangements described in Code Sections
401(k), 408(k) or 403(b), will exceed the limit imposed on the Member
by Code Section 402(g) for the year in which the deferral occurred.
The Excess Elective Deferrals assigned to this Plan can not exceed the
Elective Deferral Contributions allocated under this Plan for such
taxable year.
Notwithstanding any other provisions of the Plan, Elective Deferral
Contributions in an amount equal to the Excess Elective Deferrals
assigned to this Plan, plus any income and minus any loss allocable
thereto, shall be distributed no later than April 15 to any Member to
whose Account Excess Elective Deferrals were assigned for the
Preceding year and who claims Excess Elective Deferrals for such
taxable year.
The income or loss allocable to such Excess Elective Deferrals shall
be equal to the sum of:
(1) the income or loss allocable to the Member's Elective Deferral
Contributions for the taxable year in which the excess occurred
multiplied by a fraction and
(2) the income or loss allocable to the Member's Elective Deferral
Contributions for the gap period between the end of such taxable year
and the date of distribution multiplied by a fraction.
The numerator of the fractions is the Excess Elective Deferrals. The
denominator of the fraction in (1) above is the closing balance
without regard to any income or loss occurring during such taxable
year (as of the end of such taxable year) of the Member's Account
resulting from Elective Deferral Contributions. The denominator of the
fraction in (2) above is the closing balance without regard to any
income or loss occurring during such gap period (as of the end of such
gap period) of the Member's Account resulting from Elective Deferral
Contributions. The amount determined in (2) above shall not be
included for taxable years beginning after December 31, 1992.
Any Matching Contributions which were based on the Elective Deferral
Contributions which are distributed as Excess Elective Deferrals, plus
any income
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and minus any loss allocable thereto, shall be forfeited,
if forfeitable. If the Adoption Agreement - Plus is used, these
Forfeitures shall be applied according to the provisions of Item O(7).
If the Adoption Agreement - Plus is not used, these Forfeitures shall
be used to offset the earliest Employer Contribution due after the
Forfeiture arises.
(c) As of the end of each Plan Year after Excess Elective Deferrals have
been determined, one of the following tests must be met:
(1) The Average Actual Deferral Percentage for Eligible Members who
are Highly Compensated Employees for the Plan Year is not more
than the Average Actual Deferral Percentage for Eligible Members
who are Nonhighly Compensated Employees for the Plan Year
multiplied by 1.25.
(2) The Average Actual Deferral Percentage for Eligible Members who
are Highly Compensated Employees for the Plan Year is not more
than the Average Actual Deferral Percentage for Eligible Members
who are Nonhighly Compensated Employees for the Plan Year
multiplied by 2 and the difference between the Average Actual
Deferral Percentages is not more than 2.
The Actual Deferral Percentage for any Eligible Member who is a Highly
Compensated Employee for the Plan Year and who is eligible to have
Elective Deferral Contributions (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if used in
computing the Actual Deferral Percentage) allocated to his account
under two or more plans or arrangements described in Code Section
401(k) that are maintained by us or a Controlled Group member shall be
determined as if all such Elective Deferral Contributions (and, if
applicable, such Qualified Nonelective Contributions or Qualified
Matching Contributions, or both) were made under a single arrangement.
If a Highly Compensated Employee participates in two or more cash or
deferred arrangements that have different Plan Years, all cash or
deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement. The foregoing
notwithstanding, certain plans shall be treated as separate if
mandatorily disaggregated under the regulations of Code Section
401(k).
In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b) only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such Code sections only if aggregated with this Plan,
then this section shall be applied by determining the Actual Deferral
Percentage of employees as if all such plans were a single plan. For
Plan Years beginning after December 31, 1989, plans may be aggregated
in order to satisfy Code Section 401(k) only if they have the same
Plan Year.
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For purposes of determining the Actual Deferral Percentage of an
Eligible Member who is a five-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the Elective Deferral
Contributions (and Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, if used in computing the Actual
Deferral Percentage) and Pay of such Eligible Member include the
Elective Deferral Contributions (and, if applicable, Qualified
Nonelective Contributions or Qualified Matching Contributions, or
both) and Pay for the Plan Year of Family Members. Family Members,
with respect to such Highly Compensated Employees, shall be
disregarded as separate employees in determining the Actual Deferral
Percentage both for Members who are Nonhighly Compensated Employees
and for Members who are Highly Compensated Employees.
For purposes of determining the Actual Deferral Percentage, Elective
Deferral Contributions, Qualified Nonelective Contributions and
Qualified Matching Contributions must be made before the last day of
the twelve-month period immediately following the Plan Year to which
contributions relate.
We shall maintain records sufficient to demonstrate satisfaction of
the Average Actual Deferral Percentage test and the amount of
Qualified Nonelective Contributions or Qualified Matching
Contributions, or both, used in such test.
The determination and treatment of the Contributions used in computing
the Actual Deferral Percentage shall satisfy such other requirements
as may be prescribed by the Secretary of the Treasury.
If the Plan Administrator should determine during the Plan Year that
neither of the above tests is being met, the Plan Administrator may
adjust the amount of future Elective Deferral Contributions of the
Highly Compensated Employees.
Notwithstanding any other provisions of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto,
shall be distributed no later than the last day of each Plan Year to
Members to whose Accounts such Excess Contributions were allocated for
the preceding Plan Year. If such excess amounts are distributed more
than 2 1/2 months after the last day of the Plan Year in which such
excess amounts arose, a ten (10) percent excise tax will be imposed on
the employer maintaining the plan with respect to such amounts. Such
distributions shall be made to Highly Compensated Employees on the
basis of the respective portions of the Excess Contributions
attributable to each of such employees. Excess Contributions shall be
allocated to Members who are subject to the family member aggregation
rules of Code Section 414(q)(6) in the manner prescribed by the
regulations. On and after the first Yearly Date in 1993, Excess
Contributions of Members who are subject to the family member
aggregation rules shall be allocated among the Family Members in
proportion to the Elective Deferral Contributions
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(and amounts treated as Elective Deferral Contributions) of each
Family Member that is combined to determine the combined Actual
Deferral Percentage.
Excess Contributions shall be treated as Annual Additions under the
Plan.
The Excess Contributions shall be adjusted for income or loss. The
income or loss allocable to such Excess Contributions shall be equal
to the sum of
(3) the income or loss allocable to the Member's Elective Deferral
Contributions (and, if applicable, Qualified Nonelective
Contributions or Qualified Matching Contributions, or both) for
the Plan Year in which the excess occurred multiplied by a
fraction and
(4) the income or loss allocable to the Member's Elective Deferral
Contributions (and, if applicable, Qualified Nonelective
Contributions or Qualified Matching Contributions, or both) for
the gap period between the end of such Plan Year and the date of
distribution multiplied by a fraction.
The numerator of the fractions is the Excess Contributions. The denominator of
the fraction in (3) above is the closing balance without regard to any income or
loss occurring during such Plan Year (as of the end of such Plan Year) of the
Member's Account resulting from Elective Deferral Contributions (and Qualified
Nonelective Contributions or Qualified Matching Contributions, or both, if used
in computing the Actual Deferral Percentage). The denominator of the fraction in
(4) above is the closing balance without regard to any income or loss occurring
during such gap period (as of the end of such gap period) of the Member's
Account resulting from Elective Deferral Contributions (and Qualified
Nonelective Contributions or Qualified Matching Contributions, or both, if used
in computing the Actual Deferral Percentage). The amount determined in (4) above
shall not be included for Plan Years beginning after December 31, 1992.
Excess Contributions shall be distributed from the Member's Account resulting
from Elective Deferral Contributions. If such Excess Contributions exceed the
balance in the Member's Account resulting from Elective Deferral Contributions,
the balance shall be distributed from the Member's Account resulting from
Qualified Matching Contributions (if applicable) and Qualified Nonelective
Contributions, respectively.
On and after the first Yearly Date in 1993, any Matching Contributions which are
distributed as Excess Contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if forfeitable. If the Adoption
Agreement - Plus is used, these Forfeitures shall be applied according to the
provisions of Item O(7). If the Adoption Agreement - Plus is not used, these
Forfeitures shall be used to offset the earliest Employer Contribution due after
the Forfeiture arises.
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(d) As of the end of each Plan Year, one of the following tests must be
met:
(1) The Average Contribution Percentage for Eligible Members who are
Highly Compensated Employees for the Plan Year is not more than
the Average Contribution Percentage for Eligible Members who are
Nonhighly Compensated Employees for the Plan Year multiplied by
1.25.
(2) The Average Contribution Percentage for Eligible Members who are
Highly Compensated Employees for the Plan Year is not more than
the Average Contribution Percentage for Eligible Members who are
Nonhighly Compensated Employees for the Plan Year multiplied by 2
and the difference between the Average Contribution Percentages
is not more than 2.
If one or more Highly Compensated Employees participate in both a cash or
deferred arrangement and a plan subject to the Average Contribution Percentage
test maintained by us or a Controlled Group member and the sum of the Average
Actual Deferral Percentage and Average Contribution Percentage of those Highly
Compensated Employees subject to either or both tests exceeds the Aggregate
Limit, then the Contribution Percentage of those Highly Compensated Employees
who also participate in a cash or deferred arrangement will be reduced
(beginning with such Highly Compensated Employees whose Contribution Percentage
is the highest) so that the limit is not exceeded. The amount by which each
Highly Compensated Employee's Contribution Percentage is reduced shall be
treated as an Excess Aggregate Contribution. The Average Actual Deferral
Percentage and Average Contribution Percentage of the Highly Compensated
Employees are determined after any corrections required to meet the Average
Actual Deferral Percentage and Average Contribution Percentage tests. Multiple
use does not occur if both the Average Actual Deferral Percentage and Average
Contribution Percentage of the Highly Compensated Employees does not exceed 1.25
multiplied by the Average Actual Deferral Percentage and Average Contribution
Percentage of the Nonhighly Compensated Employees.
The Contribution Percentage for any Eligible Member who is a Highly Compensated
Employee for the Plan Year and who is eligible to have Contribution Percentage
Amounts allocated to his account under two or more plans described in Code
Section 401(a) or arrangements described in Code Section 401(k) that are
maintained by us or a Controlled Group member shall be determined as if the
total of such Contribution Percentage Amounts was made under each plan. If a
Highly Compensated Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement. The foregoing notwithstanding, certain plans shall be treated as
separate if mandatorily disaggregated under the regulations of Code Section
401(m).
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In the event that this Plan satisfies the requirements of Code Section 410(b)
only if aggregated with one or more other plans, or if one or more other plans
satisfy the requirements of Code Section 410(b) only if aggregated with this
Plan, then this section shall be applied by determining the Contribution
Percentages of Eligible Members as if all such plans were a single plan. For
Plan Years beginning after December 31, 1989, plans may be aggregated in order
to satisfy Code Section 401(m) only if they have the same Plan Year.
For purposes of determining the Contribution Percentage of an Eligible Member
who is a five-percent owner or one of the ten most highly-paid Highly
Compensated Employees, the Contribution Percentage Amounts and Pay of such
Member shall include Contribution Percentage Amounts and Pay for the Plan Year
of Family Members. Family Members, with respect to Highly Compensated Employees,
shall be disregarded as separate employees in determining the Contribution
Percentage both for employees who are Nonhighly Compensated Employees and for
employees who are Highly Compensated Employees.
For purposes of determining the Contribution Percentage, Member Contributions
are considered to have been made in the Plan Year in which contributed to the
Plan. Matching Contributions and Qualified Nonelective Contributions will be
considered made for a Plan Year if made no later than the end of the twelve-
month period beginning on the day after the close of the Plan Year.
We shall maintain records sufficient to demonstrate satisfaction of the Average
Contribution Percentage test and the amount of Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, used in such test.
The determination and treatment of the Contribution Percentage of any Member
shall satisfy such other requirements as may be prescribed by the Secretary of
the Treasury.
Notwithstanding any other provisions of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall be
forfeited, if not vested, or distributed, if vested, no later than the last day
of each Plan Year to Members to whose Accounts such Excess Aggregate
Contributions were allocated for the preceding Plan Year. Excess Aggregate
Contributions shall be allocated to Members who are subject to the family member
aggregation rules of Code Section 414(q)(6) in the manner prescribed by the
regulations. On and after the first Yearly Date in 1993, Excess Aggregate
Contributions of Members who are subject to the family aggregation rules shall
be allocated among the Family Members in proportion to the employee and Matching
Contributions (or amounts treated as Matching Contributions) of each Family
Member that is combined to determine the combined Contribution Percentage. If
such Excess Aggregate Contributions are distributed more than 2 1/2 months
after the last day of the Plan
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Year in which such excess amounts arose, a ten (10) percent excise tax will be
imposed on the employer maintaining the plan with respect to those amounts.
Excess Aggregate Contributions shall be treated as Annual Additions under the
Plan.
The Excess Aggregate Contributions shall be adjusted for income or loss. The
income or loss allocable to such Excess Aggregate Contributions shall be equal
to the sum of:
(3) the income or loss allocable to the Member's Contribution
Percentage Amounts for the Plan Year in which the excess occurred
multiplied by a fraction and
(4) the income or loss allocable to the Member's Contribution
Percentage Amounts for the gap period between the end of such Plan
Year and the date of distribution multiplied by a fraction.
The numerator of the fractions is the Excess Aggregate Contributions. The
denominator of the fraction in (3) above is the closing balance without regard
to any income or loss occurring during such Plan Year (as of the end of such
Plan Year) of the Member's Account resulting from Contribution Percentage
Amounts. The denominator of the fraction in (4) above is the closing balance
without regard to any income or loss occurring during such gap period (as of the
end of such gap period) of the Member's Account resulting from Contribution
Percentage Amounts. The amount determined in (4) above shall not be included for
Plan Years beginning after December 31, 1992.
Excess Aggregate Contributions shall be distributed from the Member's Account
resulting from Member Contributions that are not required as a condition of
employment or participation or for obtaining additional benefits from Employer
Contributions. If such Excess Aggregate Contributions exceed the balance in the
Member's Account resulting from such Member Contributions, the balance shall be
forfeited, if not vested, or distributed, if vested, on a pro-rata basis from
the Member's Account resulting from Contribution Percentage Amounts. If the
Adoption Agreement - Plus is used, these Forfeitures shall be applied according
to the provisions of Item O(7). If the Adoption Agreement - Plus is not used,
these Forfeitures shall be used to offset the earliest Employer Contribution due
after the Forfeiture arises.
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Article IV
Investment Of Contributions
SECTION 4.01 - INVESTMENT OF CONTRIBUTIONS.
(a) The provisions of this subsection apply to trusteed plans.
All Contributions are forwarded by us to the Trustee to be deposited in the
Trust Fund. Member Contributions shall be forwarded within three months after
they are made.
Investment of Contributions is governed by the provisions of the Trust, the
Annuity Contract and any other funding arrangement in which the Trust Fund is or
may be invested. To the extent permitted by the Trust, Annuity Contract, or
other funding arrangement, the parties named in Item T of the Adoption Agreement
shall direct the Contributions to any of the accounts available under the Trust
and may request the transfer of assets resulting from those Contributions
between such accounts. A Member may not direct the Trustee to invest the
Member's Account in collectibles. Collectible means any work of art, rug or
antique, metal or gem, stamp or coin, alcoholic beverage or other tangible
personal property specified by the Secretary of the Treasury. To the extent that
a Member does not direct the investment of his Account, such Account shall be
invested ratably in the accounts available under the Trust in the same manner as
the undirected Accounts of all other Members.
The Vested Accounts of all Inactive Members may be segregated and invested
separately from the Accounts of all other Members.
At least annually, the Named Fiduciary shall review all pertinent Employee
information and Plan data in order to establish the funding policy of the Plan
and to determine appropriate methods of carrying out the Plan's objectives. The
Named Fiduciary shall inform the Trustee and any Investment Manager of the
Plan's short-term and long-term financial needs so the investment policy can be
coordinated with the Plan's financial requirements.
However, the Named Fiduciary may delegate to the Investment Manager investment
discretion for Contributions and Plan assets which are not subject to Member
direction.
(b) The provisions of this subsection apply to plans which are not trusteed.
All Contributions are forwarded by us to the Insurer to be deposited under
the Annuity Contract. Member Contributions shall be forwarded within three
months after they are made.
Investment of Contributions is governed by the provisions of the Annuity
Contract. To the extent permitted by the Annuity Contract, the parties
named in Item T of the Adoption
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Agreement shall direct the Contributions to any of the accounts available under
the Annuity Contract and may request the transfer of assets resulting from those
Contributions between such accounts. To the extent that a Member does not direct
the investment of his Account, such Account shall be invested ratably in the
accounts available under the Annuity Contract in the same manner as the
undirected Accounts of all other Members. The Vested Accounts of all Inactive
Members may be segregated and invested separately from the Accounts of all other
Members.
At least annually, the Named Fiduciary shall review all pertinent Employee
information and Plan data in order to establish the funding policy of the Plan
and to determine appropriate methods of carrying out the Plan's objectives. The
Named Fiduciary shall inform any Investment Manager of the Plan's short-term and
long-term financial needs so the investment policy can be coordinated with the
Plan's financial requirements.
However, the Named Fiduciary may delegate to the Investment Manager investment
discretion for Contributions and Plan assets which are not subject to Member
direction.
SECTION 4.02 - PURCHASE OF INSURANCE.
If permitted under Item T of the Adoption Agreement, life insurance may be
purchased under this Plan for Active Members to provide incidental death
benefits. The Trustee shall apply for and will be the owner of any Insurance
Policy purchased under the terms of this Plan. The purchase shall be subject to
the provisions of this section, the distribution of benefits provisions of
Article VI, and the beneficiary provisions of Section 9.06. If the Member has a
spouse to whom he has been continuously married for at least one year, such
spouse shall be his Beneficiary under the Insurance Policy unless (a) a
qualified election has been made according to the provisions of Section 6.03 or
(b) the Trustee has been named as Beneficiary. If the Trustee is named as
Beneficiary, upon the death of the Member, the Trustee shall be required to pay
over all proceeds of the Insurance Policy to the Member's Beneficiary or spouse,
as the case may be, according to the distribution of benefits provisions of
Article VI. Under no circumstances shall the Trust retain any part of the
proceeds. In the event of any conflict between the terms of this Plan and the
terms of any Insurance Policy purchased hereunder, the Plan provisions shall
control.
The purchase of insurance shall be subject to the limitations that may be
imposed by the Insurer under the applicable Insurance Policy. The Insurance
Policy may provide for waiver of premium for disability.
The total of all insurance premiums for insurance coverage on the life of a
Member provided by our Contributions shall be limited to a percentage of all our
Contributions made for that Member. All such ordinary life insurance premiums
shall be limited to a percentage which is less than 50%. All such term life and
universal life insurance premiums shall be limited to a percentage which is not
more than 25%. If both ordinary life insurance and term life or universal life
insurance is purchased, 1/2 of all such ordinary life insurance premiums and all
such other life insurance premiums shall be limited to a percentage which is
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not more than 25%. Ordinary life insurance policies are policies with both
nondecreasing death benefits and nonincreasing premiums. The Member's Account
resulting from deductible Voluntary Contributions (and nondeductible Voluntary
Contributions if the Adoption Agreement - Plus is not used) shall not be applied
to pay life insurance premiums.
Any dividends declared upon an amount of insurance in force on the life of a
Member may, within the terms of the Insurance Policy, be applied to reduce the
earliest premium due, purchase paid-up insurance coverage, accumulate under the
policy to provide additional death benefit or be credited to the Member's
Account which is included in the Investment Fund. In the absence of any
direction, such dividends shall be applied to reduce the earliest premium due
for such amount of insurance.
A Member may elect to have amounts deducted from his Account to pay insurance
premiums. The total amount deducted cannot exceed the amount of Contributions
credited to his Account which were not used to provide insurance, but could have
been.
If a decrease in the amount of life insurance is necessary, any cash values of
the terminated insurance shall be retained in the Member's Account and added to
the Investment Fund.
SECTION 4.03 - TRANSFER OF OWNERSHIP.
Any transfer of ownership under this section shall be subject to the
distribution of benefits provisions of Article VI.
Upon the request of a Member, we may purchase for its cash value a personal life
insurance policy issued to, and insuring the life of, the Member. Such policy
shall be immediately transferred from us to the Trustee. The cash value of the
purchased policy shall be a part of our Contribution for the Plan Year. Any such
purchase shall be accomplished only under an appropriate written agreement
between the Member, the Trustee and us. In lieu of our purchase of such policy
and at our direction, the Trustee may purchase the policy directly from the
Member. These provisions shall not be available if the policy is subject to a
policy loan or similar lien. The purchase of and future premiums for any such
policy shall be subject to the limitations in Section 4.02.
If the Insurance Policy allows, a Member may pay the Trustee an amount equal to
the cash values of any Insurance Policy on his life. Such payment shall become a
part of his Account.
Upon receiving the payment, the Trustee shall transfer ownership of the policy
to the Member. This transfer of ownership is not a distribution from the Plan.
This option shall only be available to a Member if the policy would, but for the
sale, be surrendered by the Plan.
If distribution of a Member's Vested Account would include the cash values of an
Insurance Policy on his life, the Member may have ownership of an Insurance
Policy on his life transferred to him without making payment to the Trustee if
permitted by such Insurance Policy. Any
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Insurance Policy transferred to the Member for which he has not made payment to
the Trustee is a distribution from the Plan.
In applying the provisions of this section, all Members in similar circumstances
shall be treated in a similar manner. Members who are Highly Compensated
Employees (officers, shareholders or highly compensated Employees before the
first Yearly Date after December 31, 1988) shall not be treated in a manner more
favorable than that afforded all other Members.
SECTION 4.04 - TERMINATION OF INSURANCE.
The termination of insurance under this section shall be subject to the
distribution of benefits provisions of Article VI.
