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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 1, 1997
INTEGRATED ORTHOPAEDICS, INC.
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(Exact name of registrant as specified in its charter)
TEXAS
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(State or other jurisdiction of incorporation)
1-10677 76-0203483
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(Commission File Number) (I.R.S. Employer Identification No.)
3 Riverway, Suite 1430
Houston, Texas 77056
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(Address of principal executive office,
including zip code)
Registrant's telephone number, including area code: (713) 439-7511
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(former name or former address, if changed since last report)
This document consists of 52 pages.
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The Exhibit Index is located at page 4 .
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective October 1, 1997, Integrated Orthopaedics, Inc., through a wholly-owned
subsidiary (together, the "Company"), acquired the accounts receivable, acquired
the right to manage the non-medical operations, and entered into a long term
management agreement with the medical practice conducted by Merritt Orthopaedic
Associates, P.C. ("MOA"), a five physician orthopaedic medicine practice located
in Bridgeport, Connecticut. In exchange, the Company delivered aggregate
consideration, of approximately $4,110,000, including (i) cash and estimated
transaction costs of approximately $962,000, (ii) an agreement to deliver cash
of $1,505,000 on January 5, 1998, and (iii) an agreement to deliver 423,917
shares of the Company's common stock on January 5, 1998. Additional
consideration may be paid to MOA if MOA exceeds specified post-closing
profitability objectives. The purchase price was determined after arms-length
negotiations between the Company and MOA. The cash portion of the transaction
was funded from the Company's existing cash reserves. In connection with the
MOA transaction, the Company also undertook a five-year operating lease covering
the facility from which MOA has historically rendered its medical services. The
use of this facility will be provided to MOA pursuant to the Company's
obligations under the management agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Pro forma financial information.
To be filed on Form 8-K/A as soon as practicable, but not later than
60 days after this Form 8-K is filed.
Exhibits.
1.* Management Services Agreement effective September 22, 1997
among Integrated Orthopaedics, Inc., IOI Management Services of
Connecticut, Inc., Merritt Orthopaedic Associates, P.C., Patrick
J. Carolan, M.D., and Mark E. Wilchinsky, M.D.
2. Agreement to Change Effective Date from September 22, 1997 to
October 1, 1997, effective September 29, 1997 among Integrated
Orthopaedics, Inc., IOI Management Services of Connecticut, Inc.,
Merritt Orthopaedic Associates, P.C., Patrick J. Carolan, M.D.,
Mark E. Wilchinsky, M.D., Beverly Carolan, M.D., and Girard J.
Girasole, M.D.
* Schedules and exhibits have been omitted from the above listed
agreement. The Company agrees to furnish a supplementary copy of any omitted
exhibit or schedule to the Securities and Exchange Commission upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
INTEGRATED ORTHOPAEDICS, INC.
(Registrant)
Date: October 15, 1997 By /s/Ronald E. Pierce
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Ronald E. Pierce
President
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EXHIBIT INDEX
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<CAPTION>
Exhibit No. Description Page No.
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<C> <S> <C>
1 Management Services Agreement effective September 22, 1997 5
among Integrated Orthopaedics, Inc., IOI Management Services
of Connecticut, Inc., Merritt Orthopaedic Associates, P.C.,
Patrick J. Carolan, M.D., and Mark E. Wilchinsky, M.D.
2 Agreement to Change Effective Date from September 22, 1997 to 51
October 1, 1997, effective September 29, 1997 among Integrated
Orthopaedics, Inc., IOI Management Services of Connecticut,
Inc., Merritt Orthopaedic Associates, P.C., Patrick J. Carolan,
M.D., Mark E. Wilchinsky, M.D., Beverly Carolan, M.D., and
Girard J. Girasole, M.D.
</TABLE>
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EXHIBIT 1
MANAGEMENT SERVICES AGREEMENT
among
INTEGRATED ORTHOPAEDICS, INC.
A TEXAS CORPORATION,
IOI MANAGEMENT SERVICES OF CONNECTICUT, INC.