No premium payments shall be made under this Plan for an Inactive Member. If a
Member becomes an Inactive Member before Retirement Date, the Trustee may either
use the cash values of the Insurance Policy on his life to provide paid-up
insurance or may surrender the Insurance Policy. The cash values of a
surrendered Insurance Policy are retained in the Member's Account and added to
the Investment Fund. The purchase of paid-up insurance shall be subject to the
provisions of the Insurance Policy. If the Member ceases to be an Employee
before Retirement Date, the Member may elect to have the ownership of the
Insurance Policy transferred as provided in Section 4.03.
On a Member's Retirement Date, any Insurance Policy on his life, the ownership
of which has not been transferred to him, shall terminate. The cash values shall
be paid to the Member in cash or applied to provide an income for him according
to the provisions of the Insurance Policy. In any event, no portion of the value
of any Insurance Policy shall be used to continue life insurance protection
under the Plan beyond actual retirement.
Article V
Benefits
SECTION 5.01 - RETIREMENT BENEFITS.
On a Member's Retirement Date, the Member's Vested Account shall be distributed
to the Member according to the distribution of benefits provisions of Article VI
and the small amounts provisions of Section 9.10.
SECTION 5.02 - DEATH BENEFITS.
If a Member dies before his Annuity Starting Date, the Member's Vested Account
shall be distributed according to the distribution of benefits provisions of
Article VI and the small amounts provisions of Section 9.10.
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SECTION 5.03 - VESTED BENEFITS.
If the Inactive Member's Vested Account is not payable under the small amounts
provisions of 9.10, he may elect, but is not required, to receive in a single
sum that part of his Vested Account which results from Member Contributions
after he ceases to be an Employee. The Member's election shall meet the consent
requirements in Section 6.03 for a qualified election of a benefit payable in a
form other than a Qualified Joint and Survivor Form.
If the Inactive Member's Vested Account is not payable under the small amounts
provisions of Section 9.10, he may elect, but is not required, to receive a
distribution of his Vested Account after he ceases to be an Employee. If Item
X(3)(a) of the Adoption Agreement - Plus is selected, distributions from the
Member's Vested Account which results from the designated Contributions shall
not begin before the Member retires, becomes Totally Disabled or dies. If Item
X(3)(b) of the Adoption Agreement - Plus is selected, distributions shall not be
made until he has ceased to be an Employee for the period of time selected in
Item X(3)(b). The Member's election shall be subject to his spouse's consent as
provided in Section 6.03. A distribution under this paragraph will be a
retirement benefit and shall be distributed to the Member according to the
provisions of Article VI.
If an Inactive Member does not receive an earlier distribution according to the
provisions of the preceding paragraph or the small amounts provisions of Section
9.10, upon his Retirement Date or death, his Vested Account shall be applied
according to the provisions of Section 5.01 or 5.02.
A Member may not receive any such distribution under the provisions of this
section after he again becomes an Employee until he subsequently ceases to be an
Employee and again meets the requirements of this section.
Some or all of an Inactive Member's Vested Account may be transferred directly
to the trustee, named fiduciary, or insurer under the retirement plan of the
Inactive Member's current employer if the following requirements are met: the
Inactive Member would be eligible to receive a distribution of his Vested
Account at the time the transfer is to occur; the amount transferred, if
distributed to the Member, would qualify as a rollover contribution which the
Code permits to be transferred to a plan that meets the requirements of Code
Section 401(a); the current employer's plan meets the requirements of Code
Section 401(a). The Member must request the transfer in writing. The trustee,
named fiduciary or insurer under the plan must be willing to accept such a
transfer. Such transferred amount shall be treated as a distribution under this
plan.
The Nonvested Account of an Inactive Member shall remain a part of his Account
until it becomes a Forfeiture; provided, however, if the Inactive Member again
becomes an Employee so that his Vesting Percentage may increase, the Nonvested
Account may become part of his Vested Account.
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SECTION 5.04 - WHEN BENEFITS START.
Benefits under the Plan begin when a Member retires, dies or ceases to be an
Employee, whichever applies, as provided in the preceding sections of this
article. Benefits which begin before Normal Retirement Date for a Member who
became Totally Disabled when he was an Employee shall be deemed to begin because
he is Totally Disabled. The start of benefits is subject to the qualified
election procedures of Article VI.
Unless otherwise elected, benefits shall begin before the sixtieth day following
the close of the Plan Year in which the latest date below occurs:
(a) The date the Member attains the earlier of (i) age 65 or (ii) the later of
Normal Retirement Age or age 62.
(b) The tenth anniversary of the Member's Entry Date.
(c) The date the Member ceases to be an Employee.
Notwithstanding the foregoing, the failure of a Member and spouse to consent to
a distribution while a benefit is immediately distributable, within the meaning
of Section 6.03, shall be deemed to be an election to defer commencement of
payment of any benefit sufficient to satisfy this section.
The Member may elect to have benefits begin after the latest date for beginning
benefits described above, subject to the following provisions of this section.
The Member shall make the election in writing and deliver the signed election to
the Plan Administrator before Normal Retirement Date or the date he ceases to be
an Employee, if later. The election must describe the form of distribution and
the date benefits will begin. The Member shall not elect a date for beginning
benefits or a form of distribution which would result in a benefit payable when
he dies which would be more than incidental within the meaning of governmental
regulations.
Benefits shall begin by the Member's Required Beginning Date, as defined in
Section 6.02. Distribution of the Vested Account resulting from Contributions
made after the Member's Required Beginning Date shall begin by the April 1
following the calendar year in which such Contributions were made.
If a Member receives a taxable distribution (including a withdrawal) of any part
of his Vested Account, he may be subject to a Federal tax penalty. The tax
penalty does not apply if the distribution is:
(a) made on or after age 59 1/2;
(b) made on account of the Member's death to his Beneficiary or estate;
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(c) made on account of being disabled;
(d) part of a series of periodic payments after separation from service that
are substantially equal, at least annual, and based on the life expectancy
of the Member or the Member and his Beneficiary; or
(e) made after separation from service after the attainment of age 55.
In addition, no tax is imposed on amounts received and paid during the taxable
year for medical expenses in an amount not to exceed that deductible under Code
Section 213. Disabled means that a Member is disabled to the extent he is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or be of long-continued and indefinite duration. Proof of the existence of
the disability will be in such form and manner as the Secretary of the Treasury
may require.
Contributions which are used to compute the Actual Deferral Percentage, as
defined in Section 3.07 (Elective Deferral Contributions, Qualified Nonelective
Contributions, and Qualified Matching Contributions), may be distributed upon
disposition by us of substantially all of the assets used by us in a trade or
business or disposition by us of our interest in a subsidiary if the transferee
corporation is not a Controlled Group member, the Employee continues employment
with the transferor corporation and the transferor corporation continues to
maintain the Plan. The distribution must be a total distribution.
SECTION 5.05 - WITHDRAWAL BENEFITS.
(a) Distributions on Account of Financial Hardship
If elected by us in Item W(2) of the Adoption Agreement, withdrawals of
part of the Member's Account as provided in Item W(2) will be permitted in
the event of hardship due to an immediate and heavy financial need.
Immediate and heavy financial need shall be limited to: (i) medical
expenses described in Code Section 213(d) incurred by the Member, the
Member's spouse, or any dependents of the Member (as defined in Code
Section 152); (ii) purchase (excluding mortgage payments) of a principal
residence for the Member; (iii) payment of tuition for the next semester or
quarter of post-secondary education for the Member, his spouse, children or
dependents; (iv) the need to prevent the eviction of the Member from his
principal residence or foreclosure on the mortgage of the Member's
principal residence; or (v) any other distribution which is deemed by the
Commissioner of Internal Revenue to be made on account of immediate and
heavy financial need as provided in Treasury regulations. The Member's
request for a withdrawal shall include his written statement that an
immediate and heavy financial need exists and explain its nature.
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On and after the first Yearly Date in 1993, immediate and heavy financial
need in (i) shall include medical expenses incurred or necessary for
medical care, described in Code Section 213(d), of the Member, the Member's
spouse, or any dependents of the Member (as defined in Code Section 152)
and such need in (iii) shall include payment of tuition and related
educational fees for the next 12 months of post-secondary education for the
Member, his spouse, children or dependents. In addition, the amount of the
immediate and heavy financial need may include amounts necessary to pay any
Federal, state or local income taxes or penalties reasonably anticipated to
result from the distribution.
No withdrawal shall be allowed which is not necessary to satisfy such
immediate and heavy financial need. Such withdrawal shall be deemed
necessary only if all of the following requirements are met: (i) the
distribution is not in excess of the amount of the immediate and heavy
financial need of the Member; (ii) the Member has obtained all
distributions, other than hardship distributions, and all nontaxable loans
currently available under all plans maintained by us; (iii) the Plan, and
all other plans maintained by us, provide that the Member's elective
contributions and employee contributions will be suspended for at least 12
months after receipt of the hardship distribution; and (iv) the Plan, and
all other plans maintained by us, provide that the Member may not make
elective contributions for the Member's taxable year immediately following
the taxable year of the hardship distribution in excess of the applicable
limit under Code Section 402(g) for such next taxable year less the amount
of such Member's elective contributions for the taxable year of the
hardship distribution. The Plan will suspend elective contributions and
employee contributions for 12 months and limit elective deferrals as
provided in the preceding sentence. A Member shall not cease to be an
Eligible Member. as defined in Section 3.07, merely because his elective
contributions or employee contributions are suspended.
(b) Distributions on Account of Other Withdrawals
A Member may withdraw in a single sum any part of his Account resulting
from his Voluntary Contributions subject to the limitations provided in
Item W(1). If selected by us in Item W(3), withdrawals of the Member's
Account as provided in Item W(3) will be permitted at any time after he
attains age 59 1/2 subject to the limitations provided in Item W(3). If
selected by us in Item W(4) of the Adoption Agreement - Plus, withdrawals
of part of the Member's Account as provided in Item W(4) will be permitted
after he has been an Active Member for at least 5 years subject to the
limitations provided in Item W(4).
A request for withdrawal shall be in writing on a form furnished for that
purpose and delivered to the Plan Administrator before the withdrawal is to
occur. Withdrawals shall be subject to the qualified election provisions of
Article VI. A forfeiture shall not occur solely as a result of a withdrawal.
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SECTION 5.06 - LOANS TO MEMBERS.
Loans shall be made available to all Members on a reasonably equivalent basis.
For purposes of this section, Member means any Member or Beneficiary who is an
Employee. Loans shall not be made to highly compensated employees, as defined in
Code Section 414(q), in an amount greater than the amount made available to
other Members.
No loans will be made to any shareholder-employee or owner-employee. For
purposes of this requirement, a shareholder-employee means an employee or
officer of an electing small business (Subchapter S) corporation who owns (or is
considered as owning within the meaning of Code Section 318(a)(1)), on any day
during the taxable year of such corporation, more than 5% of the outstanding
stock of the corporation.
A loan to a Member shall be a Member-directed investment of his Account. The
loan is a Trust investment but no Account other than the borrowing Member's
Account shall share in the interest paid on the loan or bear any expense or loss
incurred because of the loan.
The number of outstanding loans shall be limited to one, unless otherwise
specified in Item T(b)(vi). No more than one loan will be approved for any
Member in any 12-month period, unless otherwise specified in Item T(b)(vii). The
minimum amount of any loan shall be selected in Item T(b)(iv).
Loans must be adequately secured and bear a reasonable rate of interest.
The amount of the loan shall not exceed the maximum amount that may be treated
as a loan under Code Section 72(p) (rather than a distribution) to the Member
and shall be equal to the lesser of (a) or (b) below:
(a) $50,000 reduced by the highest outstanding loan balance of loans
during the one-year period ending on the day before the new loan is
made.
(b) The greater of (i) or (ii), reduced by (iii) below:
(i) One-half of the Member's Vested Account.
(ii) $10,000.
(iii) Any outstanding loan balance on the date the new loan is made.
For purposes of this maximum, a Member's Vested Account does not include any
accumulated deductible employee contributions, as defined in Code Section
72(o)(5)(B), and all qualified employer plans, as defined in Code Section
72(p)(4), of ours and any Controlled Group member shall be treated as one plan.
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The foregoing notwithstanding, the amount of such loan shall not exceed 50% of
the amount of the Member's Vested Account reduced by any outstanding loan
balance on the date the new loan is made. In addition, the amount of the loan
may be further limited to a specified dollar amount, if Item T(b)(v) so
indicates. No collateral other than a portion of the Member's Vested Account (as
limited above) shall be accepted. The Loan Administrator shall determine if the
collateral is adequate for the amount of the loan requested.
A Member must obtain the consent of the Member's spouse, if any, to the use of
the Vested Account as security for the loan. Spousal consent shall be obtained
no earlier than the beginning of the 90-day period that ends on the date on
which the loan to be so secured is made. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by a plan
representative or a notary public. Such consent shall thereafter be binding with
respect to the consenting spouse or any subsequent spouse with respect to that
loan. A new consent shall be required if the Vested Account is used for
collateral upon renegotiation, extension, renewal, or other revision of the
loan.
If a valid spousal consent has been obtained in accordance with the above, then,
notwithstanding any other provision of this Plan, the portion of the Member's
Vested Account used as a security interest held by the Plan by reason of a loan
outstanding to the Member shall be taken into account for purposes of
determining the amount of the Vested Account payable at the time of death or
distribution, but only if the reduction is used as repayment of the loan. If
less than 100% of the Member's Vested Account (determined without regard to the
preceding sentence) is payable to the surviving spouse, then the Vested Account
shall be adjusted by first reducing the Vested Account by the amount of the
security used as repayment of the loan, and then determining the benefit payable
to the surviving spouse.
Each loan shall bear a reasonable fixed rate of interest to be determined by the
Loan Administrator. In determining the interest rate, the Loan Administrator
shall take into consideration fixed interest rates currently being charged by
commercial lenders for loans of comparable risk on similar terms and for similar
durations, so that the interest will provide for a return commensurate with
rates currently charged by commercial lenders for loans made under similar
circumstances. The Loan Administrator shall not discriminate among Members in
the matter of interest rates; but loans granted at different times may bear
different interest rates in accordance with the current appropriate standards.
The loan shall by its terms require that repayment (principal and interest) be
amortized in level payments, not less frequently than quarterly, over a period
not extending beyond five years from the date of the loan. The period of
repayment for any loan shall be arrived at by mutual agreement between the Loan
Administrator and the Member.
The Member shall make a written application for a loan from the Plan on forms
provided by the Loan Administrator. The application must specify the amount and
duration requested. No loan will be approved unless the Member is creditworthy.
The Member must grant authority to the
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Loan Administrator to investigate the Member's creditworthiness so that the loan
application may be properly considered.
Information contained in the application for the loan concerning the income,
liabilities, and assets of the Member will be evaluated to determine whether
there is a reasonable expectation that the Member will be able to satisfy
payments on the loan as due. Additionally, the Loan Administrator will pursue
any appropriate further investigations concerning the creditworthiness and/or
credit history of the Member to determine whether a loan should be approved.
Each loan shall be fully documented in the form of a promissory note signed by
the Member for the face amount of the loan, together with interest determined as
specified above.
There will be an assignment of collateral to the Plan executed at the time the
loan is made.
In those cases where repayment through payroll deduction by us is available,
installments are so payable, and a payroll deduction agreement will be executed
by the Member at the time of making the loan.
Where payroll deduction is not available, payments are to be timely made.
Any payment that is not by payroll deduction shall be made payable to us or the
Trustee, as specified in the promissory note, and delivered to the Loan
Administrator, including prepayments, service fees and penalties, if any, and
other amounts due under the note.
The promissory note may provide for reasonable late payment penalties and/or
service fees. Any penalties or service fees shall be applied to all Members in a
nondiscriminatory manner. If the promissory note so provides, such amounts may
be assessed and collected from the Account of the Member as part of the loan
balance.
Each loan may be paid prior to maturity, in part or in full, without penalty or
service fee, except as may be set out in the promissory note.
If any amount remains unpaid for more than 31 days after due, a default is
deemed to occur.
Upon default, the Plan has the right to pursue any remedy available by law to
satisfy the amount due, along with accrued interest, including the right to
enforce its claim against the security pledged and execute upon the collateral
as allowed by law.
If any payment of principal or interest or any other amount due under the
promissory note, or any portion thereof, is not made for a period of 90 days
after due, the entire principal balance whether or not otherwise then due, shall
become immediately due and payable without demand or notice, and subject to
collection or satisfaction by any lawful means, including specifically but not
limited to the right to enforce the claim against the security pledged and to
execute upon the collateral as allowed by law.
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In the event of default, foreclosure on the note and attachment of security or
use of amounts pledged to satisfy the amount then due, will not occur until a
distributable event occurs in accordance with the Plan, and will not occur to an
extent greater than the amount then available upon any distributable event which
has occurred under the Plan.
All reasonable costs and expenses, including but not limited to attorney's fees,
incurred by the Plan in connection with any default or in any proceeding to
enforce any provision of a promissory note or instrument by which a promissory
note for a Member loan is secured, shall be assessed and collected from the
Account of the Member as part of the loan balance.
If payroll deduction is being utilized, in the event that a Member's available
payroll deduction amounts in any given month are insufficient to satisfy the
total amount due, there will be an increase in the amount taken subsequently,
sufficient to make up the amount that is then due. If the subsequent deduction
is also insufficient to satisfy the amount due within 31 days, a default is
deemed to occur as above. If any amount remains past due more than 90 days, the
entire principal amount, whether or not otherwise then due, along with interest
then accrued and any other amount then due under the promissory note, shall
become due and payable, as above.
If the Member ceases to be an Employee, the balance of the outstanding loan
becomes due and payable, and the Member's Vested Account will be used as
available for distribution(s) to pay the outstanding loan. The Member's Vested
Account will not be used to pay any amount due under the outstanding loan before
the date which is 31 days after the date he ceased to be an Employee, and the
Member may elect to repay the outstanding loan with interest on the day of
repayment. If no distributable event has occurred under the Plan at the time
that the Member's Vested Account would otherwise be used under this provision to
pay any amount due under the outstanding loan, this will not occur until the
time, or in excess of the extent to which, a distributable event occurs under
the Plan.
Article VI
Distribution Of Benefits
The provisions of this article shall apply on or after August 23, 1984, to any
Member who is credited with at least one Hour of Service or one hour of paid
leave on or after that date and to such other Members as provided in Section
6.05. If the Effective Date of our Plan is before January 1, 1984, the
provisions of the Prior Plan as in effect on the day before the TEFRA Compliance
Date shall apply before August 23, 1984. If the Effective Date of our Plan is on
or after January 1, 1984, and before August 23, 1984, the provisions of the Plan
as originally adopted shall apply before August 23, 1984.
SECTION 6.01 - AUTOMATIC FORMS OF DISTRIBUTION.
Unless a qualified election of an optional form of benefit has been made within
the election period (see Section 6.03), the automatic form of benefit payable to
or on behalf of a Member is determined as follows:
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(a) The automatic form of retirement benefit for a Member who does not die
before his Annuity Starting Date shall be the Qualified Joint and Survivor
Form.
(b) The automatic form of death benefit for a Member who dies before his
Annuity Starting Date shall be:
(1) A Qualified Preretirement Survivor Annuity for a Member who has a
spouse to whom he has been continuously married throughout the one-
year period ending on the date of his death. The spouse may elect to
start receiving the death benefit on any first day of the month on or
after the Member dies and by the date the Member would have been age
70 1/2. If the spouse dies before benefits start, the Member's Vested
Account, determined as of the date of the spouse's death, shall be
paid to the spouse's Beneficiary.
(2) A single sum payment to the Member's Beneficiary for a Member who does
not have a spouse who is entitled to a Qualified Preretirement Survivor
Annuity.
Before a death benefit will be paid on account of the death of a Member who
does not have a spouse who is entitled to a Qualified Preretirement
Survivor Annuity, it must be established to the satisfaction of a plan
representative that the Member does not have such a spouse.
SECTION 6.02 - OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION
REQUIREMENTS.
(a) For purposes of this section, the following terms are defined:
Applicable Life Expectancy means Life Expectancy (or Joint and Last Survivor
Expectancy) calculated using the attained age of the Member (or Designated
Beneficiary) as of the Member's (or Designated Beneficiary's) birthday in the
applicable calendar year reduced by one for each calendar year which has elapsed
since the date Life Expectancy was first calculated. If Life Expectancy is being
recalculated, the Applicable Life Expectancy shall be the Life Expectancy so
recalculated. The applicable calendar year shall be the first Distribution
Calendar Year, and if Life Expectancy is being recalculated such succeeding
calendar year.
Designated Beneficiary means the individual who is designated as the beneficiary
under the Plan in accordance with Code Section 401(a)(9) and the regulations
thereunder.
Distribution Calendar Year means a calendar year for which a minimum
distribution is required. For distributions beginning before the Member's death,
the first Distribution Calendar Year is the calendar year immediately preceding
the calendar year which contains the Member's Required Beginning Date. For
distributions beginning after the Member's
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death, the first Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to (e) below.
Joint and Last Survivor Expectancy means joint and last survivor expectancy
computed by use of the expected return multiples in Tables V and VI of section
1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Member (or spouse, in the case of distributions
described in (e)(2)(ii) below) by the time distributions are required to begin,
life expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Member (or spouse) and shall apply to all subsequent
years. The life expectancy of a nonspouse Beneficiary may not be recalculated.
Life Expectancy means life expectancy computed by use of the expected return
multiples in Tables V and VI of section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Member (or spouse, in the case of distributions
described in (e)(2)(ii) below) by the time distributions are required to begin,
life expectancies shall be recalculated annually, Such election shall be
irrevocable as to the Member (or spouse) and shall apply to all subsequent
years. The life expectancy of a nonspouse Beneficiary may not be recalculated.