A DELAWARE CORPORATION,
MERRITT ORTHOPAEDIC ASSOCIATES, P.C.
A CONNECTICUT PROFESSIONAL CORPORATION,
PATRICK J. CAROLAN, M.D., AND
MARK E. WILCHINSKY, M.D.
Effective September 22, 1997
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TABLE OF CONTENTS
Page No.
RECITALS................................................................... 1
I. DEFINITIONS....................................................... 2
1.1 Adjusted Gross Profit........................................ 2
1.2 Agreement.................................................... 2
1.3 Ancillary Services Income.................................... 2
1.4 Budget....................................................... 2
1.5 Confidential Information..................................... 2
1.6 Existing Practice............................................ 3
1.7 Existing Practice Account.................................... 3
1.8 Existing Practice Area....................................... 3
1.9 Existing Practice Expense.................................... 3
1.10 Joint Policy Board........................................... 4
1.11 Management Fee............................................... 4
1.12 Manager Expense.............................................. 4
1.13 Medical Services............................................. 4
1.14 Office....................................................... 4
1.15 Physician.................................................... 4
1.16 Physician Compensation....................................... 5
1.17 Professional Income.......................................... 5
1.18 State........................................................ 5
1.19 Term......................................................... 5
II. TRANSACTION CONSIDERATION.......................................... 5
III. APPOINTMENT AND AUTHORITY OF MANAGER............................... 5
3.1 Management Services Agreement................................. 5
3.2 Assets........................................................ 5
3.3 Liabilities................................................... 6
3.4 Appointment................................................... 6
3.5 Authority..................................................... 6
3.6 Limits on Manager Authority................................... 6
3.7 Patient Referrals............................................. 6
IV. REPRESENTATIONS AND WARRANTIES OF IOI.............................. 7
4.1 Corporate Capacity............................................ 7
4.2 Corporate Powers; Consents; Absence of Conflicts With Other
Agreements, Etc.............................................. 7
4.3 Current Public Information.................................... 7
4.4 Rule 144 Covenant............................................. 8
4.5 Capital Stock................................................. 8
4.6 IOI Guaranty.................................................. 8
V. ACTION OF IOI ON EFFECTIVE DATE.................................... 8
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VI. COVENANTS AND RESPONSIBILITIES OF MANAGER.......................... 8
6.1 Office........................................................ 9
6.2 Supplies...................................................... 9
6.3 Licenses and Permits.......................................... 9
6.4 Support Services.............................................. 9
6.5 Utilization Review, Quality Assurance, and Risk Management.... 9
6.6 Marketing and Public Relations................................ 9
6.7 Personnel..................................................... 10
6.8 Contract Negotiations......................................... 10
6.9 Billing and Collection........................................ 10
6.10 Existing Practice Account..................................... 12
6.11 Fiscal Matters................................................ 12
6.11-1 Annual Budget......................................... 12
6.11-2 Budget Deadlock....................................... 13
6.11-3 Accounting and Financial Records....................... 13
6.11-4 Priority of Payments.................................. 13
6.11-5 Review of Financial Statements........................ 13
6.11-6 Tax Returns and Taxation Issues....................... 13
6.12 Reports and Records........................................... 14
6.12-1 Medical Records....................................... 14
6.12-2 Other Reports and Records............................. 14
6.13 Recruitment of Physicians..................................... 14
6.14 Confidentiality............................................... 14
6.15 Manager's Insurance........................................... 15
6.16 No Warranty................................................... 15
6.17 Sales Tax..................................................... 15
VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF EXISTING PRACTICE &
PHYSICIANS......................................................... 15
7.1 Representations/Warranties.................................... 15
7.2 Action/Proceeding............................................. 16
7.3 Execution and Delivery of Additional Agreements............... 16
VIII. REPRESENTATIONS AND WARRANTIES OF EXISTING PRACTICE................ 16
8.1 Capacity...................................................... 16
8.2 Consents; Absence of Conflicts With Other Agreements, Etc..... 16
8.3 Financial Statements.......................................... 17
8.4 No Undisclosed Liabilities.................................... 17
8.5 Regulatory Compliance......................................... 17
8.6 Contracts..................................................... 17
8.6-1 General................................................ 17
8.7 Equipment..................................................... 18
8.8 Inventory and Supplies........................................ 18
8.9 Insurance..................................................... 18
8.10 Employee Relations............................................ 18