Member's Benefit means
(1) The Account balance as of the last valuation date in the calendar year
immediately preceding the Distribution Calendar Year (valuation calendar
year) increased by the amount of any contributions or forfeitures allocated
to the Account balance as of the dates in the valuation calendar year after
the valuation date and decreased by distributions made in the valuation
calendar year after the valuation date.
(2) For purposes of (1) above, if any portion of the minimum distribution
for the first Distribution Calendar Year is made in the second Distribution
Calendar Year on or before the Required Beginning Date, the amount of the
minimum distribution made in the second Distribution Calendar Year shall be
treated as if it had been made in the immediately preceding Distribution
Calendar Year.
Required Beginning Date means, for a Member, the first day of April of the
calendar year following the calendar year in which the Member attains age
70 1/2, unless otherwise provided in (1), (2) or (3) below:
(1) The Required Beginning Date for a Member who attains age 70 1/2 before
January 1, 1988, and who is not a 5-percent owner is the first day of April
of the calendar year following the calendar year in which the later of
retirement or attainment of age 70 1/2 occurs.
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(2) The Required Beginning Date for a Member who attains age 70 1/2
before January 1, 1988, and who is a 5-percent owner is the first day
of April of the calendar year following the later of
(i) the calendar year in which the Member attains age 70 1/2, or
(ii) the earlier of the calendar year with or within which ends the
Plan Year in which the Member becomes a 5-percent owner, or the
calendar year in which the Member retires.
(3) The Required Beginning Date of a Member who is not a 5-percent owner
and who attains age 70 1/2 during 1988 and who has not retired as of
January 1, 1989, is April 1, 1990.
A Member is treated as a 5-percent owner for purposes of this section if such
Member is a 5-percent owner as defined in Code Section 416(i) (determined in
accordance with Code Section 416 but without regard to whether the Plan is top-
heavy) at any time during the Plan Year ending with or within the calendar year
in which such owner attains age 66 1/2 or any subsequent Plan Year.
Once distributions have begun to a 5-percent owner under this section, they must
continue to be distributed, even if the Member ceases to be a 5-percent owner in
a subsequent year.
(b) The optional forms of retirement benefit shall be the following: a
straight life annuity; single life annuities with certain periods of five,
ten, or fifteen years; a single life annuity with installment refund;
survivorship life annuities with installment refund and survivor
percentages of 50, 66 2/3, or 100; fixed period annuities for any period of
whole months which is not less than sixty and does not exceed the Life
Expectancy of the Member and the named Beneficiary as provided in (d) below
where the Life Expectancy is not recalculated; and a series of installments
chosen by the Member with a minimum payment each year beginning with the
year the Member turns age 70 1/2. The payment for the first year in which
a minimum payment is required will be made by April 1 of the following
calendar year. The payment for the second year and each successive year
will be made by December 31 of that year, The minimum payment will be based
on a period equal to the Joint and Last Survivor Expectancy of the Member
and the Member's spouse, if any, as provided in (d) below where the Joint
and Last Survivor Expectancy is recalculated. The balance of the Member's
Vested Account, if any, will be payable on the Member's death to his
Beneficiary in a single sum. If not prohibited in Item Y of the Adoption
Agreement - Plus, a single sum payment is also available.
Election of an optional form is subject to the qualified election
provisions of Article VI.
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Any annuity contract distributed shall be nontransferable. The terms
of any annuity contract purchased and distributed by the Plan to a
Member or spouse shall comply with the requirements of this Plan.
(c) The optional forms of death benefit area single sum payment and any
annuity that is an optional form of retirement benefit. However, a series
of installments shall not be available if the Beneficiary is not the spouse
of the deceased Member.
(d) Subject to Section 6.01, joint and survivor annuity requirements, the
requirements of this section shall apply to any distribution of a Member's
interest and will take precedence over any inconsistent provisions of this
Plan. Unless otherwise specified, the provisions of this section apply to
calendar years beginning after December 31, 1984.
All distributions required under this section shall be determined and made in
accordance with the proposed regulations under Code Section 401(a)(9), including
the minimum distribution incidental benefit requirement of section 1.401(a)(9)-2
of the proposed regulations.
The entire interest of a Member must be distributed or begin to be distributed
no later than the Member's Required Beginning Date.
As of the first Distribution Calendar Year, distributions, if not made in a
single sum, may only be made over one of the following periods (or combination
thereof):
(1) the life of the Member,
(2) the life of the Member and a Designated Beneficiary,
(3) a period certain not extending beyond the Life Expectancy of the
Member, or
(4) a period certain not extending beyond the Joint and Last Survivor
Expectancy of the Member and a Designated Beneficiary.
If the Member's interest is to be distributed in other than a single sum, the
following minimum distribution rules shall apply on or after the Required
Beginning Date:
(5) Individual account:
(i) If a Member's Benefit is to be distributed over
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(A) a period not extending beyond the Life Expectancy of the Member or
the Joint Life and Last Survivor Expectancy of the Member and the
Member's Designated Beneficiary or
(B) a period not extending beyond the Life Expectancy of the Designated
Beneficiary,
the amount required to be distributed for each calendar year beginning
with the distributions for the first Distribution Calendar Year, must
be at least equal to the quotient obtained by dividing the Member's
Benefit by the Applicable Life Expectancy.
(ii) For calendar years beginning before January 1, 1989, if the Member's
spouse is not the Designated Beneficiary, the method of distribution
selected must assure that at least 50% of the present value of the
amount available for distribution is paid within the Life Expectancy of
the Member.
(iii) For calendar years beginning after December 31, 1988, the amount to be
distributed each year, beginning with distributions for the first
Distribution Calendar Year shall not be less than the quotient
obtained by dividing the Member's Benefit by the lesser of
(A) the Applicable Life Expectancy or
(B) if the Member's spouse is not the Designated
Beneficiary, the applicable divisor determined from the
table set forth in Q&A-4 of section 1.401(a)(9)-2 of the
proposed regulations.
Distributions after the death of the Member shall be distributed using
the Applicable Life Expectancy in (5)(i) above as the relevant divisor
without regard to Proposed Regulations section 1.401(a)(9)-2.
(iv) The minimum distribution required for the Member's first Distribution
Calendar Year must be made on or before the Member's Required Beginning
Date. The minimum distribution for the Distribution Calendar Year for other
calendar years, including the minimum distribution for the Distribution
Calendar Year in which the Member's Required Beginning Date occurs, must be
made on or before December 31 of that Distribution Calendar Year.
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(6) Other Forms:
(i) If the Member's Benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder
shall be made in accordance with the requirements of Code Section
401(a)(9) and the proposed regulations thereunder.
(e) Death distribution provisions:
(1) Distribution beginning before death. If the Member dies after
distribution of his interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under
the method of distribution being used prior to the Member's death.
(2) Distribution beginning after death. If the Member dies before
distribution of his interest begins, distribution of the Member's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Member's death except to the
extent that an election is made to receive distributions in accordance
with (i) or (ii) below:
(i) if any portion of the Member's interest is payable to a
Designated Beneficiary, distributions may be made over the life
or over a period certain not greater than the Life Expectancy of
the Designated Beneficiary commencing on or before December 31 of
the calendar year immediately following the calendar year in
which the Member died;
(ii) if the Designated Beneficiary is the Member's surviving spouse,
the date distributions are required to begin in accordance with
(i) above shall not be earlier than the later of
(A) December 31 of the calendar year immediately following the
calendar year in which the Member died and
(B) December 31 of the calendar year in which the Member would
have attained age 70 1/2.
If the Member has not made an election pursuant to this (e)(2) by the time of
his death, the Member's Designated Beneficiary must elect the method of
distribution no later than the earlier of
(iii) December 31 of the calendar year in which distributions would
be required to begin under this subparagraph, or
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(iv) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Member.
If the Member has no Designated Beneficiary, or if the Designated Beneficiary
does not elect a method of distribution, distribution of the Member's entire
interest must be completed by December 31 of the calendar year containing the
fifth anniversary of the Member's death.
(3) For purposes of (e)(2) above, it the surviving spouse dies after the
Member, but before payments to such spouse begin, the provisions of
(e)(2) above, with the exception of (e)(2)(ii) therein, shall be
applied as if the surviving spouse were the Member.
(4) For purposes of this (e), any amount paid to a child of the Member
will be treated as if it had been paid to the surviving spouse if the
amount becomes payable to the surviving spouse when the child reaches
the age of majority.
(5) For purposes of this (e), distribution of a Member's interest is
considered to begin on the Member's Required Beginning Date (or if
(e)(3) above is applicable, the date distribution is required to begin
to the surviving spouse pursuant to (e)(2) above). If distribution in
the form of an annuity irrevocably commences to the Member before the
Required Beginning Date, the date distribution is considered to begin
is the date distribution actually commences.
SECTION 6.03 - ELECTION PROCEDURES.
The Member, Beneficiary, or spouse shall make any election under this section in
writing. The Plan Administrator may require such individual to complete and sign
any necessary documents as to the provisions to be made. Any election permitted
under (a) and (b) below shall be subject to the qualified election provisions of
(c) below.
(a) Retirement Benefits. A Member may elect his Beneficiary or Contingent
Annuitant and may elect to have retirement benefits distributed under any
of the optional forms of retirement benefit described in Section 6.02.
(b) Death Benefits. A Member may elect his Beneficiary and may elect to have
death benefits distributed under any of the optional forms of death benefit
described in Section 6.02.
If the Member has not elected an optional form of distribution for the
death benefit payable to his Beneficiary, the Beneficiary may, for his own
benefit, elect the form of distribution, in like manner as a Member.
The Member may waive the Qualified Preretirement Survivor Annuity by naming
someone other than his spouse as Beneficiary.
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In lieu of the Qualified Preretirement Survivor Annuity described in
Section 6.01, the spouse may, for his own benefit, waive the Qualified
Preretirement Survivor Annuity by electing to have the benefit distributed
under any of the optional forms of death benefit described in Section 6.02.
(c) Qualified Election. The Member, Beneficiary or spouse may make an election
at any time during the election period. The Member, Beneficiary, or spouse
may revoke the election made (or make a new election) at any time and any
number of times during the election period. An election is effective only
if it meets the consent requirements below.
The election period as to retirement benefits is the 90-day period ending
on the Annuity Starting Date. An election to waive the Qualified Joint and
Survivor Form may not be made before the date he is provided with the
notice of the ability to waive the Qualified Joint and Survivor Form. If
the Member elects the series of installments, he may elect on any later
date to have the balance of his Vested Account paid under any of the
optional forms of retirement benefit available under the Plan. His election
period for this election is the 90-day period ending on the Annuity
Starting Date for the optional form of retirement benefit elected.
A Member may make an election as to death benefits at anytime before he
dies. The spouse's election period begins on the date the Member dies and
ends on the date benefits begin. The Beneficiary's election period begins
on the date the Member dies and ends on the date benefits begin. An
election to waive the Qualified Preretirement Survivor Annuity may not be
made by the Member before the date he is provided with the notice of the
ability to waive the Qualified Preretirement Survivor Annuity. A Member's
election to waive the Qualified Preretirement Survivor Annuity which is
made before the first day of the Plan Year in which he reaches age 35 shall
become invalid on such date. An election made by a Member after he ceases
to be an Employee will not become invalid on the first day of the Plan Year
in which he reaches age 35 with respect to death benefits from that part of
his Account resulting from Contributions made before he ceased to be an
Employee.
If the Member's Vested Account has at any time exceeded $3,500, any benefit
which is (1) immediately distributable or (2) payable in a form other than
a Qualified Joint and Survivor Form or a Qualified Preretirement Survivor
Annuity requires the consent of the Member and the Member's spouse (or
where either the Member or the spouse has died, the survivor). The consent
of the Member or spouse to a benefit which is immediately distributable
must not be made before the date the Member or spouse is provided with the
notice of the ability to defer the distribution. Such consent shall be made
in writing. The consent shall not be made more than 90 days before the
Annuity Starting Date. Spousal consent is not required for a benefit which
is immediately distributable in a Qualified Joint and Survivor Form.
Furthermore, if spousal consent is not required because the Member is
electing an optional form of retirement benefit that is not a life annuity
pursuant to (d) below, only the Member need consent to the distribution of
a benefit payable in a form
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that is not a life annuity and which is immediately distributable. Neither
the consent of the Member nor the Member's spouse shall be required to the
extent that a distribution is required to satisfy Code Section 401(a)(9) or
Code Section 415. In addition, upon termination of this Plan if the Plan
does not offer an annuity option (purchased from a commercial provider),
the Member's Account balance may, without the Member's consent, be
distributed to the Member or transferred to another defined contribution
plan (other than an employee stock ownership plan as defined in Code
Section 4975(e)(7)) within the same Controlled Group. A benefit is
immediately distributable if any part of the benefit could be distributed
to the Member (or surviving spouse) before the Member attains (or would
have attained if not deceased) the older of Normal Retirement Age or age
62. If the Qualified Joint and Survivor Form is waived, the spouse has the
right to limit consent only to a specific Beneficiary or a specific form of
benefit. The spouse can relinquish one or both such rights. Such consent
shall be made in writing. The consent shall not be made more than 90 days
before the Annuity Starting Date. If the Qualified Preretirement Survivor
Annuity is waived, the spouse has the right to limit consent only to a
specific Beneficiary. Such consent shall be in writing. The spouse's
consent shall be witnessed by a plan representative or notary public. The
spouse's consent must acknowledge the effect of the election, including
that the spouse had the right to limit consent only to a specific
Beneficiary or a specific form of benefit, if applicable, and that the
relinquishment of one or both such rights was voluntary. Unless the consent
of the spouse expressly permits designations by the Member without a
requirement of further consent by the spouse, the spouse's consent must be
limited to the form of benefit, if applicable, and the Beneficiary
(including any Contingent Annuitant), class of Beneficiaries, or contingent
Beneficiary named in the election. Spousal consent is not required,
however, if the Member establishes to the satisfaction of the plan
representative that the consent of the spouse cannot be obtained because
there is no spouse or the spouse cannot be located. A spouse's consent
under this paragraph shall not be valid with respect to any other spouse. A
Member may revoke a prior election without the consent of the spouse. Any
new election will require a new spousal consent, unless the consent of the
spouse expressly permits such election by the Member without further
consent by the spouse. A spouse's consent may be revoked at any time within
the Member's election period.
Before the first Yearly Date in 1989, the Member's Account which results
from deductible Voluntary Contributions shall not be taken into account in
determining whether the Member's Vested Account has exceeded $3,500 and an
election as to the distribution of a Member's Vested Account which results
from deductible Voluntary Contributions is not subject to the consent
requirements above and may be made any time before such distribution is to
begin.
(d) Special Rule for Profit Sharing Plans. As provided in the preceding
provisions of the Plan, if a Member has a spouse to whom he has been
continuously married throughout the one-year period ending on the date of
the Member's death, the Member's Vested Account, including the proceeds
payable under any Insurance Policy on the Member's life, shall be
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paid to such spouse. However, if there is no such spouse or if the
surviving spouse has already consented in a manner conforming to the
qualified election requirements in (c) above, the Vested Account shall be
payable to the Member's Beneficiary in the event of the Member's death.
The Member may waive the spousal death benefit described above at any time
provided that no such waiver shall be effective unless it satisfies the
conditions of (c) above (other than the notification requirement referred
to therein) that would apply to the Member's waiver of the Qualified
Preretirement Survivor Annuity.
This subsection (d) applies if with respect to the Member, the Plan is not
a direct or indirect transferee after December 31, 1984, of a defined
benefit plan, money purchase plan (including a target plan), stock bonus or
profit sharing plan which is subject to the survivor annuity requirements
of Code Section 401(a)(11) and Code Section 417. If the above condition is
met, spousal consent is not required for electing an optional form of
retirement benefit that is not a life annuity. If the above condition is
not met, the consent requirements of this Article shall be operative.
SECTION 6.04 - NOTICE REQUIREMENTS.
(a) Optional forms of retirement benefit. The Plan Administrator shall furnish
to the Member and the Member's spouse a written explanation of the optional
forms of retirement benefit in Section 6.02, including the material
features and relative values of these options, in a manner that would
satisfy the notice requirements of Code Section 417(a)(3) and the right of
the Member and the Member's spouse to defer distribution until the benefit
is no longer immediately distributable. The Plan Administrator shall
furnish the written explanation by a method reasonably calculated to reach
the attention of the Member and the Member's spouse no less than 30 days
and no more than 90 days before the Annuity Starting Date.
(b) Qualified Joint and Survivor Form. The Plan Administrator shall furnish to
the Member a written explanation of the following: the terms and conditions
of the Qualified Joint and Survivor Form; the Member's right to make, and
the effect of, an election to waive the Qualified Joint and Survivor Form;
the rights of the Member's spouse; and the right to revoke an election and
the effect of such a revocation. The Plan Administrator shall furnish the
written explanation by a method reasonably calculated to reach the
attention of the Member no less than 30 days and no more than 90 days
before the Annuity Starting Date.
After the written explanation is given, a Member or spouse may make written
request for additional information. The written explanation must be
personally delivered or mailed (first class mail, postage prepaid) to the
Member or spouse within thirty days from the date of the written request.
The Plan Administrator does not need to comply with more than one such
request by a Member or spouse.
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The Plan Administrator's explanation shall be written in nontechnical
language and will explain the terms and conditions of the Qualified Joint
and Survivor Form and the financial effect upon the Member's benefit (in
terms of dollars per benefit payment) of electing not to have benefits
distributed in accordance with the Qualified Joint and Survivor Form.
(c) Qualified Preretirement Survivor Annuity. The Plan Administrator shall
furnish to the Member a written explanation of the following: the terms and
conditions of the Qualified Preretirement Survivor Annuity; the Member's
right to make, and the effect of, an election to waive the Qualified
Preretirement Survivor Annuity; the rights of the Member's spouse; and the
right to revoke an election and the effect of such a revocation. The Plan
Administrator shall furnish the written explanation by a method reasonably
calculated to reach the attention of the Member within the applicable
period. The applicable period for a Member is whichever of the following
periods ends last:
(1) the period beginning one year before the date the individual becomes a
Member and ending one year after such date; or
(2) the period beginning one year before the date the Member's spouse is
first entitled to a Qualified Preretirement Survivor Annuity and ending
one year after such date.
If such notice is given before the period beginning with the first day of
the Plan Year in which the Member attains age 32 and ending with the close
of the Plan Year preceding the Plan Year in which the Member attains age
35, an additional notice shall be given within such period. If a Member
ceases to be an Employee before attaining age 35, an additional notice
shall be given within the period beginning one year before the date he
ceases to be an Employee and ending one year after such date.
After the written explanation is given, a Member or spouse may make written
request for additional information. The written explanation must be
personally delivered or mailed (first class mail, postage prepaid) to the
Member or spouse within thirty days from the date of the written request.
The Plan Administrator does not need to comply with more than one such
request by a Member or spouse.
The Plan Administrator's explanation shall be written in nontechnical
language and will explain the terms and conditions of the Qualified
Preretirement Survivor Annuity and the financial effect upon the spouse's
benefit (in terms of dollars per benefit payment) of electing not to have
benefits distributed in accordance with the Qualified Preretirement
Survivor Annuity.
SECTION 6.05 - TRANSITIONAL RULES.
In modification of the preceding provisions of this Plan, distributions
(including distributions to a five-percent owner of us) may be made in a form
which would not have caused this Plan to be disqualified under Code Section 401
(a)(9) as in effect before the TEFRA Compliance Date. The
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form must be elected by the Member or, if the Member has died, by the
Beneficiary. The election must be made in writing and signed before January 1,
1984. The election will only be applicable if the Member has an Account as of
December 31, 1983. The Member's or Beneficiary's election must specify when the
distribution is to begin, the form of distribution and the Contingent Annuitant
and/or Beneficiaries listed in the order of priority, if applicable. A
distribution upon death will not be covered by this transitional rule unless the
election contains the required information described above with respect to the
distributions to be made when the Member dies. Distributions in the process of
payment on January 1, 1984, are deemed to meet the above requirements if the
form of distribution was elected in writing and the form met the requirements of
Code Section 401 (a)(9) as in effect before the TEFRA Compliance Date. If the
election under this paragraph is revoked, any subsequent distribution must meet
the requirements of Code Section 401(a)(9) and the proposed regulations
thereunder. If an election is revoked subsequent to the date distributions are
required to begin, the Plan must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the total amount not
yet distributed which would have been required to have been distributed to
satisfy Code Section 401(a)(9) and the proposed regulations thereunder, but for
the Code Section 242(b)(2) election. For calendar years beginning after December
31, 1988, such distribution must meet the minimum distribution incidental
benefit requirements in section 1.401(a)(9)-2 of the proposed regulations. Any
changes in the election will be considered a revocation of the election.
However, the mere substitution or addition of another Beneficiary (one not named
in the election) under the election will not be considered to be a revocation of
the election, so long as such substitution or addition does not alter the period
over which distributions are to be made under the election, directly or
indirectly (for example, by altering the relevant measuring life). In the case
in which an amount is transferred or rolled over from one plan to another plan,
the rules in Q&A J-2 and Q&A J-3 of section 1.401(a)(9)-l of the proposed
regulations shall apply. A Member's election of an optional form of retirement
benefit shall be subject to his spouse's consent as provided in Section 6.03.
A Member, who would not otherwise receive the benefits prescribed by the
previous sections of this article, will be entitled to the following benefits:
(a) If he is living and not receiving benefits on August 23,1984, he will be
given the opportunity to elect to have the prior sections of this article
apply, if he is credited with at least one Hour of Service under this Plan
or a predecessor plan in a plan year beginning on or after January 1, 1976,
and he had at least ten Years of Service when he separated from service.
(b) If he is living and not receiving benefits on August 23, 1984, he will be
given the opportunity to elect to have his benefits paid according to the
following provisions of this section, if he is credited with at least one
Hour of Service under this Plan or a predecessor plan on or after September
2, 1974, and he is not credited with any service in a plan year beginning
on or after January 1, 1976.
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The respective opportunities to elect (as described in (a) and (b) above) must
be afforded to the appropriate Members during the period beginning on August 23,
1984, and ending on the date benefits would otherwise begin to such Member.
Any Member who has elected according to (b) above and any member who does not
elect under (a) above or who meets the requirements of (a) above except that
such Member does not have at least ten Years of Service when he separated from
service, shall have his benefits distributed in accordance with the following if
benefits would have been payable in the form of a life annuity:
(c) Automatic joint and survivor annuity. If benefits in the form of a life
annuity become payable to a married Member who:
(1) begins to receive payments under the Plan on or after Normal
Retirement Age; or
(2) dies on or after Normal Retirement Age while still working for us; or
(3) begins to receive payments on or after the qualified early retirement
age; or
(4) separates from service on or after attaining Normal Retirement Age (or
the qualified early retirement age) and after satisfying the eligibility
requirements for the payment of benefits under the Plan and thereafter dies
before beginning to receive such benefits;
then such benefits will be paid under the Qualified Joint and Survivor
Form, unless the Member has elected otherwise during the election period.
The election period must begin at least six months before the Member
attains qualified early retirement age and end not more than 90 days before
benefits begin. Any election hereunder will be in writing and may be
changed by the Member at any time.
(d) Election of early survivor annuity. A Member who is employed after
attaining the qualified early retirement age will be given the opportunity
to elect, during the election period, to have a Qualified Preretirement
Survivor Annuity payable on death. Any election under this provision will
be in writing and may be changed by the Member at any time. The election
period begins on the later of (1) the 90th day before the Member attains
the qualified early retirement age, or (2) the Member's Entry Date, and
ends on the date the Member terminates employment.
(e) For purposes of this paragraph, qualified early retirement age is the
latest of:
(1) the earliest date, under the Plan, on which the Member may elect to
receive retirement benefits,
(2) the first day of the 120th month beginning before the Member reaches
Normal Retirement Age, or
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(3) the Member's Entry Date.
Article VII
Termination Of Plan
We expect to continue the Plan indefinitely, but reserve the right to terminate
the Plan in whole or in part at any time upon giving written notice to all
parties concerned. Complete discontinuance of Contributions constitutes complete
termination of Plan.
The Account of each Member shall be fully (100%) vested and nonforfeitable as of
the effective date of complete termination of the Plan. The Account of each
Member who becomes an Inactive Member because he is no longer an Eligible
Employee due to partial termination of the Plan shall be fully (100%) vested and
nonforfeitable as of the effective date of the partial Plan termination. If a
Member ceased to be an Employee before partial termination of the Plan but
otherwise would have become an Inactive Member upon partial termination due to
no longer being an Eligible Employee, his Account shall be fully (100%) vested
and nonforfeitable as of the effective date of the partial termination of the
Plan. An Inactive Member's Vested Account shall continue to participate in the
earnings credited, expenses charged and any appreciation or depreciation of the
Investment Fund until the Vested Account is distributed. A distribution under
this article shall be a retirement benefit and shall be distributed to the
Member according to the provisions of Article VI.
A Member's Account which does not result from Contributions which are used to
compute the Actual Deferral Percentage, as defined in Section 3.07, may be
distributed to the Member after the effective date of the complete or partial
Plan termination. A Member's Account resulting from Contributions which are used
to compute such percentage (Elective Deferral Contributions, Qualified
Nonelective Contributions, and Qualified Matching Contributions) may be
distributed upon termination of the Plan without the establishment of another
defined contribution plan.
Upon complete termination of the Plan, no more Employees shall become Members
and no more Contributions shall be made.
The assets of this Plan shall not be paid to us at any time, except that, after
the satisfaction of all liabilities under the Plan, any assets remaining may be
paid to us. The payment may not be made if it would contravene any provision of
law.
Article VIII
Administration Of Plan
SECTION 8.01 - ADMINISTRATION.
Subject to the provisions of this article, the Plan Administrator has complete
control of the administration of the Plan. The Plan Administrator has all the
powers necessary for it to properly
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carry out its administrative duties. Not in limitation, but in amplification of
the foregoing, the Plan Administrator has the power to construe the Plan and to
determine all questions that may arise under the Plan, including all questions
relating to the eligibility of Employees to participate in the Plan and the
amount of benefit to which any Member, Beneficiary, spouse, or Contingent
Annuitant may become entitled. The Plan Administrator's decisions upon all
matters within the scope of its authority are final.
Unless otherwise set out in the Plan or Annuity Contract, the Plan Administrator
may delegate recordkeeping and other duties which are necessary to assist it
with the administration of the Plan to any person or firm which agrees to accept
such duties. The Plan Administrator shall be entitled to rely upon all tables,
valuations, certificates, and reports furnished by the consultant or actuary
appointed by the Plan Administrator and upon all opinions given by any counsel
selected or approved by the Plan Administrator.
The Plan Administrator shall receive all claims for benefits by Members, former
Members, Beneficiaries, spouses, and Contingent Annuitants. The Plan
Administrator shall determine all facts necessary to establish the right of any
Claimant to benefits and the amount of those benefits under the provisions of
the Plan. The Plan Administrator may establish rules and procedures to be
followed by Claimants in filing claims for benefits, in furnishing and verifying
proofs necessary to determine age, and in any other matters required to
administer the Plan.
SECTION 8.02 - RECORDS.
All acts and determinations of the Plan Administrator shall be duly recorded.
All these records, together with other documents necessary for the
administration of the Plan, shall be preserved in the Plan Administrator's
custody,
Writing (handwriting, typing, printing), photostating, photographing, micro-
filming, magnetic impulse, mechanical or electrical recording, or other forms of
data compilation shall be acceptable means of keeping records.
SECTION 8.03 - INFORMATION AVAILABLE.
Any Member in the Plan or any Beneficiary may examine copies of the Plan
description, latest annual report, any bargaining agreement, this Plan, the
contract, or any other instrument under which the Plan was established or is
operated. The Plan Administrator shall maintain all of the items listed in this
section in its office, or in such other place or places as it may designate in
order to comply with governmental regulations. These items may be examined
during reasonable business hours. Upon the written request of a Member or
Beneficiary receiving benefits under the Plan, the Plan Administrator shall
furnish him with a copy of any of these items. The Plan Administrator may make a
reasonable charge to the requesting person for the copy.
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SECTION 8.04 - CLAIM AND APPEAL PROCEDURES.
A Claimant must submit any required forms and pertinent information when making
a claim for benefits under the Plan.
If a claim for benefits under the Plan is denied, the Plan Administrator shall
provide adequate written notice to any Claimant whose claim for benefits under
the Plan has been denied. The notice must be furnished within ninety days of the
date that the claim is received by the Plan Administrator. The Claimant shall be
notified in writing within this initial ninety-day period if special
circumstances require an extension of time needed to process the claim and the
date by which the Plan Administrator's decision is expected to be rendered. The
written notice shall be furnished no later than 180 days after the date the
claim was received by the Plan Administrator.
The Plan Administrator's notice to the Claimant shall specify the reason for the
denial; specify references to pertinent Plan provisions on which denial is
based; describe any additional material and information needed for the Claimant
to perfect his claim for benefits; explain why the material and information is
needed; inform the Claimant that any appeal he wishes to make must be made in
writing to the Plan Administrator within sixty days after receipt of the Plan
Administrator's notice of denial of benefits and that failure to make the
written appeal within such sixty-day period renders the Plan Administrator's
determination of such denial final, binding and conclusive.
If the Claimant appeals to the Plan Administrator, the Claimant, or his
authorized representative, may submit in writing whatever issues and comments
the Claimant, or the representative, feels are pertinent. The Claimant, or the
authorized representative, may review pertinent Plan documents. The Plan
Administrator shall reexamine all facts related to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Plan Administrator shall advise the Claimant of its decision
within sixty days of his written request for review, unless special
circumstances (such as a hearing) would make rendering a decision within the
sixty-day limit unfeasible. The Claimant shall be notified within the sixty-day
limit if an extension is necessary. The Plan Administrator shall render a
decision on a claim for benefits no later than 120 days after the request for
review is received.
SECTION 8.05 - UNCLAIMED VESTED ACCOUNT PROCEDURES.
If a Member or the Member's spouse or Beneficiary does not claim the Member's
Vested Account, the Vested Account may be forfeited and applied according to the
provisions of Section 3.04. An unclaimed Vested Account shall not be forfeited
until the latest of the date the Member attains age 62, attains Normal
Retirement Age, or six months after the date the Member, spouse, or Beneficiary
is notified, by certified or registered mail addressed to his last known
address, that he is entitled to a benefit. If by the latest date above, the
Member, spouse, or Beneficiary has not claimed the Vested Account or made his
whereabouts known in writing, the Plan Administrator may treat the Vested
Account as a Forfeiture.
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If a Member's Vested Account is forfeited according to the provisions of the
above paragraph and the Member or the Member's spouse or Beneficiary at any time
makes a claim for benefits, the forfeited Vested Account shall be reinstated,
unadjusted for any gains or losses occurring after the date it was forfeited.
The reinstated Vested Account shall then be distributed to the Member, spouse,
or Beneficiary according to the preceding provisions of the Plan.
SECTION 8.06 - DELEGATION OF AUTHORITY.
All or any part of the administrative duties and responsibilities under this
article may be delegated by the Plan Administrator to a retirement committee.
The duties and responsibilities of the retirement committee shall be set out in
a separate written agreement.
Article VIIIA
Trust Provisions
SECTION 8A.01 - THE TRUST AND TRUST FUND.
If Item T(1) is selected, we have established this Trust by executing the
attached Adoption Agreement. The Trust is established for the purpose of holding
and distributing the Trust Fund under the provisions of the Plan. The Trust is
construed, regulated, and administered under the law of the state in which we
have our principal office.
The Trust Fund consists of the total funds held under the Trust for the purpose
of providing benefits for Members. These funds result from Contributions made
under the Plan, which are forwarded to the Trustee to be deposited in the Trust
Fund. The Trust Fund shall be valued at current fair market value as of the last
day of the last calendar month ending in the Plan Year and, at the discretion of
the Trustee, may be valued more frequently. The valuation shall take into
consideration investment earnings credited, expenses charged, payments made, and
changes in the values of the assets held in the Trust Fund. The Account of a
Member shall be credited with its share of the gains and losses of the Trust
Fund. That part of a Member's Account invested in a funding arrangement which
establishes an account or accounts for such Member thereunder shall be credited
with the gain or loss from such account or accounts. That part of a Member's
Account which is invested in other funding arrangements shall be credited with a
proportionate share of the gain or loss of such investments. The share shall be
determined by multiplying the gain or loss of the investment by the ratio of the
part of the Member's Account invested in such funding arrangement to the total
of the Trust Fund invested in such funding arrangement.
SECTION 8A.02 - THE TRUSTEE.
We have appointed the Trustee named in Item T. We have the power to appoint an
additional or successor Trustee or remove a Trustee at any time by amending the
Adoption Agreement.
The Trustee accepts this appointment by executing the Adoption Agreement or an
amendment to it. A Trustee may resign at any time upon thirty days written
notice to us. If a Trustee is removed,
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resigns or dies, the successor Trustee whom we appoint has the same powers and
duties as the Trustee replaced. Pending the appointment of and acceptance of the
successor Trustee, a remaining Trustee has full power to act. When appointment
has been accepted by a successor Trustee, the removed or resigning Trustee must
assign, transfer, pay over, and deliver to the successor Trustee all of the
assets which then constitute the Trust Fund.
If there are two or more persons appointed as Trustees, the Trustees may, in
writing, name one of their number to act in the execution of all documents
relating to the Plan and Trust. When more than two persons have been appointed
as Trustee, all acts and decisions shall be made by majority vote.
SECTION 8A.03 - DUTIES OF TRUSTEE.
It is the duty of the Trustee to accept and hold the Trust Fund and administer
it according to the provisions of the Trust. The Trustee has no duty to demand
or require that Contributions be made to the Trust, nor shall a Trustee be
liable to determine the amount of any Contributions to the Trust.
The Plan is administered by the Plan Administrator. The Trustee is not
responsible for any aspect of its administration. The Trustee is not required to
look into any action taken by the Named Fiduciary, Plan Administrator, or us and
will be fully protected in taking, permitting or omitting any action on the
basis of our actions. Any action by the Named Fiduciary, Plan Administrator, or
us according to the Plan provisions shall be evidenced in writing. We will
indemnify the Trustee by satisfying any liabilities the Trustee may incur in
acting in accordance with the Trust provisions upon written instruction from the
Named Fiduciary, Plan Administrator, or us.
SECTION 8A.04 - POWERS OF TRUSTEE.
Except where the Plan expressly provides that the Trustee is subject to the
direction of the Named Fiduciary, Plan Administrator, or us, the Trustee is
authorized and empowered
(a) to apply for and invest all or any part of the assets of the Trust Fund in
the Annuity Contract, an Insurance Policy, or both, issued by the insurer
and to hold the Annuity Contract and any Insurance Policy as owner;
(b) to invest and reinvest all or any part of the assets of the Trust Fund in
any bonds, debentures, notes, mortgages or mortgage participations,
preferred stocks, common stocks or other securities, or other real or
personal properties;
(c) to sell, exchange, convey, transfer, or otherwise dispose of any property
held by it, by private contract or at public auction;
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(d) to exercise the voting rights of any stocks, bonds or other securities and
to exercise any of the powers of an owner with respect to stocks, bonds,
securities, or other property held in the Trust Fund;
(e) to retain in cash an amount which the Trustee considers advisable, and to
deposit cash in any depository selected by it without liability for
interest;
(f) to make, execute, acknowledge, and deliver any instruments necessary to
carry out the powers granted it;
(g) to employ such agents, actuaries, clerical help, custodians, and others as
are needed to carry out the Trustee's duties;
(h) to consult with legal counsel, including our counsel, with respect to the
meaning or construction of, or the Trustee's obligations or duties under,
the Plan and Trust, or with respect to any action or proceeding or any
question of law. The Trustee shall be fully protected with respect to any
action it takes in good faith pursuant to the advice of such counsel.
(i) to enforce any right, obligation, or claim and, in its absolute discretion,
to protect in any way the interest of the Trust Fund and if the Trustee
considers such an action to be in the best interest of the Trust Fund, to
abstain from the enforcement of any right, obligation, or claim and to
abandon any property it has held.
SECTION 8A.05 - EXPENSES.
We pay the expenses incurred by the Trustee in the performance of its duties,
any fees for legal services rendered to the Trustee, and compensation to the
Trustee which we have mutually agreed upon in writing. The Trustee may charge
against the Trust Fund taxes imposed with respect to the Trust Fund or its
income.
SECTION 8A.06 - ACCOUNTING.
The Trustee shall maintain accurate and detailed records on all receipts,
investments, disbursements, and other transactions performed in its capacity as
Trustee. These records must be open to inspection and audit by the Plan
Administrator, Named Fiduciary, and us at all reasonable times.
Writing (handwriting, typing, printing), Photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording, or other
forms of data compilation shall be acceptable means of keeping records.
The Trustee shall file all reports, returns, and information required under the
Code and regulations and rulings issued under the Code.
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The Trustee shall file with us an accounting of its transactions as soon as
practical after each Yearly Date or any other date we may specify. Any report or
accounting which the Trustee files with us is open to inspection by a Member for
a period of sixty days following the date it is filed. At the end of the sixty-
day period, the Trustee is released and discharged as to any matters set forth
in the report or account, except with respect to any act or omission as to which
a Member, the Plan Administrator, the Named Fiduciary or we have filed a written
objection within the sixty-day period.
Article IX
General Provisions
SECTION 9.01 - AMENDMENTS.
We may amend a selection or specification in the Adoption Agreement at any time,
including any remedial retroactive changes (within the time specified by
Internal Revenue Service regulation) to comply with any law or regulation issued
by any governmental agency to which the Plan is subject. An amendment may not
diminish or adversely affect any accrued interest or benefit of Members or their
Beneficiaries or eliminate an optional form of distribution with respect to
benefits attributable to service before the amendment nor allow reversion or
diversion of Plan assets to us at any time, except as may be required to comply
with any law or regulation issued by any governmental agency to which the Plan
is subject. No amendment to this Plan shall be effective to the extent that it
has the effect of decreasing a Member's accrued benefit. However, a Member's
Account may be reduced to the extent permitted under Code Section 412(c)(8). For
purposes of this paragraph, a Plan amendment which has the effect of decreasing
a Member's Account or eliminating an optional form of benefit, with respect to
benefits attributable to service before the amendment shall be treated as
reducing an accrued benefit. Furthermore, if the vesting schedule of the Plan is
amended, in the case of an Employee who is a Member as of the later of the date
such amendment is adopted or the date it becomes effective, the nonforfeitable
percentage (determined as of such date) of such Employee's right to his
employer-derived accrued benefit will not be less than his percentage computed
under the Plan without regard to such amendment. We may amend the Plan by adding
overriding plan language to the Adoption Agreement in order to satisfy Code
Sections 415 and 416 because of the required aggregation of multiple plans under
those sections. We may amend the Plan by adding certain model amendments
published by the Internal Revenue Service which specifically provide that their
adoption will not cause the Plan to be treated as individually designed. An
amendment to this Plan will be forwarded to Principal Mutual Life Insurance
Company, the prototype plan sponsor.
If we amend the Plan for any reason other than those set out above or if the
Plan loses its qualified status, the Plan shall not be a prototype plan within
the meaning of governmental regulations. In that event, Principal Mutual Life
Insurance Company will not be the prototype plan sponsor and the Plan will not
be a prototype plan. As the Employer, we reserve the right to continue our
retirement program under a document separate and distinct from this Plan. In
such event, all rights and obligations of any Member, Beneficiary, or of ours
under this document shall cease. Assets held in support of this Plan will be
transferred to the designated funding medium under the new
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or restated plan and, if applicable, trust, in the manner permitted under, and
subject to the provisions of, the Annuity Contract.
We delegate authority to amend this Plan to Principal Mutual Life Insurance
Company as sponsor. We hereby consent to any such amendment. However, no such
amendment shall increase the duties of the Named Fiduciary without his consent.
Such an amendment shall not deprive any Member or Beneficiary of any accrued
benefit except to the extent necessary to comply with any law or regulation
issued by any governmental agency to which this Plan is subject. Such an
amendment shall not provide that the Investment Fund be used for any purpose
other than the exclusive benefit of Members or their Beneficiaries or that the
Investment Fund ever revert to or be used by us.
Any amendment to this Plan by Principal Mutual Life Insurance Company, as
sponsor, shall be deemed to be an amendment to this Plan by us. The effective
date of any amendment shall be specified in the written instrument of amendment.
An amendment shall not decrease a Member's vested interest in the Plan. If an
amendment to the Plan, or a deemed amendment in the case of a change in top-
heavy status of the Plan as provided in Section 10.03, changes the computation
of Vesting Percentage (whether directly or indirectly), each Member or former
Member
(a) who has completed at least three Years of Service with us on the date the
election period described below ends (five Years of Service if the Member
does not have at least one Hour of Service in a Plan Year beginning after
December 31, 1988) and
(b) whose Vesting Percentage will be determined on any date after the date of
the change may elect, during the election period, to have the
nonforfeitable percentage of his Account which results from our
Contributions determined without regard to the amendment. This election may
not be revoked. If after the Plan is changed the Member's Vesting
Percentage will at all times be as great as it would have been it the
change had not been made, no election needs to be provided. The election
period shall begin no later than the date the Plan amendment is adopted, or
deemed adopted in the case of a change in the top-heavy status of the Plan,
and end no earlier than the sixtieth day after the latest of the date the
amendment is adopted (deemed adopted) or becomes effective, or the date the
Member is issued written notice of the amendment (deemed amendment) by us
or the Plan Administrator.
SECTION 9.02 - MERGERS AND DIRECT TRANSFERS.
The Plan may not be merged or consolidated with, nor have its assets or
liabilities transferred to, any other retirement plan, unless each Member in the
plan would (if the plan then terminated) receive a benefit immediately after the
merger, consolidation or transfer which is equal to or greater than the benefit
the Member would have been entitled to receive immediately before the merger,
consolidation or transfer (if this Plan had then terminated). We may enter into
merger
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agreements or direct transfer of assets agreements with the employers under
other retirement plans which are qualifiable under Code Section 401(a),
including an elective transfer, and may accept the direct transfer of plan
assets, or may transfer plan assets, as a party to any such agreement. We shall
not consent to, or be a party to a merger, consolidation or transfer of assets
with a defined benefit plan if such action would result in a defined benefit
feature being maintained under this Plan.
The Plan may accept a direct transfer of plan assets on behalf of an Eligible
Employee. If the Eligible Employee is not an Active Member when the transfer is
made, the Eligible Employee shall be deemed to be an Active Member only for the
purpose of investment and distribution of the transferred assets. Our
Contributions shall not be made for or allocated to the Eligible Employee and he
may not make Member Contributions, until the time he meets all of the
requirements to become an Active Member.