8.11 Tax Liabilities............................................... 19
8.12 Employee Benefit Plans........................................ 19
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8.13 Litigation or Proceedings..................................... 20
8.14 Accrued Leave................................................. 20
8.15 Hazardous Materials........................................... 20
8.16 Investment Representations.................................... 20
8.17 Full Disclosure............................................... 22
IX. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS..................... 22
9.1 Capacity...................................................... 22
9.2 Consents; Absence of Conflicts With Other Agreements, Etc..... 22
9.3 Regulatory Compliance......................................... 23
9.4 Litigation or Proceedings..................................... 23
9.5 Permits....................................................... 23
9.6 Staff Privileges.............................................. 23
9.7 Intentions.................................................... 23
9.8 Investment Representations.................................... 23
9.9 Full Disclosure............................................... 24
X. ACTION OF EXISTING PRACTICE ON EFFECTIVE DATE...................... 25
XI. COVENANTS AND RESPONSIBILITIES OF EXISTING PRACTICE................ 25
11.1 Organization and Operation................................... 25
11.2 Existing Practice Personnel.................................. 25
11.2-1 Physician Personnel.................................. 25
11.2-2 Physician Extender Health-Care Personnel............. 26
11.2-3 Nonphysician Health-Care Personnel................... 26
11.2-4 Nonphysician Administrative Personnel................ 27
11.3 Professional Standards....................................... 27
11.4 Medical Services............................................. 27
11.5 Peer Review/Quality Assurance................................ 27
11.6 Existing Practice's Insurance................................ 27
11.7 Indemnification by Existing Practice......................... 28
11.8 Confidential and Proprietary Information..................... 28
11.9 Noncompetition............................................... 28
XII. RESPONSIBILITIES OF THE JOINT POLICY BOARD......................... 30
12.1 Formation and Operation of the Joint Policy Board............ 30
12.2 Duties and Responsibilities of the Joint Policy Board........ 30
12.3 Medical Decisions............................................ 30
XIII. FINANCIAL ARRANGEMENT.............................................. 30
13.1 Management Fee............................................... 30
13.2 Evaluation of Reasonableness................................. 31
13.3 Payment of Management Fee.................................... 31
13.4 Performance Enhancement Benefit.............................. 31
13.5 Accounts Receivable.......................................... 32
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XIV. TERM AND TERMINATION............................................... 32
14.1 Initial and Renewal Term..................................... 32
14.2 Termination.................................................. 32
14.2-1 Termination By Manager............................... 32
14.2-2 Termination By Existing Practice..................... 33
14.2-3 Termination by Agreement............................. 33
14.2-4 Legislative, Regulatory or Administrative Change..... 34
14.3 Effects of Termination....................................... 34
14.4 Repurchase Obligation........................................ 34
XV. MISCELLANEOUS...................................................... 36
15.1 Administrative Services Only................................. 36
15.2 Status of Contractor......................................... 36
15.3 Notices...................................................... 36
15.4 Governing Law................................................ 37
15.5 Assignment................................................... 37
15.6 Schedules and Exhibits....................................... 38
15.7 No Brokerage................................................. 38
15.8 Cost of Transaction and Taxes................................ 38
15.9 Waiver of Breach............................................. 38
15.10 Enforcement.................................................. 38
15.11 Gender and Number............................................ 38
15.12 Additional Assurances........................................ 38
15.13 Consents, Approvals, and Exercise of Discretion.............. 38
15.14 Dispute Resolution/Arbitration............................... 39
15.15 Force Majeure................................................ 39
15.16 Severability................................................. 39
15.17 Divisions and Headings....................................... 39
15.18 Entire Agreement/Amendment................................... 39
15.19 Counterparts................................................. 40
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XVI. EXHIBITS AND SCHEDULES
6.9 Power of Attorney
8.3 Financial Statements
8.4 Disclosed Liabilities
8.6 Contracts
8.7 Equipment
8.8 Inventory and Supplies
8.9 Insurance
8.10 Employee Relations
8.12 Employee Benefit Plans
8.13 Existing Practice Litigation or Proceedings
8.14 Accrued Leave
9.4 Physician Litigation or Proceedings
9.6 Staff Privileges
9.7 Physician Intention to Practice Medicine
11.2-1(A) Physician Employment Agreement (Shareholder)
11.2-1(B) Physician Employment Agreement (Non-Shareholder)
11.2-1(C) Buy-Sell Agreement
13.1 Management Fee
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MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement") is made and entered
into effective as of the 22nd day of September, 1997 ("Effective Date"), by and
among Integrated Orthopaedic, Inc. ("IOI"), IOI Management Services of
Connecticut, Inc. ("IOI Regional"), Merritt Orthopaedic Associates, P.C.