The Plan shall hold, administer and distribute the transferred assets as a part
of the Plan. The Plan shall maintain a separate account for the benefit of the
Employee on whose behalf the Plan accepted the transfer in order to reflect the
value of the transferred assets. Unless a transfer of assets to the Plan is an
elective transfer, the Plan shall apply the optional forms of benefit
protections described in Section 9.01 to all transferred assets. A transfer is
elective if: (1) the transfer is voluntary, under a fully informed election by
the Member; (2) the Member has an alternative that retains his Code Section
411(d)(6) protected benefits (including an option to leave his benefit in the
transferor plan, if that plan is not terminating); (3) if the transferor plan is
subject to Code Sections 401(a)(11) and 417, the transfer satisfies the
applicable spousal consent requirements of the Code; (4) the notice requirements
under Code Section 417, requiring a written explanation with respect to an
election not to receive benefits in the form of a qualified joint and survivor
annuity, are met with respect to the Member and spousal transfer election; (5)
the Member has a right to immediate distribution from the transferor plan under
provisions in the plan not inconsistent with Code Section 401(a); (6) the
transferred benefit is equal to the Member's entire nonforfeitable accrued
benefit under the transferor plan, calculated to be at least the greater of the
single sum distribution provided by the transferor plan (if any) or the present
value of the Member's accrued benefit under the transferor plan payable at the
plan's normal retirement age and calculated using an interest rate subject to
the restrictions of Code Section 417(e) and subject to the overall limitations
of Code Section 415; (7) the Member has a 100% nonforfeitable interest in the
transferred benefit; and (8) the transfer otherwise satisfies applicable
Treasury regulations.
SECTION 9.03 - PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES.
The obligations of an Insurer shall be governed solely by the provisions of the
Annuity Contract or Insurance Policy. The Insurer shall not be required to
perform any act not provided in or contrary to the provisions of the Annuity
Contract or Insurance Policy. The Annuity Contract when purchased will comply
with the Plan. See Section 9.08.
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Any issuer or distributor of investment contracts or securities is governed
solely by the terms of its policies, written investment contract, prospectuses,
security instruments, and any other written agreements entered into with the
Trustee.
Such Insurer, issuer, or distributor is not a party to the Plan, nor bound in
any way by the Plan provisions. Such parties shall not be required to look to
the terms of this Plan, nor to determine whether we, the Plan Administrator, the
Trustee, or the Named Fiduciary have the authority to act in any particular
manner or to make any contract or agreement.
Until notice of any amendment or termination of this Plan or of a change in
Trustee has been received by the Insurer at its home office or an issuer or
distributor at their principal address, they are and shall be fully protected in
assuming that the Plan has not been amended or terminated and in dealing with
any party acting as Trustee according to the latest information which they have
received at their home office or principal address.
SECTION 9.04 - EMPLOYMENT STATUS.
Nothing contained in this Plan gives any Employee the right to be retained in
our employ or to interfere with our right to discharge any Employee.
SECTION 9.05 - RIGHTS TO PLAN ASSETS.
An Employee shall not have any right to or interest in any assets of the Plan
upon termination of employment or otherwise except as specifically provided
under this Plan, and then only to the extent of the benefits payable to such
Employee according to the Plan provisions.
Any final payment or distribution to a Member or his legal representative or to
any Beneficiaries, spouse, or Contingent Annuitant of such Member under the Plan
provisions shall be in full satisfaction of all claims against the Plan, the
Named Fiduciary, the Plan Administrator, the Insurer, the Trustee, and us
arising under or by virtue of the Plan.
SECTION 9.06 - BENEFICIARY.
Each Member may name a Beneficiary to receive any death benefit (other than any
income payable to a Contingent Annuitant) which may arise out of his membership
in the Plan. The Member may change his Beneficiary from time to time. Unless a
qualified election has been made, for purposes of distributing any death
benefits before Retirement Date, the Beneficiary of a Member who has a spouse
who is entitled to a Qualified Preretirement Survivor Annuity shall be the
Member's spouse. The Member's Beneficiary designation and any change of
Beneficiary shall be subject to the provisions of Section 6.03. It is the
responsibility of the Member to give written notice to the Insurer of the name
of the Beneficiary on a form furnished for that purpose.
With our consent, the Plan Administrator may maintain records of Beneficiary
designations for Members before their Retirement Dates. In that event, the
written designations made by Members
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shall be filed with the Plan Administrator. If a Member dies before his
Retirement Date, the Plan Administrator shall certify to the insurer the
Beneficiary designation on its records for the Member.
If there is no Beneficiary named or surviving when a Member dies, any death
benefit under the Annuity Contract or Insurance Policy will be paid according to
the provisions of the respective documents.
SECTION 9.07 - NONALIENATION OF BENEFITS.
Benefits payable under the Plan are not subject to the claims of any creditor of
any Member, Beneficiary, spouse, or Contingent Annuitant. A Member, Beneficiary,
spouse, or Contingent Annuitant does not have any rights to alienate,
anticipate, commute, pledge, encumber or assign such benefits except in the case
of a Trustee approved loan as provided in Section 5.06. The preceding sentences
shall also apply to the creation, assignment, or recognition of a right to any
benefit payable with respect to a Member according to a domestic relations
order, unless such order is determined by the Plan Administrator to be a
qualified domestic relations order, as defined in Code Section 414(p), or any
domestic relations order entered before January 1, 1985.
SECTION 9.08 - CONSTRUCTION.
The validity of the Plan or any of its provisions is determined under and
construed according to Federal law and, to the extent permissible, according to
the laws of the state in which we have our principal office. In case any
provision of this Plan is held illegal or invalid for any reason, such
determination shall not affect the remaining provisions of this Plan, and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included.
In the event of any conflict between the provisions of the Plan and the terms of
any contract or policy issued hereunder, the provisions of the Plan control.
SECTION 9.09 - LEGAL ACTIONS.
The Plan, the Plan Administrator, the Trustee and the Named Fiduciary are the
necessary parties to any action or proceeding involving the assets held with
respect to the Plan or administration of the Plan or Trust. No person employed
by us, no Member, former Member, or their Beneficiaries or any other person
having or claiming to have an interest in the Plan is entitled to any notice of
process. A final judgment entered in any such action or proceeding shall be
binding and conclusive on all persons having or claiming to have an interest in
the Plan.
SECTION 9.10 - SMALL AMOUNTS.
If the Vested Account of a Member has never exceeded $3,500, the entire Vested
Account shall be payable in a single sum as of the earliest of his Retirement
Date, the date he dies, or the date he ceases to be an Employee for any other
reason. If Item X(3)(b) of the Adoption Agreement -
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Plus is selected, the Member shall not be treated as having ceased to be an
Employee for any reason other than retirement or death before the period of time
elected in Item X(3)(b) has elapsed and no small amount payment shall be made if
he again becomes an Employee before such period of time has elapsed. This is a
small amounts payment. If a small amount is payable as of the date the Member
dies, the small amounts payment shall be made to the Member's Beneficiary
(spouse if the death benefit is payable to the spouse). If a small amount is
payable while the Member is living, the small amounts payment shall be made to
the Member. The small amounts payment is in full settlement of all benefits
otherwise payable.
Before the first Yearly Date in 1989, the Member's Vested Account which results
from deductible Voluntary Contributions shall not be taken into account in
determining whether his Vested Account has exceeded $3,500.
No other small amounts payment shall be made.
SECTION 9.11 - WORD USAGE.
The masculine gender, where used in this Plan, shall include the feminine gender
and singular words as used in this Plan may include the plural, unless the
context indicates otherwise.
SECTION 9.12 - TRANSFERS BETWEEN PLANS.
If an Employee has been a member of another plan of ours which credited service
under the elapsed time method for any purpose which under this Plan is
determined using the hours method, then the Employee's service shall be equal to
the sum of (a), (b) and (c) below:
(a) The number of whole years of service credited to the Employee under the
other plan as of the date he became an Eligible Employee under this Plan.
(b) One year of service for the applicable service period in which he became an
Eligible Employee if he is credited with the required number of Hours of
Service. If we do not have sufficient records to determine the Employee's
actual Hours of Service in that part of the service period before the date
he became an Eligible Employee, the Hours of Service shall be determined
using an equivalency. For any month in which he would be required to be
credited with one Hour of Service, the Employee shall be deemed for
purposes of this section to be credited with 190 Hours of Service.
(c) The Employee's service determined under this Plan using the hours method
after the end of the service period in which he became an Eligible
Employee.
If an Employee has been a member of another plan of ours which credited service
under the hours method for any purpose which under this Plan is determined using
the elapsed time method, then the Employee's service shall be equal to the sum
of (d), (e) and (f) below:
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(d) The number of whole years of service credited to the Employee under the
other plan as of the beginning of the service period under that plan in
which he became an Eligible Employee under this Plan.
(e) The greater of (1) the service that would be credited to the Employee for
that entire service period using the elapsed time method or (2) the service
credited to him under the other plan as of the date he became an Eligible
Employee under this Plan.
(f) The Employee's service determined under this Plan using the elapsed time
method after the end of the applicable service period under the other plan
in which he became an Eligible Employee.
Any modification of service contained in this Plan shall be applicable to the
service determined pursuant to this section.
If an Employee used to be a member of a Controlled Group member's plan which
credited service under a different method than is used in this Plan, in order to
determine entry and vesting, the provisions above shall apply as though the
Controlled Group member's plan were our plan. If the method of crediting service
under this Plan is changed, the service credited to an Employee shall be equal
to the service that would be credited to him under the above provisions as
though the Plan as in effect before the change were another plan of ours.
SECTION 9.13 - PARTNERSHIP OR SOLE PROPRIETORSHIP.
(a) For the purpose of applying the provisions of this Plan as to any Plan Year
in which we are a partnership or sole proprietorship, the following terms
are defined:
Control(s) means, with regard to a trade or business, one owner-employee
owns or a group of owner-employees together own (1) the entire interest in
such trade or business or (2) in the case of a partnership, more than fifty
percent of either the capital interest or the profits interest in the
partnership. An owner-employee, or a group of owner-employees, shall be
treated as owning any interest in a partnership which is owned, directly or
indirectly, by a partnership which such owner-employee, or group of owner-
employees, are considered to control within the meaning of the preceding
sentence.
Earned Income means, for a Self-Employed Individual, net earnings from
self-employment in the trade or business for which this Plan is established
if such Self-Employed Individual's personal services are a material income
producing factor for that trade or business. Earned Income shall be
determined without regard to items not included in gross income and the
deductions properly allocable to or chargeable against such items. After
the TEFRA Compliance Date, Earned Income shall be reduced for our employer
contributions to our qualified retirement plan(s) to the extent deductible
under Code Section 404.
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Net earnings shall be determined with regard to the deduction allowed to us
by Code Section 164(f) for taxable years beginning after December 31, 1989.
In applying the provisions of this Plan, the Self-Employed Individual's
Earned Income shall be deemed to be his Pay. For purposes of Section 3.06,
Earned Income shall include earned income within the meaning of Code
Section 911 from sources outside the United States and shall be deemed to
be his Compensation. If any exclusions are used for Pay, Earned Income
shall be adjusted by multiplying the Self-Employed Individual's Earned
Income by a fraction. The numerator of the fraction is the total Pay for
all Nonhighly Compensated Employees after such exclusions are applied. The
denominator of the fraction is the total Pay for all Nonhighly Compensated
Employees before such exclusions are applied. Self-Employed Individuals who
are Nonhighly Compensated Employees are not included for purposes of
calculating this fraction. Earned Income includes a Self-Employed
Individual's elective contributions.
Owner-Employee means a Self-Employed Individual who, in the case of a sole
proprietorship, owns the entire interest in the unincorporated trade or
business for which this Plan is established. If this Plan is established
for a partnership, an Owner-Employee means a Self-Employed Individual who
owns more than ten percent of either the capital interest or profits
interest in such partnership.
In applying the provisions of this Plan, an Owner-Employee shall be deemed
to be an Employee.
Self-Employed Individual means, with respect to any Fiscal Year, an
individual who has Earned Income for the Fiscal Year (or who would have
Earned Income but for the fact the trade or business for which this Plan is
established did not have net profits for such Fiscal Year).
In applying the provisions of this Plan, a Self-Employed Individual shall
be deemed to be an Employee.
(b) If contributions are made for or allocated to or benefits accrue to an
Owner-Employee who Controls, or a group of Owner-Employees who together
Control, both the trade or business for which this Plan is established and
one or more other trades or businesses, then this Plan and the plans
established for such other trade(s) or business(es) must, if they were
combined as a single plan, satisfy the requirements of Code Sections 401(a)
and 401(d) and regulations thereunder.
It this Plan provides Contributions for an Owner-Employee who Controls, or
a group of Owner-Employees who Control, one or more other trades or
businesses, the employees of each such other trade or business must be
included in a plan which satisfies Code Sections 401(a) and 401(d) and
regulations thereunder. Each such plan must provide
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contributions and benefits which are not less favorable than the
Contributions and benefits provided for the Owner-Employee(s) under this
Plan.
If an Owner-Employee is covered under another qualifiable retirement plan
as an owner-employee of a trade or business he does not Control, then the
plan(s) of the trade(s) or business(es) the Owner-Employee does Control
(including this Plan, if applicable) must provide contributions or benefits
as favorable as those provided under the most favorable plan of the trade
or business the Owner-Employee does not Control.
SECTION 9.14 - QUALIFICATION OF PLAN.
If the Plan is denied initial qualification, it will terminate. We shall give
written notice to the Insurer and Trustee of the denial in sufficient time so
the assets resulting from Contributions which were conditioned on initial
qualification of the Plan may be returned within one year after the date of
denial, but only if the application for the qualification is made by the time
prescribed by law for filing our return for the taxable year in which the Plan
is adopted, or such later date as the Secretary of the Treasury may prescribe.
The Insurer will be notified that the Annuity Contract is to be terminated and
any Insurance Policy surrendered. The Plan assets which result from Employer
Contributions and Member Contributions shall be returned to us and the Members,
respectively. The Trustee, the Plan Administrator, and the Named Fiduciary shall
then be discharged from all obligations under the Plan and Trust and the Insurer
shall be discharged from all obligations under the Annuity Contract and any
Insurance Policy. A Member or Beneficiary shall not have any right or claim to
the assets or to any benefit under this Plan before the Internal Revenue Service
determines that the Plan and Trust qualify under the provisions of Section
401(a) of the Code.
If the Plan loses its qualified status, it shall no longer be a prototype plan
within the meaning of governmental regulations. In that event, Principal Mutual
Life Insurance Company will no longer be the Plan sponsor. We agree to give
written notification to Principal Mutual Life Insurance Company of the loss of
qualification.
Article X
Top-Heavy Plan Requirements
SECTION 10.01 - APPLICATION.
The provisions of this Article X shall supersede all other provisions in the
Plan to the contrary.
For the purpose of applying the Top-heavy Plan requirements of this article, all
members of the Controlled Group shall be treated as one Employer. The terms we,
us, and our as they are used in this article shall be deemed to include all
members of the Controlled Group unless the terms as used clearly indicate only
the Employer is meant.
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The accrued benefit or account of a member which results from deductible
voluntary contributions shall not be included for any purpose under this
article.
The minimum vesting and contribution provisions of Sections 10.03 and 10.04
shall not apply to any Employee who is included in a group of Employees covered
by a collective bargaining agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or more
employers, including us, if there is evidence that retirement benefits were the
subject of good faith bargaining between such representatives. For this purpose,
the term "employee representatives" does not include any organization more than
half of whose members are employees who are owners, officers or executives.
SECTION 10.02 - DEFINITIONS.
The following terms are defined for purposes of this article.
Aggregation Group means
(a) each of our retirement plans in which a Key Employee is a member during the
Year containing the Determination Date or one of the four preceding Years.
(b) each of our other retirement plans which allows the plan(s) described in
(a) above to meet the nondiscrimination requirement of Code Section
401(a)(4) or the minimum coverage requirement of Code Section 410, and
(c) any of our other retirement plans not included in (a) or (b) above which we
desire to include as part of the Aggregation Group. Such a retirement plan
shall be included only if the Aggregation Group would continue to satisfy
the requirements of Code Section 401(a)(4) and Code Section 410.
The plans in (a) and (b) above constitute the "required" Aggregation Group. The
plans in (a), (b) and (c) above constitute the "permissive" Aggregation Group.
Compensation means, as to an Employee for any period, compensation as defined in
Item M for purposes of Plan Section 3.06. For purposes of determining who is a
Key Employee, Compensation shall include, in addition to compensation as defined
in Item M for purposes of Plan Section 3.06, elective contributions. Elective
contributions are amounts excludable from the gross income of the Employee under
Code Sections 125, 402(a)(8), 402(h) or 403(b), and contributed by us, at the
Employee's election, to a Code Section 401(k) arrangement, a simplified employee
pension, cafeteria plan or tax-sheltered annuity. Elective contributions also
include Pay deferred under a Code Section 457 plan maintained by us and Employee
contributions "picked up" by a governmental entity and, pursuant to Code Section
414(h)(2), treated as our contributions.
Determination Date means as to this Plan, for any Year, the last day of the
preceding Year. However, if there is no preceding Year, the Determination Date
is the last day of such Year.
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Key Employee means any Employee or former Employee (including Beneficiaries of
deceased Employees) who at any time during the determination period was
(a) one of our officers (subject to the maximum below) whose Compensation (as
defined in this section) for the Year exceeds 50 percent of the dollar
limitation under Code Section 415(b)(1)(A),
(b) one of the ten Employees who owns (or is considered to own, under Code
Section 318) more than a half percent ownership interest and one of the
largest interests in us during any Year of the determination period if such
person's Compensation (as defined in this section) for the Year exceeds the
dollar limitation under Code Section 415(c)(1)(A),
(c) a five-percent owner of us, or
(d) a one-percent owner of us whose Compensation (as defined in this section)
for the Year is more than $150,000.
Each member of the Controlled Group shall be treated as a separate employer for
purposes of determining ownership in us.
The determination period is the Year containing the Determination Date and the
four preceding Years. If we have fewer than 30 Employees, no more than three
Employees shall be treated as Key Employees because they are officers. If we
have between 30 and 500 Employees, no more than ten percent of our Employees (if
not an integer, increased to the next integer) shall be treated as Key Employees
because they are officers. In no event will more than 50 Employees be treated as
Key Employees because they are officers if we have 500 or more Employees. The
number of Employees for any Plan Year is the greatest number of Employees during
the determination period. Officers who are employees described in Code Section
414(q)(8) shall be excluded. If we have more than the maximum number of officers
to be treated as Key Employees, the officers shall be ranked by the amount of
annual Compensation (as defined in this section), and those with the greater
amount of annual Compensation during the determination period shall be treated
as Key Employees. To determine the ten Employees owning the largest interests in
us, if more than one Employee has the same ownership interest, the Employee(s)
having the greater annual Compensation shall be treated as owning the larger
interest(s). The determination of who is a Key Employee shall be made according
to Code Section 416(i)(1) and the regulations thereunder.
Non-key Employee means a person who is a non-key employee within the meaning of
Code Section 416 and regulations thereunder.
Present Value means the present value of a member's accrued benefit under a
defined benefit plan as of his normal retirement age (attained age if later) or,
if the plan provides non-proportional subsidies, the age at which the benefit is
most valuable. The accrued benefit of any Employee (other than a Key Employee)
shall be determined under the method which is used for accrual purposes for all
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our plans or if there is no one method which is used for accrual purposes for
all our plans, as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under Code Section 411(b)(1)(C). The Present Value shall
be based only on the interest and mortality rates specified in the Adoption
Agreement. If the Present Value of accrued benefits is determined for a member
under more than one defined benefit plan included in the Aggregation Group, all
such plans shall use the same actuarial assumptions to determine the Present
Value.
Top-heavy Plan means a plan which is a top-heavy plan for any plan year
beginning after December 31, 1983. This Plan shall be a Top-heavy Plan if
(a) the Top-heavy Ratio for this Plan alone exceeds sixty percent and this Plan
is not part of any required Aggregation Group or permissive Aggregation
Group.
(b) this Plan is a part of a required Aggregation Group, but not part of a
permissive Aggregation Group, and the Top-heavy Ratio for the required
Aggregation Group exceeds sixty percent.
(c) this Plan is a part of a required Aggregation Group and part of a
permissive Aggregation Group and the Top-heavy Ratio for the permissive
Aggregation Group exceeds sixty percent.
Top-heavy Ratio means the ratio calculated below for this Plan or for the
Aggregation Group.
(a) The Top-heavy Ratio for this Plan or for the Aggregation Group (including
any simplified employee pension plan) if the Aggregation Group does not
contain a defined benefit plan during the five-year period ending on the
determination date which has or has had accrued benefits, is a fraction,
the numerator of which is the sum of the account balances of all Key
Employees as of the determination date and the denominator of which is the
sum of all account balances of all employees as of the determination date.
Both the numerator and denominator of the Top-heavy Ratio are adjusted for
any distribution of an account balance made in the five-year period ending
on the determination date in accordance with Code Section 416 and the
regulations thereunder. Both the numerator and denominator of the Top-heavy
Ratio are increased to reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into account on that
date under Code Section 416 and the regulations thereunder.
(b) The Top-heavy Ratio for the Aggregation Group (including any simplified
employee pension plan) if the Aggregation Group contains a defined benefit
plan during the five-year period ending on the determination date which has
or has had accrued benefits, is a fraction, the numerator of which is the
sum of the account balances under the defined contribution plan(s) of all
Key Employees and the Present Value of accrued benefits under the defined
benefit plan(s) for all Key Employees, and the denominator of which is the
sum of the account balances under the defined contribution plan(s) for all
employees and the Present Value of accrued benefits under the defined
benefit plans for all employees. Both the numerator and denominator of the
Top-heavy Ratio are adjusted for any
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distribution of an account balance or an accrued benefit (including those
made from terminated plan(s) of ours which would have been part of the
required Aggregation Group had such plan(s) not been terminated) made in
the five-year period ending on the determination date in accordance with
Code Section 416 and the regulations thereunder.
(c) For purposes of (a) and (b) above, the value of account balances and the
Present Value of accrued benefits will be determined as of the most recent
valuation date that falls within or ends with the 12-month period ending on
the determination date, except as provided in Code Section 416 and the
regulations thereunder for the first and second plan years of a defined
benefit plan. The account balances and accrued benefits of an employee who
is not a Key Employee but who was a Key Employee in a prior year will be
disregarded. The calculation of the Top-heavy Ratio and the extent to which
distributions, rollovers and transfers during the five-year period ending
on the determination date are to be taken into account, shall be determined
according to the provisions of Code Section 416 and regulations thereunder.
The account balances and accrued benefits of an individual who has
performed no service for us during the five-year period ending on the
determination date shall be excluded from the Top-heavy Ratio until the
time the individual again performs service for us. Deductible employee
contributions will not be taken into account for purposes of computing the
Top-heavy Ratio. When aggregating plans, the value of account balances and
accrued benefits will be calculated with reference to the determination
dates that fall within the same calendar year.
Account, as used in this definition, means the value of an employee's account
under one of our retirement plans on the latest valuation date. In the case of a
money purchase plan or target benefit plan, such value shall be adjusted to
include any contributions made for or by the employee after the valuation date
and on or before such determination date or due to be made, as of such
determination date but not yet forwarded to the insurer or trustee. In the case
of a profit sharing plan, such value shall be adjusted to include any
contributions made for or by the employee after the valuation date and on or
before such determination date. During the first Year of any profit sharing plan
such adjustment in value shall include contributions made after such
determination date that are allocated as of a date in such Year. The
nondeductible voluntary contributions which an employee makes under a defined
benefit plan of ours shall be treated as if they were contributions under a
separate defined contribution plan.
Valuation Date means, as to this Plan, the last day of the last calendar month
ending in a Year.
Year means the Plan Year unless another year is specified by us in a separate
written resolution in accordance with regulations issued by the Secretary of the
Treasury or his delegate.
SECTION 10.03 - MODIFICATION OF VESTING REQUIREMENTS.
If a Member's Vesting Percentage determined under the vesting schedule selected
in Item V is not as great as the Vesting Percentage would be if it were
determined under a schedule permitted in Code Section 416, the following shall
apply. During any Year in which the Plan is a Top-heavy
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Plan, the Member's Vesting Percentage shall be the greater of the Vesting
Percentage determined under the schedule selected in Item U or,
(a) if the vesting schedule provides for partial vesting between 0% and 100%,
the schedule below.
VESTING SERVICE VESTING
(whole years) PERCENTAGE
Less than 2 0
2 20
3 40
4 60
5 80
6 or more 100
(b) if the vesting schedule provides for only 0% or 100% vesting, the schedule
below.
VESTING SERVICE VESTING
(whole years) PERCENTAGE
Less than 3 0
3 or more 100
The applicable schedule above shall not apply to Members who are not credited
with an Hour of Service after the Plan first becomes a Top-heavy Plan. The
Vesting Percentage determined above applies to all of the Member's Account
resulting from our Contributions, including Contributions we make before the
TEFRA Compliance Date or when this Plan is not a Top-heavy Plan.
If, in a later Year, this Plan is not a Top-heavy Plan, a Member's Vesting
Percentage shall be determined according to the provisions of Item U. A
Member's Vesting Percentage determined under either Item U or the schedule above
shall never be reduced and the election procedures of Section 9.01 shall apply
when changing to or from the above schedule as though the automatic change were
the result of an amendment.
The part of the Member's Vested Account resulting from the minimum contributions
required pursuant to Section 10.04 shall not be forfeited because of a period of
reemployment after benefit payments have begun or because of a withdrawal of
required contributions, if any.
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SECTION 10.04 - MODIFICATION OF CONTRIBUTIONS.
For any Plan Year in which the Plan is top-heavy, only the first $200,000
(multiplied by the Adjustment Factor) of a Member's annual compensation shall be
taken into account for purposes of determining Employer Contributions under the
Plan. For any Plan Year beginning after December 31, 1988, in determining the
Compensation, as defined in this article, of a Member for purposes of this
limitation, the rules of Code Section 414(q)(6) shall apply, except that in
applying such rules, the term "family" shall include only the spouse of the
Member and any lineal descendants of the Member who have not attained age 19
before the close of the Plan Year. If as a result of the application of such
rules the adjusted $200,000 limitation is exceeded, then the limitation shall be
prorated among the affected individuals in proportion to each such individual's
Compensation as determined under the definition in this article prior to the
application of this limitation.
During any Year in which this Plan is a Top-heavy Plan, we shall make a minimum
contribution or allocation on the last day of the Year for each person who is a
Non-key Employee on that day and who either was or could have been an Active
Member during the Year. A Non-key Employee is not required to have a minimum
number of Hours of Service or minimum amount of Pay, or to have made any
Elective Deferral Contributions in order to be entitled to this minimum. The
selections we make in Item R shall determine if Key Employees who are Employees
on the last day of the Year are also entitled to this minimum and if the minimum
contribution or allocation shall apply in Years when this Plan is not a Top-
heavy Plan. The minimum contribution and allocation for such person shall be
equal to the amount specified in Item R. If overriding provisions are not
specified in Item R, the minimum is the lesser of (a) or (b) below:
(a) Three percent of such person's Compensation (as defined in this article).
(b) The "highest percentage" of Compensation (as defined in this article) for
such Year at which our contributions are made for or allocated to any Key
Employee. The highest percentage shall be determined by dividing our
contributions made for or allocated to each Key Employee during the Year by
the amount of his Compensation (as defined in this article) which is not
more than the maximum set out above, and selecting the greatest quotient
(expressed as a percentage). To determine the highest percentage, all our
defined contribution plans within the Aggregation Group shall be treated as
one plan. The provisions of this paragraph shall not apply if this Plan and
a defined benefit plan of ours are required to be included in the
Aggregation Group and this Plan enables the defined benefit plan to meet
the requirements of Code Section 401(a)(4) or Code Section 410.
If our contributions and allocations otherwise required under the defined
contribution plan(s) are at least equal to the minimum above, no additional
contribution or allocation shall be required. If our contributions and
allocations are less than the minimum above and our Contributions under this
Plan are allocated to Members, our Contributions (other than Elective Deferral
Contributions) shall be reallocated to provide the minimum. The remaining
Contributions shall be allocated as provided in the preceding articles of this
Plan. If our total contributions and allocations are less
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than the minimum above and our Contributions under this Plan are not allocated,
we shall contribute the difference for the Year.
The minimum contribution or allocation applies to all of our defined
contribution plans in the aggregate which are Top-heavy Plans. A minimum
allocation under a profit sharing plan shall be made without regard to whether
or not we have profits. If a person who is otherwise entitled to an additional
contribution or allocation above is also covered under a defined benefit plan of
ours which is a Top-heavy Plan during that same Year, the minimum benefits for
him shall not be duplicated. The defined benefit plan shall provide an annual
benefit for him on, or adjusted to, a straight life basis of the lesser of (c)
two percent of his average pay multiplied by his years of service or (d) twenty
percent of his average pay. Average pay and years of service shall have the
meaning set forth in such defined benefit plan for this purpose.
We may provide overriding provisions in Item R to satisfy the requirements of
Code Section 416 because of the aggregation of multiple plans.
For purposes of this section, any employer contribution made according to a
salary reduction or similar arrangement shall not apply before the first Yearly
Date in 1985. On and after the first Yearly Date in 1989, any such employer
contributions and employer contributions which are matching contributions, as
defined in Code Section 401(m), shall not apply in determining if the minimum
contribution requirement has been met, but shall apply in determining the
minimum contribution required. Forfeitures credited to a Member's account are
treated as employer contributions.
The requirements of this section shall be met without regard to contributions
under Chapter 2 of the Code (relating to tax on self-employment), Chapter 21 of
the Code (relating to Federal Insurance Contributions Act), Title II of the
Social Security Act or any other Federal or state law.
SECTION 10.05 - MODIFICATION OF CONTRIBUTION LIMITATION.
If the provisions of subsection (l) of Section 3.06 are applicable for any
Limitation Year during which this Plan is a Top-heavy Plan, the Contribution
limitations shall be modified. The definitions of Defined Benefit Plan Fraction
and Defined Contribution Plan Fraction in Section 3.06 shall be modified by
substituting "100 percent" in lieu of "125 percent." In addition, an adjustment
shall be made to the numerator of the Defined Contribution Plan Fraction. The
adjustment is a reduction of that numerator similar to the modification of the
Defined Contribution Plan Fraction described in Section 3.06 and shall be made
with respect to the last Plan Year beginning before January 1, 1984.
The modifications in the paragraph above shall not apply with respect to a
Member so long as employer contributions, forfeitures or nondeductible employee
contributions are not credited to his account under this or any of our other
defined contribution plans and benefits do not accrue for such Member under our
defined benefit plan(s), until the sum of his Defined Contribution and Defined
Benefit Plan Fractions is less than 1.0.
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The modification of the Contribution limitation shall not apply if both of the
following requirements are met:
(a) This Plan would not be a Top-heavy Plan if "ninety percent" were
substituted for "sixty percent" in the definition of Top-heavy Plan.
(b) A Non-key Employee who is not covered under a defined contribution plan of
ours, accrues a minimum benefit on, or adjusted to, a straight life basis
equal to the lesser of (a) twenty percent of his average pay or (b) two
percent of his average pay multiplied by his years of service, increased by
one percentage point for each year (not to exceed ten in the case of (a))
earned while the benefit limitation is to be modified as described above.
The account of a Non-key Employee who is covered under only one or more
defined contribution plans of ours, is credited with a minimum employer
contribution or allocation under such plan(s) equal to four percent of the
person's Compensation for each year in which the plan is a Top-heavy Plan.
If a Non-key Employee is covered under both defined contribution and
defined benefit plans of ours, (i) a minimum accrued benefit for such
person equal to the amount determined above for a person who is not covered
under a defined contribution plan is accrued in the defined benefit plan(s)
or (ii) a minimum contribution or allocation equal to 7.5 percent of the
person's Compensation for a Year in which the plans are Top-heavy Plans
will be credited to his account under the defined contribution plans.
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SAVINGS PLAN
the Principal/(R)/
Financial
Group
Principal Mutual Life
Insurance Company
Des Moines, Iowa
50392-0001
THE PRINCIPAL
FINANCIAL GROUP
PROTOTYPE FOR
SAVINGS PLANS
THIS PLAN IS A 401(K) PROFIT SHARING PLAN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADOPTION AGREEMENT - PLUS
IRS SERIAL NO.: D347609B
ADOPTION AGREEMENT PLAN NO.: 001
TO BE USED WITH BASIC PLAN NO.: 03
APPROVED: OCTOBER 26, 1992
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TABLE OF CONTENTS
A. ADOPTION AGREEMENT....................................................... 1
B. EMPLOYER................................................................. 1
C. PLAN NAME................................................................ 1
D. EFFECTIVE DATE........................................................... 1
E. YEARLY DATE.............................................................. 2
F. FISCAL YEAR.............................................................. 2
G. NAMED FIDUCIARY.......................................................... 2
H. PLAN ADMINISTRATOR....................................................... 2
I. PREDECESSOR.............................................................. 3
J. ELIGIBLE EMPLOYEE........................................................ 4
K. ENTRY REQUIREMENTS....................................................... 5
L. ENTRY DATE............................................................... 7
M. PAY...................................................................... 7
N. ELECTIVE DEFERRAL CONTRIBUTIONS.......................................... 9
O. MATCHING CONTRIBUTIONS................................................... 10
P. OTHER EMPLOYER CONTRIBUTIONS AND FORFEITURES............................. 12
Q. NET PROFITS AND CONTRIBUTION REQUIREMENTS................................ 15
R. CONTRIBUTION MODIFICATIONS............................................... 17
S. VOLUNTARY CONTRIBUTIONS.................................................. 18
T. INVESTMENT............................................................... 18
U. VESTING PERCENTAGE....................................................... 21
V. VESTING SERVICE.......................................................... 22
W. WITHDRAWAL BENEFITS...................................................... 24
X. RETIREMENT AND THE START OF BENEFITS..................................... 25
Y. FORMS OF DISTRIBUTIONS................................................... 27
Z. ADOPTING EMPLOYERS....................................................... 31
<PAGE>
Internal Revenue Service Department of the Treasury
Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA
FFN: 5030744003-001 Case: 9200863 EIN: 42-0127290
BPD: 03 Plan: 001 Letter Serial No: 0347609b Washington, DC 20224
Person to Contact: Ms. Wiggins
PRINCIPAL MUTUAL LIFE INSURANCE
Telephone Number: (202) 622-8380
711 HIGH STREET
Refer Replay to: E:EP:Q:8
DES MOINES, IA 50309
Date: 10/26/92
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Services in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application with
the Key District Director of Internal Revenue on Form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 98-9, 1989-1 C.B.
780. The applicability of such provisions may be determined by reference to the
initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
Chief, Employee Plans Qualifications Branch
<PAGE>
THE PRINCIPAL FINANCIAL GROUP PROTOTYPE FOR SAVINGS PLANS
ADOPTION AGREEMENT - PLUS
Use black ink to complete the Adoption Agreement.
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A. Select (1) or (2).
--
1) If selected, check (a) or (b).
If this Plan is a restatement, check (b).
b) If selected, fill in the restatement date.
2) If selected, fill in the amendment number and date.
B. Fill in exact, legal name.
C. For example: ABC, Inc. Savings Plan.
D. Fill in the date your Prior Plan started if this Plan is a restatement. If
this Plan is new, use the first day of the first Plan Year.
E. Fill in effective date and check (1), (2) or (3).
--
2) The first Plan Year is short.
A. This ADOPTION AGREEMENT is
1) [ X ] the Employer's first adoption of The Principal Financial Group
Prototype for Savings Plans. Together with THE PRINCIPAL FINANCIAL
GROUP PROTOTYPE BASIC SAVINGS PLAN, it constitutes
a) [X] a new plan.
b) [_] a restatement of an existing plan (and trust). That plan
was qualified under 401(a) of the Internal Revenue Code. The
provisions of this restatement are effective on
________________________________, 19 ___________. This is the
RESTATEMENT DATE.
2) [_] Amendment No. ________ to the Plan. It replaces all prior
amendments to the Plan and the first Adoption Agreement. The
provisions of this amendment are effective on __________________
19 _________.
B. The terms we, us and our, as they are used in this Plan, refer to the
EMPLOYER.
We, NOVA MED EYECARE MANAGEMENT, LLC
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are the Employer.
C. The PLAN'S NAME is NOVA MED 401(K) SAVINGS PLAN
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D. Our retirement plan became effective on January 1, 1996 . This is the
--------- ----
EFFECTIVE DATE.
E. The YEARLY DATE is the first day of each Plan Year. The Yearly Date is
January 1 , 19 96 and
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1) [X] the same day of each following year.
2) [_] each following _____________________________ (month and day).
<PAGE>
3) A Plan Year is short.
(b) First day of short year (use same month and day as in (a)).
(c) First day of new Plan Year.
1) Principal Mutual Life Insurance Company may not be named.
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1) Principal Mutual Life Insurance Company may not be named.
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1. Select any items below which apply.
1) If this Plan is a continuation of a plan of a Predecessor employer, service
with that Predecessor must be treated as service with you.
3) [_] (a) each following _____________________________ (month and day)
through (b) ___________________________________ 19 ______ and (c) each
following _________________________ (month and day).
If the first date in item E. is after the Effective Date, Yearly Dates,
before the first date in Item E above, shall be determined under the
provisions of the Prior Plan (Plan) before that date.
F. The FISCAL YEAR is our taxable year and ends on December 31
--------------------------
(month and day).
G. We are the NAMED FIDUCIARY, unless otherwise specified in (1) below.
1) [_] ------------------------------------------------------------------
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- -------------------------------------------------------------------------------
is the Named Fiduciary.
H. We are the PLAN ADMINISTRATOR, unless otherwise specified in (1) below.
1) [_] ------------------------------------------------------------------
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is the Plan Administrator. The address, phone number and fax filing number
of the Plan Administrator are the same as the Employer's unless otherwise
specified below.
Address:
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Phone No.:----------------------------------------------------------------
Tax Filing No.:-----------------------------------------------------------
I. A PREDECESSOR employer is a firm of which we were once a part or a firm
absorbed by us because of a change of name, merger, acquisition or a change
of corporate status.
1) [X] A Predecessor is deemed to be the Employer for purposes of
determining:
a) [X] Entry Service.
b) [X] Vesting Service.
c) [_] Hours of Service required to be eligible for an Employer
Contribution.
d) [_] Pay.
2) [_] Service with or pay from a Predecessor shall be counted only if
service continued with us without interruption. This item shall not
apply if this Plan is a continuation of a plan of that Predecessor.
2
<PAGE>
b) Exact, legal name(s).
J. Select (1) or (2). Use Item Z to identify the Controlled Group and
Affiliated Service Group members whose Employees may participate in the
Plan.
2) If selected, check the requirements in (a), (c), (d) and (e) below which
apply.
a) Select any employment classifications below which apply.
B. Bargaining unit's name.
B. Bargaining unit's name.
3) [_] Service with or pay from a Predecessor shall include service or pay
while a proprietor or partner. (If this item is not checked, such service or
pay shall not be counted.)
4) [_] Service with or pay from a Predecessor shall be counted only as to a
Predecessor which
a) [_] maintained a qualified pension or profit sharing plan (or)
b) [_] is named below:
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J. An ELIGIBLE EMPLOYEE is
1) [X] an Employee of ours or of an Adopting Employer listed in Item Z.
2) [_] an Employee of ours or of an Adopting Employer listed in Item Z
provided the Employee meets the requirement(s) selected below.
a) [_] Employed in the following employment classification:
i) [_] Paid on a salaried basis.
ii) [_] Paid on a commission basis.
iii) [_] Paid on an hourly basis.
iv) [_] Represented for collective bargaining purposes by
A. [_] any bargaining unit.
B. [_]
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v) [_] Not represented for collective bargaining purposes by
A. [_] any bargaining unit for which retirement benefits
have been the subject of good faith bargaining
between Employee representatives and us.
B. [_]
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3
<PAGE>
b) If more than one employment classification is selected in (a), check (i) or
(ii).
c) If selected, check (i), (ii) or both.
1) Select (a) or (b).
b) If selected, check (i) or (ii). Up to 1 year may be used (6 months if Entry
Date is Yearly Date).
ii) If selected, fill in the numerator of fraction (e.g. 6/12 for half a year).
2) Select (a) or (b). (Use only if service is required for entry.)
b) If more than one employment classification is selected, the Employee
must meet
i) [ ] each one of the employment classifications selected above.
ii) [ ] any one of the employment classifications selected above.
c) [ ] Not covered under any other qualified
i) [ ] profit sharing plan (or)
ii) [ ] pension plan
to which we contribute.
d) [ ] Employed at the following location or divisions or in the
following positions:
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e) [ ] Not employed at the following location or divisions or in the
following positions:
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K. ENTRY REQUIREMENTS
1) SERVICE REQUIRED to become an Active Member:
a) [ ] Service is not required.
b) [x] The minimum Entry Service required is
i) [ ] 1 (one) whole year.
ii) [X] 6 1/2 of a year.
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Note: If a fractional part of a year is required, the Hours Method may
not be used to determine Entry Service.
2) ENTRY SERVICE, subject to the provisions of Plan Section 1.02, shall be
determined as follows:
a) [X] ELAPSED TIME METHOD. Entry Service is the total of an Employee's
countable Periods of Service without regard to Hours of Service.
4
<PAGE>
b) Only available if one year is used in K(1) above.
i) Optional reduced Hours of Service requirement.
ii) Optional crediting of Entry Service before Entry Service Period ends.
A. Optional Entry Service Period, continues on employment anniversaries.
A. Optional Hours of Service requirement. Fill in up to 500 hours but less
than hours required for year of Entry Service.
3) Select (a) or (b).
--
b) Not over age 21 (20 1/2 if Entry Date is Yearly Date).
4) This waiver applies only on the date you fill in.
L. Select one of the following dates.
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b) [_] HOURS METHOD. A year of Entry Service is an Entry Service
Period which has ended and in which an Employee has 1,000 Hours
of Service, unless a lessor number is specified in (i) below.
i) [_] _____ Hours of Service.
ii) [_] A year of Entry Service shall be credited before the end
of the Entry Service Period if the Employee has the number
of Hours of Service specified above.
iii) An ENTRY SERVICE PERIOD is the 12-consecutive month period
beginning on an Employee's Hire Date and each following 12-
consecutive month period ending on the last day of the Plan
Year, including the 12-consecutive month period ending on
the last day of the first Plan Year after his Hire Date,
unless otherwise specified in A. below. (See Plan Section
1.02 for the crediting of Entry Service during the first two
periods.)
A. [_] An Entry Service Period is the 12-consecutive month
period beginning on an Employee's Hire Date and each
following 12-consecutive month period beginning on an
anniversary of that Hire Date.
iv) An ENTRY BREAK in service, when the Hours Method is used, is
an Entry Service Period in which an Employee is credited
with not more than one-half of the Hours of Service required
for a year of Entry Service, unless otherwise specified in
A. below.
A. [_] _____ or fewer Hours of Service.
3) AGE REQUIRED to become an Active Member:
a) [_] A minimum age is not required.
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b) [X] The Employee must be 21 or older.
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4) [X] The requirement(s) for entry checked below shall be waived on
January 1, 19 96 . This date shall be an Entry Date if the Eligible
--------- ----
Employee has met all the other entry requirements.
a) [X] Service requirement.
b) [X] Age requirement.
L. ENTRY DATE. An Eligible Employee may enter the Plan as an Active Member on
the earliest
1) [_] Monthly Date,
5
<PAGE>
4) If selected, age and service required in Item K can't be mover age 20 1/2
or more than 6 months, respectively.
a) Optional 415(c)(3) definition of Pay.
b) Optional W-2 definition of Pay.
2) Optional provision to continue old definition until 1994 Limitation Year.
4) Optional provision to continue old definition until 1994 Plan Year.
5) Safe harbor fringe benefit exclusion.
a) Optional provision to exclude fringe benefits for all purposes.