("Existing Practice") and Patrick J. Carolan, M.D. and Mark E. Wilchinsky, M.D.
(individually "Shareholder" or collectively "Shareholders"). Subject to the
satisfaction or waiver by the appropriate party of all the conditions precedent
to the Effective Date specified in Article VII and in Section 11.7 hereof, the
transactions contemplated by and described in this Agreement shall take place
and shall be effective as of the Effective Date.
RECITALS:
This Agreement is made with reference to the following facts:
A. Existing Practice is a duly formed and validly existing Connecticut
professional corporation.
B. Existing Practice is formed for and engaged in the conduct of an
existing practice and the provision of orthopedic medical services to the
general public in the State of Connecticut through individual physicians who are
licensed to practice medicine in the State of Connecticut and who are employed
or otherwise retained by Existing Practice.
C. IOI is a publicly traded corporation that is the parent of IOI
Regional.
D. IOI Regional ("Manager") is a duly formed and validly existing
Delaware business corporation which is in the business of providing management
and consulting services to medical practices, physicians, and other professional
health-care entities and individuals.
E. Existing Practice desires to focus its energies, expertise, and time
on the actual practice of medicine and on the delivery of medical services to
patients, and to accomplish that goal it desires to delegate the increasingly
more complex business aspects of its practice to business persons;
F. Shareholders desire Existing Practice to sign a long term management
agreement to allow Manager to manage Existing Practice.
G. Existing Practice wishes to engage Manager to provide the management,
marketing, and administrative oversight services that are necessary and
appropriate for the day-to-day administration of the nonmedical aspects of
Existing Practice's Existing Practice and Manager desires to provide such
services, all upon the terms and conditions hereinafter set forth.
H. Manager is willing to commit significant resources to Existing
Practice based upon the representations and warranties of Existing Practice
that the Shareholders of Existing Practice will
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continue to practice medicine for Existing Practice in the Existing Practice
Area for five (5) years from the effective date of this Agreement.
I. Existing Practice and Manager have determined a fair market value for
the services to be rendered by Manager. Based on this fair market value,
Existing Practice and Manager have developed a formula to compensate Manager
that will allow the parties to establish and maintain a relationship permitting
each party to devote its skills and expertise to the appropriate
responsibilities and functions.
NOW, THEREFORE, for and in consideration of the promises, agreements,
mutual covenants, representations, and warranties hereinafter set forth, and
other good and valuable consideration, the receipt and adequacy of which are
forever acknowledged and confessed, the parties hereto covenant and agree as
follows:
I. DEFINITIONS.
For the purposes of this Agreement, the following terms have the following
meanings, unless otherwise clearly required by the context in which the term is
used.
1.1 ADJUSTED GROSS PROFIT. The term "Adjusted Gross Profit" shall mean
the sum of Professional Income and Ancillary Services Income (exclusive of any
amounts received as liquidated damages) less Existing Practice Expense.