2) [ ] Semi-yearly Date,
3) [X] Quarterly Date,
4) [ ] Yearly Date,
5) [ ] date,
on or after the date this Plan became effective, on which he
meets all the entry requirements. This date is his ENTRY DATE.
M. PAY
1) COMPENSATION for purposes of Plan Section 3.06 is as defined
therein, under information required to be reported under Code
Sections 6041 and 6051 (Wages, Tips and Other Compensation Box on
Form W-2), which is actually paid or made available by us for the
Limitation Year, unless otherwise specified in (a) or (b) below.
a) [ ] 415 safe-harbor compensation as defined in Plan Section
3.06.
b) [ ] Code Section 3401(a) wages (wages for purposes of income
tax withholding) as defined in Plan Section 3.06.
2) [ ] The definition of Compensation above shall apply on and after
the 1994 Limitation Year. The definition of Compensation on any
date before the 1994 Limitation Year shall be determined in
accordance with the provisions of the Prior Plan.
3) PAY for purposes of Plan Section 1.02 is the same as compensation
for purposes of Plan Section 3.06 as specified in (1) above.
4) [ ] The definition of Pay in this Item M shall apply on and after
the first Yearly Date in 1994. The definition of Pay on any date
before the Yearly Date in 1994 shall be determined in accordance
with the provisions of the Prior Plan.
Pay shall include elective contributions. Elective contributions are
amounts excludable from the gross income of the Employee under Code
Sections 125, 402(a)(8), 402(h) or 403(b), and contributed by us, at
the Employee's election, to a Code Section 401(k) arrangement, a
simplified employee pension, cafeteria plan or tax-sheltered annuity.
Elective contributions also include Pay deferred under a Code Section
457 plan maintained by us and Employee contributions "picked up" by a
governmental entity and, pursuant to Code Section 414(h)(2), treated
as our contributions.
5) For purposes of Elective Deferral Contributions only Pay shall
not include reimbursements or other expense allowances, fringe
benefits (cash or non-cash), moving expenses, deferred
compensation, and welfare benefits, unless otherwise specified in
(a) below.
a) [ ] Pay for all purposes under the Plan shall not include
reimbursements or other expense allowances, fringe benefits
(cash or non-cash), moving expenses, deferred compensation,
and welfare benefits, unless otherwise specified in (a)
below.
6) ANNUAL PAY is, on any given date, an Employee's Pay for the
latest Pay Year ending on or before that date.
6
<PAGE>
a) Optional Pay Year.
Select any modifications below which apply.
10) Optional exclusions.
h) Specify type of special pay excluded.
1) Optional effective dates for elective deferral agreements. If selected,
check (a), (b), (c) or (d).
7) The PAY YEAR is the one-year period ending on the last day of each Plan
Year, unless a different Pay Year is specified in (a) below.
a) [_] The one-year period ending on each _____ (month and day). Pay is
modified as follows:
8) [_] An Employee's Annual Pay over $_______ shall be excluded.
9) [_] If a Member's Entry Date occurs after _______________ 19__, Pay before
such Entry Date shall be excluded.
Item (10) shall apply to the Pay used for purposes of determining the allocation
or amount of specified Contributions. Item (10) shall not apply to the Pay used
for purposes of determining the allocation of Contributions if an Integration
Level is used to determine the allocation of Contributions.
10) [_] Pay for purposes of determining the allocation or amount of
a) [_] All Employer Contributions
b) [_] Elective Deferral Contributions
c) [_] Additional Contributions
d) [_] Discretionary Contribution
excludes
--------
e) [_] bonuses
f) [_] commissions
g) [_] overtime pay
h) [_] other special pay _________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Item (11) shall only apply to the Pay used for purposes of determining excess
amounts under Plan Section 3.07.
11) [X] Pay shall include only amounts received while an Active Member of the
Plan for the period described in Plan Section 3.07.
N. ELECTIVE DEFERRAL CONTRIBUTIONS for a Member are equal to a portion of Pay
as specified in the written elective deferral agreement. An Employee who is
eligible to participate in the Plan may file an elective deferral agreement
with us. The elective deferral agreement to start Elective Deferral
Contributions may be effective on a Member's Entry Date (Reentry Date, if
applicable) or any following Semi-yearly Date, unless otherwise specified
in (1) below.
1) [X] Following a Member's Entry Date (Reentry Date, if applicable), a
Member's elective deferral agreement may become effective on any
a) [_] Monthly Date.
7
<PAGE>
2) Optional minimum.
4) Optional maximum. (Consider using 20% reduced by the amount of other
Contributions made for the Member.)
1) If Item O is selected, check (a) or (b).
a) Not more than 100%.
i) Optional minimum percentage.
ii) Optional maximum percentage. Less than 100%.
2) Optional limit on Elective Deferral Contributions matched. If selected,
check (a) or (b). Limit can help meet nondiscrimination tests.
i) Optional minimum percentage.
ii) Optional maximum percentage.
3) If Item O is selected, check (a) or (b).
b) [X] Quarterly Date.
c) [ ] Yearly Date.
d) [ ] date.
The Member shall make any change or terminate the elective deferral
agreement by filing a new elective deferral agreement. A Member's elective
deferral agreement to start Elective Deferral Contributions could be
effective. A Member's elective deferral agreement to stop Elective Deferral
Contributions may be effective on any date. The elective deferral agreement
must be in writing and effective before the beginning of the pay period in
which Elective Deferral Contributions are to start, change or stop. A
Member may not defer more than 20% of Pay for the Plan Year. Elective
Deferral Contributions shall be limited as needed to meet nondiscrimination
tests.
2) [ ] ______% of Pay is the minimum Elective Deferral Contribution.
3) [ ] Elective Deferral Contributions must be a whole percentage of Pay.
4) [X] 15 % of Pay is the maximum Elective Deferral Contribution.
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O. [X] We shall make MATCHING CONTRIBUTIONS.
1) The percentage of Elective Deferral Contributions matched is
a) [ ] ______%.
b) [X] determined by us, but won't be more than 100%.
i) [ ] ______% is the minimum percentage.
ii) [ ] ______% is the maximum percentage.
2) [X] Elective Deferral Contributions which are over the percentage of
Pay below won't be matched.
a) [X] 10 %.
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b) [ ] ______ A percentage determined by us.
i) [ ] ______% is the minimum percentage.
ii) [ ] ______% is the maximum percentage.
3) Matching Contributions are made
a) [X] as Elective Deferral Contributions are made.
b) [ ] at the end of the Plan Year for Members meeting the
requirements in Item Q.
8
<PAGE>
4) If (3)(a) is selected, this option may be used to adjust the Matching
Contributions at the end of the Plan Year.
a) Optional. Match at end of year only for those meeting requirements in Item
Q.
b) If (4) is selected, check (i) or (ii).
i) Not more than 100%.
A. Optional minimum percentage.
B. Optional maximum percentage. Less than 100%.
c) Optional limit on Elective Deferral Contributions matched if (4) is
selected. If selected, check (i) or (ii). Limit will help meet
nondiscrimination tests.
A. Optional minimum percentage.
B. Optional maximum percentage.
5) If selected, Matching Contributions may be tested for nondiscrimination
with the Elective Deferral Contributions.
a) Optional if (5) is selected. Nonhighly Compensated Employees only.
6) Optional maximum on Matching Contributions.
a) Optional treatment of forfeitures which relate to excess amounts.
4) [_] At the end of the Plan Year we may make more Matching
Contributions for Members who made Elective Deferral Contributions.
Our total Matching Contributions for the Plan Year shall be made as
specified below.
a) [_] The Matching Contributions made at the end of the Plan Year
shall only be made for those meeting the requirements in Item Q.
b) The percentage of Elective Deferral Contributions matched is
i) [_] %.
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ii) [_] determined by us, but won't be more than 100%.
A. [_] % is the minimum percentage.
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B. [_] % is the maximum percentage.
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c) [_] Elective Deferral Contributions which are over the percentage
of Pay below won't be matched.
i) [_] %.
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ii) [_] A percentage determined by us.
A. [_] % is the minimum percentage.
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B. [_] % is the maximum percentage.
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5) [_] Matching Contributions are Qualified Matching Contributions.
Qualified Matching Contributions are 100% vested and subject to the
withdrawal restrictions of Code Section 401(k).
a) [_] Qualified Matching Contributions shall be made only for
Nonhighly Compensated Employees.
6) [_] Our Matching Contributions for a Member during any Plan Year shall
not be more than $ .
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7) Forfeitures of Matching Contributions which relate to excess amounts
as provided in Plan Section 3.07 shall be used to offset our first
Contribution after the Forfeiture occurs, unless otherwise specified
in (a) below.
a) [_] Forfeitures of Matching Contributions which relate to excess
amounts as provided in Plan Section 3.07 shall be allocated to
those meeting the requirements in Item Q who do not have an
excess amount using the allocation formula in P(3)(a) and shall
be deemed to be Matching Contributions.
P. OTHER EMPLOYER CONTRIBUTIONS AND FORFEITURES
9
<PAGE>
1) These contributions are used in the nondiscrimination tests. If selected,
check (a) or (b).
a) Qualified Nonelective Contributions are a set amount. If selected, check
the contribution formula, (i) or (ii).
i) If selected, check A or B.
ii) If selected, check A or B.
b) Qualified Nonelective Contributions are determined by you each year.
c) Optional. Nonhighly Compensated Employees only.
2) These contributions are a set amount. If selected, check the contribution
formula, (a) or (b).
a) If selected, check (i) or (ii).
b) If selected, check (i), (ii), (iii) or (iv).
1) [_] QUALIFIED NONELECTIVE CONTRIBUTIONS. Qualified Nonelective
Contributions are 100% vested and subject to the withdrawal restrictions of
Code Section 401(k).
a) [_] We shall make Qualified Nonelective Contributions equal to the
following:
i) [_] PAY FORMULA. An amount equal to
A. [_] ____% of Pay for the pay period for each Member who is an
Active Member on the last day of that period.
B. [_] ____% of Annual Pay at the end of the Plan Year for
Members who meet the requirement in Item Q.
ii) [_] SERVICE FORMULA. An amount equal to
A. [_] $_______ for the pay period for each Member who is an
Active Member on the last day of that period.
B. [_] $_______ at the end of the Plan Year for Members who meet
the requirement in Item Q.
b) [_] Qualified Nonelective Contributions may be made for each Plan Year
in an amount determined by us. Our Qualified Nonelective Contributions
shall be allocated to those meeting the requirements in Item Q using
the allocation formula in P(3)(a).
c) [_] Qualified Nonelective Contributions shall be made only for or
allocated only to Nonhighly Compensated Employees.
2) [_] We shall make ADDITIONAL CONTRIBUTIONS equal to the following
a) [_] PAY FORMULA. An amount equal to
i) [_] _____% of Pay for the pay period for each Member who is an
Active Member on the last day of that period.
ii) [_] ____% of Annual Pay at the end of the Plan Year for Members
who meet the requirement in Item Q.
b) [_] SERVICE FORMULA. An amount equal to
i) [_] $____ for the pay period for each Member who is an Active
Member on the last day of that period.
ii) [_] $__________ at the end of the Plan Year for Members who meet
the requirement in Item Q.
10
<PAGE>
iii) No contribution for paid nonworking hours such as vacation.
iv) Contribution is made for paid nonworking hours such as vacation.
3) These contributions are determined by you each year. If selected, check the
allocation formula, (a) or (b).
i) Optional percentage. If selected, fill in a percentage up to the Maximum
Integration Rate.
iii) [ ] $__________ for each Hour of Service he has performed
during the pay period for each Member who is an Active
Member during the pay period.
iv) [ ] $__________ for each Hour of Service credited during the
pay period for each Member who is an Active Member during
the pay period.
3) [X] DISCRETIONARY CONTRIBUTIONS may be made for each Plan Year in an
amount determined by us. The amount of our Discretionary Contributions
and Forfeitures, if applicable, allocated to a person meeting the
requirements in Item Q shall be equal to the following:
a) [ ] PAY FORMULA. An amount equal to our Discretionary
Contributions and Forfeitures, if applicable, multiplied by the
ratio of such person's Annual Pay to the total Annual Pay of all
such persons.
b) [X] INTEGRATED FORMULA. An amount equal to a percentage of the
person's Annual Pay up to the Integration Level plus a percentage
(equal to 2 times the first percentage) of his Annual Pay over
the Integration Level. The first percentage shall be the Maximum
Integration Rate, unless otherwise specified in (i) below.
i) [ ] ___________% (If this percentage exceeds the Maximum
Integration Rate, the Maximum Integration Rate shall apply).
If our Discretionary Contributions Forfeitures, if applicable,
are not great enough to provide this allocation, the percentage
about shall be proportionally reduced.
If our Discretionary Contributions and Forfeitures, if
applicable, are more than enough to provide the allocation above,
any amount remaining shall be allocated in the same manner as
provided in the Pay Formula, Item P(3)(a).
ii) The MAXIMUM INTEGRATION RATE shall be determined according
to the following schedule:
INTEGRATION INTEGRATION
LEVEL RATE
100% to TWB 5.7%
Less than 100%, but more than
80% of TWB 5.4%
More than the greater of $10,000
or 20% or TWB, but not more than
80% of TWB 4.3%
Not more than the greater of
$10,000 or 25% of TWB 5.7%
11
<PAGE>
A. Optional dollar amount. Must be less than such taxable wage base.
B. Optional percentage of such taxable wage base. Must be less than 100%
4) Not applicable if Vesting Percentage is 100%
a) Optional treatment of Forfeitures if P(3) is selected.
b) Optional treatment of Forfeitures if P(3) is not selected, but P(2)
is selected.
2) If annual contributions are subject to these requirements or if
Forfeitures are reallocated (see Items O(7) and P(4)), select (a), (b),
(c) or (d) below. If advanced funding is used, (a) must be checked.
"TWB" means the taxable wage base as in effect on
the latest Yearly Date. "Taxable wage base" means
the maximum amount of earnings which may be
considered for wages for a year under Code
section 3121(a)(1).
On any date the portion of the rate of tax under
Code section 3111(a) (in effect on the latest
Yearly Date) which is attributable to old age
insurance exceeds 5.7% such rate shall be
substituted for 5.7% and 5.4% and 4.3% shall be
increased proportionately.
iii) The INTEGRATION LEVEL is the taxable wage base
(as defined in (ii) above) as in effect on the
latest Yearly Date, unless otherwise specified in
A. or B. below.
A. [ ] $__________.
B. [ ] ______% of such taxable wage base.
4) If P(3) is selected, FORFEITURES shall be reallocated to remaining
Members and if P(3) is not selected, Forfeitures shall be used to
offset our first Contribution made after the Forfeitures is determined,
unless otherwise specified in (a) or (b) below. If P(3) is selected,
Forfeitures shall be allocated with our Discretionary Contributions and
deemed to be Discretionary Contributions. (See Plan section 3.05).
a) [ ] Forfeitures shall not be allocated with our Discretionary
Contributions, but shall be used to offset our first Contribution
made after the Forfeiture is determined.
b) [ ] Forfeitures shall not be used to offset our first Contribution,
but shall be allocated to those meeting the requirements in Item Q
using the allocation formula in P(3)(a) and shall be deemed to be
Additional Contributions.
Q. NET PROFITS AND CONTRIBUTION REQUIREMENTS
1) Our Contributions shall be made out of our current or accumulated NET
PROFITS unless otherwise specified below.
a) [X] Our Contributions may be made without regard to our current or
accumulated Net Profits.
2) REQUIREMENTS FOR CONTRIBUTIONS. The allocation of our Contributions is
subject to the provisions of Article III and Article X of the Plan. Our
Contributions which are subject to the requirements of this Item Q and
Forfeitures shall be allocated as of the last day of the Plan Year to
each
a) [ ] person who was an Active Member at any time during the Plan
Year.
b) [ ] Active Member on that date.
12
<PAGE>
i) Optional reduced Hours of Service requirement.
i) Optional reduced Hours of Service requirement.
e) Optional allocation requirement. Do not use with (a) above.
a) Optional Accrual Service Period if you use hours in (2) above.
2) Fill in last day of the Limitation Year. Normally, the last day of the Plan
Year is used. You must match the Limitation Years of all of your other
plans.
If you or an Employer, as defined in Plan section 3.06, maintain or ever
maintained another qualified plan in which any Member in this Plan is (or was) a
member or could become a member, you must complete (3) and (4) of this Item R.
c) [X] person who was an Active Member at any time during the Plan
Year and who has at least 1,000 Hours of Service during the latest
Accrual Service Period ending on or before that date, unless a
lesser number is specified in (i) below.
i) [_] __________ Hours of Service.
d) [_] Active Member on that date who has at least 1,000 Hours of
Service during the latest Accrual Service Period ending on or
before that date, unless a lesser number is specified in (i)
below.
i) [_] ________ Hours of Service.
The allocation requirements in (b), (c) or (d) are modified as
follows:
e) [_] Our Contributions shall also be allocated to each person who
was an Active Member at any time during the Plan Year and who has
retired, become Totally Disabled, or died.
3) The ACCRUAL SERVICE PERIOD is the 12-consecutive month period ending
on the last day of each Plan Year, unless a different period is
specified in (a) below.
a) [_] The 12-consecutive month period ending on each
______________________________ (month and day).
R. CONTRIBUTION MODIFICATIONS
Contribution Limitations: The Annual Additions for a Member during a
Limitation Year shall not be more than the Maximum Permissible Amount. (See
Plan sections 3.06 and 10.05)
1) For Limitations Years beginning after December 31, 1991, for purposes
of applying the limitations of Plan section 3.06, Compensation for a
Limitation Year is the Compensation actually paid or made available
during such Limitation Year.
2) The LIMITATION YEAR is the 12-consecutive month period ending on each
December 31 (month and day).
3) If the Member is covered under another qualified defined contribution
plan maintained by the Employer, as defined in Plan section 3.06,
other than a Master or Prototype Plan:
a) [_] The provisions of (f) through (k) of Plan section 3.06 will
apply as if the other plan were a Master or Prototype Plan.
b) [_] The method described on the attached page shall be used to
limit total Annual Additions to the Maximum Permissible Amount,
and will properly reduce the Excess Amounts, in a manner which
precludes Employer discretion.
13
<PAGE>
5) Optional Maximum allocation.
In Years when this Plan is a Top-heavy Plan, special minimum and maximum
Contribution provisions apply. Use Items (6) through (9), as needed, to meet the
requirements for your plans which are top-heavy or to extend the minimums to
other employees or Years. The items you select here override any provisions of
Article X to the contrary.
1) Select if Voluntary Contributions are permitted.
4) If the Member is or has ever been a member in a defined benefit plan
maintained by the Employer, as defined in Plan section 3.06, the method
described on the attached page shall be used to satisfy the 1.0 limitation
of Code section 415, in a manner which precludes Employer discretion.
5) [_] The amount of our Contributions for any
a) [_] Plan Year
b) [_] Limitation Year
allocated to a person meeting the requirements in Item Q shall not be more
than (the lesser of)
c) [_] $__________ (or)
d) [_] __________% of his Annual Pay (Compensation for the Limitation
Year if (b) above is selected.
Top-heavy Plan Requirements: The amount and allocation of Contributions shall be
subject to the provisions of Article X of the Plan in Years when this is a Top-
heavy Plan.
6) [_] Key Employees who are Employees on the last day of the Year shall also
receive the minimum allocation required in Years when this is a Top-heavy
Plan.
7) [_] A ______% (not less than 3%) minimum allocation shall apply in Years
when this is a Top-heavy Plan.
8) [_] The minimum allocation in (6) and (7) above and in Article X shall apply
in all Years without regard to whether or not this is a Top-heavy Plan or to
the requirements in Item Q.
9) [_] The method described in the attached page shall be used to meet the
minimum allocation and benefit requirements in Years when this is a Top-
heavy Plan, in a manner which precludes Employer discretion.
Present Value: For purposes of establishing Present Value to compute the Top-
heavy Ratio, any benefit shall be discounted only for 7 1/2% interest and
mortality according to the 1971 Group Annuity Table (Male) without the 7% margin
but with projection by Scale E from 1971 to the later of (a) 1974, or (b) the
year determined by adding the age to 1920, and wherein for females the male age
six years younger is used, unless otherwise specified in (10) and (11) below:
10) [_] Interest rate ___________%.
11) [_] Mortality table:
--------------------------------------------------------
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
VOLUNTARY CONTRIBUTIONS are not permitted, unless otherwise specified in (1)
below.
1) [_] Voluntary Contributions are permitted.
14
<PAGE>
T) Select (1) or (2) and complete (3).
1) If selected, fill in the names of all trustees. (Consider naming two or
more.) Complete (a) and (b).
a) If the Plan is trusteed, select (i) or (ii).
b) If the Plan is trusteed, select (i) or (ii).
iii) Fill in the person or position authorized to administer the Member loan
program. Principal Mutual Life Insurance Company may not be used.
iv) Optional minimum loan amount. Fill in up to $1,000. If none is selected,
there is no minimum.
v) Optional maximum loan amount. Fill in up to $49,999. If none is selected,
the maximum is the lesser of 50% of Vested Account or $50,000, reduced by
any loan balance.
vi) Optional number of outstanding loans.
T. INVESTMENT
1) [_] The Plan is trusteed. Plan assets may be invested in an Annuity
Contract and other funding vehicle(s).
We have named the following person(s) to act as Trustee under the Trust:
--------------------------------------------------------------------------
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a) LIFE INSURANCE
i) [_] With the Trustee's consent and subject to the limits and
provisions of Article IV of the Plan, an Active Member may elect
to have his Account applied to purchase life insurance coverage
on his life.
ii) [_] Life insurance coverage is not provided under this Plan.
b) LOANS
i) [_] The Trustee shall not make a loan to a Member.
ii) [_] The Trustee may make a loan to a Member from the Trust
Fund, subject to the provisions of Plan section 5.06.
iii)
------------------------------------------------------------
----------------------------------------------------------
is the Loan Administrator.
iv) [_] The minimum amount of any loan is $
v) [_] The maximum amount of any loan is the lesser of 50% of
the Member's Vested Account or $__________, reduced by any
outstanding loan balance.
vi) The number of outstanding loans shall be limited to one,
unless otherwise specified in A. or B. below.
A. The number shall be limited to _______
15
<PAGE>
vii) Optional number of loans approved in any 12-month period.
a) Select (i), (ii) or (iii).
b) Select (i), (ii) or (iii).
c) Select (i), (ii) or (iii).
B. [ ] The number shall not be limited.
vii) The number of loans approved in a 12-month period
shall be limited to one, unless otherwise specified in
A. or B. below.
A. [ ] The number shall be limited to ______
B. [ ] The number shall not be limited.
2) [X] The Plan is not trusteed. Plan assets shall be invested
only in an Annuity Contract.
3) Subject to the provisions of Articles IV and VIIIA of the Plan
and the Annuity Contract, the investment of that part of a
Member's Account resulting from
a) our Contributions other than Elective Deferral Contributions
shall be directed by
i) [ ] the Member with the Trustee's consent (our consent, if
not trusteed).
ii) [X] the Member.
iii) [ ] the Trustee (us, if not trusteed).
b) Elective Deferral Contributions shall be directed by
i) [ ] the Member with the Trustee's consent (our consent, if
not trusteed).
ii) [X] the Member.
iii) [ ] the Trustee (us, if not trusteed).
c) Member Contributions and Rollover Contributions shall be directed
by
i) [ ] the Member with the Trustee's consent (our consent, if
not trusteed).
ii) [X] the Member.
iii) [ ] the Trustee (us, if not trusteed).
U. VESTING PERCENTAGE is used to determine the nonforfeitable percentage of a
Member's Account resulting from our Contributions.
The Vesting Percentage for a Member who is an Employee on the date he
reaches Normal Retirement Age, meets the requirement(s) for Early Retirement
Date, becomes Totally Disabled or dies, whichever occurs first, shall be
100% on such date.
16
<PAGE>
1) Check any other Employer Contributions which are also 100% vested.
2) Select one of the schedules below if some Employer Contributions aren't
100% vested when made.
e) If selected, fill in the percentages. The schedule must provide full (100%)
vesting after 5 years of Vesting Service or must at all times be as great
as the Vesting Percentage which the schedule in (d) would provide.
V. Select (1) or (2). (Don't use this item if all Employer Contributions are
fully vested and Early Retirement Date is not based on Vesting Service.)
Use (a), (b) or both only if the method of crediting service has changed. The
Plan must use either the Elapsed Time Method or the Hours Method after the date
the Plan became subject to ERISA
1) Fully Vested Contributions. Elective Deferral Contributions are 100%
vested. Qualified Matching Contributions and Qualified Nonelective
Contributions are 100% vested. The following Employer Contributions
are also 100% vested at all times.
a) [ ] All other Employer Contributions
b) [ ] Additional Contributions.
c) [ ] Matching Contributions.
d) [ ] Discretionary Contributions
2) A Member's Account resulting from our Contributions which are not 100%
vested is subject to the Vesting Percentage determined below.
Vesting
Service Vesting Percentage
(a) (b) (c) (d) (e)
[ ] [ ] [ ] [ ] [X]
Less
Than 1 0 0 0 0 0
1 0 0 0 0 0
2 0 20 0 0 25
3 100 40 0 20 50
4 60 0 40 75
5 80 100 60 100
6 100 80
7 100
A Member's Vesting Percentage determined above shall never be reduced in
later years. If this Plan is or ever has been a Top-heavy Plan, the minimum
vesting provisions of Article X shall apply.
V. VESTING SERVICE, subject to the provisions of Plan Section 1.02, shall be
determined as follows:
1) [X] ELAPSED TIME METHOD. Vesting Service is the total of an Employee's
countable Periods of Service without regard to Hours of Service.
a) [X] The Elapsed Time Method is used to determine service on and
after January 1, 1996.
b) [ ] The Elapsed Time Method is used to determine service before
__________________________, 19______________________________.
2) [ ] HOURS METHOD. A year of Vesting Service is a Vesting Service
Period in which an Employee has 1,000 Hours of Service, unless a
lesser number is specified in (a) below.
17
<PAGE>
a) Optional reduced Hours of Service.
i) Optional Vesting Service Period
ii) Optional Vesting Service Period which changes.
B. Month and day used in A. and last year this period is used.
C. Month and day on which new period ends.
i) Optional Hours of Service requirement. Fill in up to 500 hours, but less
than hours required for year of Vesting Service.
d) and e). See comment for V(1)(a) and (b).
Select any modifications below which apply. If the Hours Method is used, any
date you use should be the first day of a service period.
a) Not available for service after the date the Plan became subject to ERISA.
4) If selected, fill in a date on or before the Effective Date.
5) Not over age 18.
a) [ ] ____________ Hours of Service.
b) A VESTING SERVICE PERIOD is the 12-consecutive month period ending on
the last day of each Plan Year, unless otherwise specified in (i) or
(ii) below.
i) [ ] The 12-consecutive month period ending on each _____________
_____________________ (month and day).
ii) [ ] The 12-consecutive month period ending on
A. each _______________________________ (month and day) through
B. ________________ ______________ 19 ________ and
C. each following ________________ ____________(month and day).
c) A VESTING BREAK in service, when the Hours Method is used, is a
Vesting Service Period in which an Employee is credited with not more
than one-half of the Hours of Service required for a year of Vesting
Service, unless otherwise specified in (i) below.
i) [ ] _________________________ or fewer Hours of Service.
d) [ ] The Hours Method is used to determine service on and after
__________________________, 19_________________.
e) [ ] The Hours Method is used to determine service before ___________
__________________________, 19_________________.
Vesting Service is modified as follows:
3) [X] Service before January 1, 1996
a) [X] is the total of an Employee's countable service with us,
expressed in whole years and fractional parts of a year (counting a
partial month as a complete month).
b) [ ] shall be determined under the provisions of the Plan in effect on
the day before that date.
4) [ ] Service before ______________________________, 19_____ shall not be
counted.
5) [ ] Service before an Employee attains age ________ shall not be counted.
(If the Hours Method is used, service during the Vesting Service Period in
which he attains this age shall not be excluded because of this item.
18
<PAGE>
a) Optional frequency for withdrawal of Voluntary Contributions. If selected,
check (i) or (ii).
2) Optional 401(k) hardship withdrawal.
a) Optional restriction on hardship withdrawal.
3) Optional withdrawal after age 59 1/2.
a) Optional frequency for withdrawal after age 59 1/2. If selected, check (i)
or (ii).
4) Optional withdrawal after 5 years as an Active Member. Must have Matching
Contributions that are not qualified, Additional Contributions or
Discretionary Contributions. If selected, check (a), (b), (c) or (d).
W. WITHDRAWAL BENEFITS
1) A Member may withdraw, in a single sum, any part of his Vested Account
resulting from Voluntary Contributions. A Member may make only two such
withdrawals in any twelve-month period, unless otherwise specified in
(a) below.
a) [_] A Member may make
i) [_] such a withdrawal at any time.
ii) [_] only _______ such withdrawal(s) in any twelve-month
period.
2) [X] Unless otherwise specified in (a) below, a Member may withdraw any
part of his Vested Account which does not result from Voluntary
Contributions, Qualified Matching Contributions or Qualified Nonelective
Contributions in the event of undue financial hardship. Withdrawals from
the Member's Account resulting from Elective Deferral Contributions
shall be limited to the amount of the Member's Elective Deferral
Contributions (and earnings thereon accrued as of December 31, 1988).
The withdrawal is subject to the provisions of Plan Section 5.05.
a) [_] Such withdrawal shall be limited to the amount of the Member's
Elective Deferral Contributions (and earnings thereon accrued as of
December 31, 1988).
3) [X] A Member may withdraw any part of his Vested Account which does not
result from Voluntary Contributions at any time after he attains age
59 1/2. A Member may make only two such withdrawals in any twelve-month
period, unless otherwise specified in (a) below.
a) [_] A Member may make
i) [_] such a withdrawal at any time.
ii) [_] only _______ such withdrawal(s) in any twelve-month period.
4) [_] A percentage of a Member's Vested Account which does not result from
Voluntary Contributions, Elective Deferral Contributions, Qualified
Matching Contributions or Qualified Nonelective Contributions may be
withdrawn after he has been an Active Member for at least five (5)
years.
The percentage which may be withdrawn is
a) [_] 25%.
b) [_] 25% or 50%, as he requests.
c) [_] 25%, 50% or 75%, as he requests.
d) [_] any percentage up to ________%, as he requests.
19
<PAGE>
1) Normal Retirement Age may not exceed any mandatory retirement age imposed
by you on your Employees. Must use (a) or (b) if mandatory age is younger
than 65.
a) Optional Normal Retirement Age. Fill in age younger than 65.
b) Optional Normal Retirement Age. Select (i) or (ii) and fill in up to age
65.
i) Fill in up to 5 years.
ii) Fill in up to 5 years.
iii) Optional maximum Normal Retirement Age if (b) is selected. Fill in up to
age 70.
2) Select (a) or (b).
a) If selected, check and complete any requirements below which apply. An
Employee's Account is 100% vested when the requirements are met.
3) Optional modification of the start of benefits. Check (a) or (b).
A Member shall not make another withdrawal under this item until he
has been an active Member for at least five (5) years since his last
withdrawal.
Note: Withdrawals are subject to the qualified election procedures of
Article VI.
X. RETIREMENT AND THE START OF BENEFITS
1) NORMAL RETIREMENT AGE is the age at which the Member's Account shall
become nonforfeitable if he is an Employee. A Member's Normal
Retirement Age is age 65, unless otherwise specified in (a) or (b)
below.
a) [ ] Age _______________.
b) [ ] The older of age ___________________ or his age on the
i) [ ] date __________ years after the first day of the Plan
Year in which his Entry Date occurred.
ii) [ ] earlier of the date __________ years after his Hire
Date or the date 5 years after the first day of the Plan
Year in which his Entry Date occurred.
iii) [ ] A Member's Normal Retirement Age shall not be older
than age ____________________.
c) [ ] A Member's Normal Retirement Age shall not be older than
normal retirement age under the Plan on the day before any change
in the Normal Retirement Age provisions, if he was a Member on
such date.
2) EARLY RETIREMENT DATE
a) [X] Early Retirement Date is the first day of the month before a
Member's Normal Retirement Date which he selects for the start of
retirement benefits. This day shall be on or after the date the
Member ceases to be an Employee and the date the following
requirement(s) are met:
i) [X] He is age 55.
ii) [X] He has 5 years of Vesting Service.
iii) [ ] He is within _______ years of Normal Retirement Date.
iv) [ ] He has been an Active Member _______ years.
b) [ ] Early retirement is not permitted.
3) Section 5.03 permits an Employee to elect to start benefits after he
ceases to be an Employee. The start of benefits is modified as
follows:
20
<PAGE>
i) Optional. Restriction does not apply to Elective Deferral Contributions.
b) If selected, check (i) or (ii).
1) If selected, check (a) or (b).
a) [ ] Benefit payments from that part of a Member's Vested Account
resulting from our Contributions shall not begin before the
Member retires, becomes Totally Disabled or dies. A small Vested
Account may be paid earlier in a single sum. (See Plan Section
9.10.)
i) [ ] Such restriction shall not apply to that part of a
Member's Vested Account resulting from Elective Deferral
Contributions.
b) [ ] The Member may elect to receive his Member Contributions in
a single sum. Any other benefit payment under Plan Section 5.03
shall not begin before the Member has ceased to be an Employee
for a period of time. Payment of a small Vested Account will also
be delayed. (See Plan Section 9.10.) The period of time is
i) [ ] ________________________ month(s).
ii) [ ] ________________________ year(s).
Y. FORMS OF DISTRIBUTION
1) [ ] A Member may not receive a single sum payment of that part of his
Vested Account resulting from our Contributions
a) [ ] at any time.
b) [ ] before the Member retires or becomes Totally Disabled.
A small Vested Account may be paid in a single sum. (See Plan Section
9.10.)
21
<PAGE>
By executing this Adoption Agreement, we, the Employer adopt "The Principal
Financial Group Prototype for Savings Plans" for the exclusive benefit of our
employees. Our selections and specifications contained in this Adoption
Agreement and the terms, provisions and conditions provided in The Principal
Financial Group Prototype Basic Savings Plan constitute our PLAN. No other basic
plan may be used with this Adoption Agreement.
It is understood that Principal Mutual Life Insurance Company is not a party to
our Plan and shall not be responsible for any tax or legal aspects of our Plan.
We assume responsibility for these matters. We acknowledge that we have
counseled, to the extent necessary, with selected legal and tax advisors. The
obligations of Principal Mutual Life Insurance Company shall be governed solely
by the provisions of its contracts and policies. Principal Mutual Life Insurance
Company shall not be required to look into any action taken by the Plan
Administrator, Named Fiduciary, Trustee or us and shall be fully protected in
taking, permitting or omitting any action on the basis of our actions. Principal
Mutual Life Insurance Company shall incur no liability or responsibility for
carrying out actions as directed by the Plan Administrator, Named Fiduciary,
Trustee or us.
- --------------------------------------------------------------------------------
This Plan is an important legal document. It may not fit your situation.
You will want to consult with your lawyer on whether it does or not and on
its tax and legal implications, for which neither Principal Mutual Life
Insurance Company nor its agents can assume responsibility.
Failure to properly fill out this Adoption Agreement may result in
disqualification of this Plan. Principal Mutual Life Insurance Company will
inform you of any amendments made to the Plan or of the abandonment of the
Plan. The address of Principal Mutual Life Insurance Company is 711 High
Street, Des Moines, Iowa 50392-0001. When you first adopt the prototype,
Principal Mutual will assign a contact person and give you a toll-free
number. If you have not been assigned a contact person, call 1-800-543-
4015, Extension 75397, for assistance.
The opinion letter issued by the National Office of the Internal Revenue
Service applies to the prototype form. You may not rely on it as evidence
that your Plan is qualified under Code Section 401. In order to obtain
reliance with respect to the qualification of your plan, you must apply to
your Key District Office for a determination letter.
- --------------------------------------------------------------------------------
(Complete in black ink.)
This Adoption Agreement is executed ____________________, 19____.
(month and day)
FOR THE EMPLOYER
By____________________________
(signature)
______________________________
(title)
[ ] By my signature above, I hereby
execute this Adoption Agreement on
behalf of each Adopting Employer
identified in Item Z.
22
<PAGE>
Z. ADOPTING EMPLOYERS
There are no Adopting Employers under this Plan.
23
<PAGE>
Item R(3)(b) The method used to limit Annual Additions to the Maximum
Permissible Amount:
Item R(4) The method used to satisfy the 1.0 limitation of Code Section 415:
Item R(6) The method used to meet the minimum contribution and allocation
requirements in Years when this is a Top-heavy Plan.
24
<PAGE>
UNILATERAL AMENDMENT - MODEL AMENDMENT TO COMPLY WITH
SECTION 401(a)(17) OF THE INTERNAL REVENUE CODE AS AMENDED BY
THE OMNIBUS BUDGET RECONCILIATION ACT OF 1993
Principal Mutual Life Insurance Company hereby amends, effective as of the first
day of January 1, 1994, the following prototype plans and by such amendment,
amends each retirement plan set forth on any such prototype by an adopting
employer:
The Principal Financial Group Prototype for:
<TABLE>
<CAPTION>
Profit Sharing Plans-Plus Letter Serial No.: D347613B Plan No.: 003 Basic Plan No.: 01
<S> <C> <C> <C>
Profit Sharing Plans-Standardized Letter Serial No.: D247614B Plan No.: 004 Basic Plan No.: 01
Savings Plans-Plus Letter Serial No.: D347609B Plan No.: 001 Basic Plan No.: 03
Savings Plans-Standardized Letter Serial No.: D247610B Plan No.: 002 Basic Plan No.: 03
Money Purchase Plans-Plus Letter Serial No.: D347611B Plan No.: 001 Basic Plan No.: 01
Money Purchase Plans-Standardized Letter Serial No.: D247612B Plan No.: 002 Basic Plan No.: 01
Target Plans-Plus Letter Serial No.: D360921A Plan No.: 005 Basic Plan No.: 01
Target Plans-Standardized Letter Serial No.: D260922A Plan No.: 006 Basic Plan No.: 01
</TABLE>
ARTICLE I: The following is added to the definition of PAY:
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual pay of each employee taken
into account under the plan shall not exceed the OBRA '93 annual pay limit. The
OBRA '93 annual pay limit is $150,000, as adjusted by the Commissioner for
increases in the cost of living in accordance with section 401(a)(17)(B) of the
Internal Revenue Code. The cost-of-living adjustment in effect for a calendar
year applies to any period, not exceeding 12 months, over which pay is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual pay
limit will be multiplied by a fraction, the numerator of which is the number of
months in the determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in this plan
to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93
annual pay limit set forth in this provision.
If pay for any prior determination period is taken into account in determining
an employee's benefits accruing in the current plan year, the pay for that prior
determination period is subject to the OBRA '93 annual pay limit in effect for
that period determination period. For this purpose, for determination periods
beginning before the first day of the first plan year beginning on or after
January 1, 1994, the OBRA '93 annual pay limit is $150,000.
Executed by PRINCIPAL MUTUAL LIFE INSURANCE COMPANY on
, 1994 by
- --------------------
- -------------------------
Officer
25
<PAGE>
UNILATERAL AMENDMENT - MODEL AMENDMENT TO COMPLY WITH
SECTION 401(A)(31) OF THE INTERNAL REVENUE CODE
AS ADDED BY THE UNEMPLOYMENT COMPENSATION AMENDMENTS OF 1992
Principal Mutual Life Insurance Company hereby amends, effective as of
January 1, 1993, the following prototype plans and by such amendment, amends
each retirement plan set forth on any such prototype by an adopting employer:
The Principal Financial Group Prototype for:
<TABLE>
<CAPTION>
Profit Sharing Plans-Plus Letter Serial No.: D347613B Plan No.: 003 Basic Plan No.: 01
<S> <C> <C> <C>
Profit Sharing Plans-Standardized Letter Serial No.: D247614B Plan No.: 004 Basic Plan No.: 01
Savings Plans-Plus Letter Serial No.: D347609B Plan No.: 001 Basic Plan No.: 03
Savings Plans-Standardized Letter Serial No.: D247610B Plan No.: 002 Basic Plan No.: 03
Money Purchase Plans-Plus Letter Serial No.: D347611B Plan No.: 001 Basic Plan No.: 01
Money Purchase Plans-Standardized Letter Serial No.: D247612B Plan No.: 002 Basic Plan No.: 01
Target Plans-Plus Letter Serial No.: D360921A Plan No.: 005 Basic Plan No.: 01
Target Plans-Standardized Letter Serial No.: D260922A Plan No.: 006 Basic Plan No.: 01
Defined Benefit Plans - Nonintegrated Letter Serial No.: D359699A Plan No.: 002 Basic Plan No.: 02
Defined Benefit Plans - Integrated Letter Serial No.: D359698A Plan No.: 001 Basic Plan No.: 02
</TABLE>
ARTICLE I: The following words and phrases are added to the DEFINITIONS section
of Article I:
Direct Rollover: A Direct Rollover is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
Distributee: A Distributee includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in section 414(b) of the Code,
are Distributees with regard to the interest of the spouse or former spouse.
Eligible Retirement Plan: Eligible Retirement Plan is an individual retirement
account describe din section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Code, an annuity plan described in
section 403(a) of the Code, or a qualified trust described in section 401(a) of
the Code, that accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to the surviving
spouse, an Eligible Retirement Plan is an individual retirement account or
individual retirement annuity.
Eligible Rollover Distribution: An Eligible Rollover Distribution is any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not lessfrequently than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of the Distributee
and the Distributee's designated Beneficiary, or for a specified period of ten
years or more; any distribution to the extent such distribution is required
under section 401(a)(9) of the Code; and the portion of any distribution that is
not includible in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer securities).
ARTICLE IX: The following section is added as SECTION 9.01A - DIRECT ROLLOVERS:
This section applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit Distributee's election under this section, A Distributee may elect, at the
time and in the manner prescribed by the Plan Administrator, to have any portion
of any Eligible Rollover Distribution paid directly to an Eligible Retirement
Plan, specified by the Distributee in a Direct Rollover.
Executed by PRINCIPAL MUTUAL LIFE INSURANCE COMPANY on ______________________,
1993 by
____________________________________
Officer
26
<PAGE>
EXHIBIT 21
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NovaMed Subsidiaries
--------------------
1. NovaMed Management of Kansas City, Inc., a Missouri corporation
2. NovaMed Blue Ridge, Inc., a Missouri corporation
3. NovaMed Eye Surgery Center (Plaza) L.L.C., a Delaware limited liability
company
4. NovaMed Eye Surgery Center of Overland Park, L.L.C., a Delaware limited
liability company
5. NovaMed Eyecare Services, LLC, a Delaware limited liability company
6. NovaMed Eye Surgery Center of Maryville, L.L.C., a Delaware limited
liability company
7. NovaMed Eye Surgery Center of North County, LLC, a Delaware limited
liability company
8. NovaMed Eye Surgery Center of New Albany, L.L.C., a Delaware limited
liability company
9. NovaMed of Louisville, Inc., a Kentucky corporation
10. NovaMed of Richmond, Inc., a Virginia corporation
11. Midwest Uncuts, Inc., an Iowa corporation
12. NMSL, Inc., a Missouri corporation
13. NovaMed of St. Louis, Inc., a Missouri corporation
<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.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 24, 1999