1.2 AGREEMENT. The term "Agreement" means this Management Services
Agreement between Existing Practice and Manager and any amendments that may be
adopted from time to time as hereinafter provided.
1.3 ANCILLARY SERVICES INCOME. The term "Ancillary Services Income" shall
mean all other revenue actually recorded each month (net of adjustments)
pursuant to generally accepted accounting principles on an accrual basis that is
not Professional Income (which shall not include any amounts specifically
excluded therefrom under Section 5 of any Physician's Employment Agreement), and
shall include (a) any amounts attributable to and from ancillary services
provided by and billed through the Existing Practice and (b) any amounts
received by Existing Practice as liquidated damages under any Physician's
Employment Agreement (which shall not be included in Adjusted Gross Profit for
purposes of calculating the Management Fee, and which may instead be set aside
by Existing Practice for use in recruitment and retention efforts as determined
by the Joint Policy Board). Ancillary Services Income shall not include any
amounts paid by Manager to Existing Practice under Article II and Section 13.4
of this Agreement.
1.4 BUDGET. The term "Budget" means the initial operating and capital
expenditure budget that is prepared and approved in accordance with Section
6.11-1 prior to the execution of this Agreement and the operating and capital
expenditure budget for each subsequent fiscal year as prepared by Manager and
approved by the Joint Policy Board.
1.5 CONFIDENTIAL INFORMATION. The term "Confidential Information" means
all of the materials, information and ideas of Manager, including, without
limitation: operation methods and
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information, accounting and financial information, marketing and pricing
information and materials, internal publications and memoranda, and other
matters considered confidential by Manager.
1.6 EXISTING PRACTICE. The term "Existing Practice" means Merritt
Orthopaedic Associates, P.C., a Connecticut professional corporation.
1.7 EXISTING PRACTICE ACCOUNT. The term "Existing Practice Account"
means the bank account of Existing Practice established pursuant to this
Agreement.
1.8 EXISTING PRACTICE AREA. The term "Existing Practice Area" means
legal boundaries of the following towns: Bridgeport, Fairfield, Trumbull,
Stratford, Westport, Easton, Shelton and Monroe, Connecticut, and a thirty (30)
mile radius of any future facility from which Existing Practice provides Medical
Services.
1.9 EXISTING PRACTICE EXPENSE. The term "Existing Practice Expense" means
an expense or cost that is incurred by Manager or Existing Practice and for
which Existing Practice is financially liable, as set forth in the Budget or
otherwise approved by the Joint Policy Board. Specifically included in Existing
Practice Expense, without limitation, are the following:
1.9-1 the salaries, benefits and other direct costs of all employees
of Manager, if any, and Existing Practice at the Office and the salaries,
benefits and other direct costs of the nonphysician employees of Existing
Practice, but not the salaries, benefits or other direct costs of the
Physicians;
1.9-2 the direct cost of any contractor or consultant that provides
services at or in connection with the Office for improved clinic
performance, such as management, billing and collections, business office
consultation, accounting and legal services, but only when such services
are consistent with the Budget or otherwise approved by the Joint Policy
Board;
1.9-3 payments pursuant to any negotiated contracts with third
parties (including, but not limited to, third party payers and
subcontracted providers) for providing medical and ancillary services
pursuant to capitated or other managed care arrangements and allocated pro-
rata as appropriate among all affected Existing Practices managed by
Manager.
1.9-4 reasonable recruitment costs and out-of-pocket expenses of
Manager or Existing Practice associated with the recruitment of additional
physician and non-physician employees of Existing Practice;
1.9-5 malpractice insurance expenses for Manager employees,
Physicians, and nonphysician employees of Existing Practice, and worker's
compensation, comprehensive and general liability insurance covering the
Office and employees of Existing Practice and Manager at the Office;
1.9-6 the expense of using, leasing, purchasing or otherwise
procuring the Office and related equipment, and any applicable depreciation
thereof from the Effective Date of this
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Agreement forward, all as set forth in the Budget or otherwise approved by
the Joint Policy Board.
1.9-7 the cost of capital (whether as actual interest on indebtedness
incurred on behalf of Existing Practice or as reasonable imputed interest
on capital advanced by Manager), to finance or refinance short or long-term
obligations of Existing Practice, purchase medical or nonmedical equipment,
or finance new ventures of Existing Practice;
1.9-8 the reasonable travel expenses associated with non-Physician
employees attending meetings, conferences or seminars to benefit Existing
Practice (and shall include up to Four Thousand Dollars ($4000) per
Physician for practice development costs, including but not limited to
continuing medical education costs) with particular exceptions approved by
the Joint Policy Board; and
1.9-9 the cost of medical supplies (including but not limited to
drugs, pharmaceuticals, products, substances, items or medical devices),
office supplies, inventory and utilities other than those medical supplies
or medical inventory owned by Existing Practice on the date of this
Agreement.
1.10 JOINT POLICY BOARD. The term "Joint Policy Board" means the body
responsible for developing and implementing certain management, administrative
and operational policies for Existing Practice, as described in Article V.
1.11 MANAGEMENT FEE. The term "Management Fee" means the Manager's monthly
compensation for the services it provides hereunder as established pursuant to
this Agreement.
1.12 MANAGER EXPENSE. The term "Manager Expense" means an expense or cost
incurred by Manager and for which Manager is financially liable. Manager
Expense shall include the costs of IOI corporate personnel and the travel costs
of such personnel as well as certain costs of IOI Regional personnel as set
forth in the Budget or otherwise agreed upon by the Joint Policy Board. (All
other IOI Regional personnel costs shall be treated as Existing Practice Expense
as set forth in the Budget or otherwise approved by the Joint Policy Board and
pro-rated equitably to all other physician practices managed by Manager which
receive the personnel services.)
1.13 MEDICAL SERVICES. The term "Medical Services" means the medical care
and services, including but not limited to the practice of orthopedic medicine,
and all related health care services provided by Existing Practice through
Physicians or other health-care providers who are retained by or professionally
affiliated with Existing Practice and for which Existing Practice can bill.
1.14 OFFICE. The term "Office" means any office space used by Existing
Practice to provide Medical Services and otherwise fulfill its responsibilities
hereunder.
1.15 PHYSICIAN. The term "Physician" means each individually licensed
professional who is employed or otherwise retained by or associated with
Existing Practice, including each Shareholder.
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1.16 PHYSICIAN COMPENSATION. The term "Physician Compensation" shall mean
that portion of Adjusted Gross Profit (exclusive of the Management Fee)
specifically allocated in the Budget to assure that Physicians and all physician
extender health care personnel receive their agreed upon compensation.
1.17 PROFESSIONAL INCOME. The term "Professional Income" shall mean all
professional and other fees actually recorded each month (net of adjustments) on
an accrual basis under generally accepted accounting principles as a result of
professional medical services, related health care services, and related medical
director, expert witness, teaching, research and other like services rendered by
the Existing Practice (including Physicians, physician assistants and those
services provided incident to a Physician's service), whether rendered in an
outpatient or inpatient setting. Professional Income shall not include those
monies specifically excluded from Professional Fees pursuant to Section 5 of the
separate employment agreement executed by each Physician.
1.18 STATE. The term "State" means the State of Connecticut.
1.19 TERM. The term "Term" means the initial and any renewal periods of
duration of this Agreement.
II. TRANSACTION CONSIDERATION.
The following items considered together shall constitute the Transaction
Consideration:
2.1 On the Effective Date, IOI shall deliver to Existing Practice cash in
the following amount: Two Hundred Thirty Thousand Dollars ($230,000.00).
2.2 On January 5, 1998, IOI shall deliver to Existing Practice cash in the
following amount: One Million Five Hundred Five Thousand Dollars ($1,505,000).
2.3 On January 5, 1998, IOI shall deliver to Existing Practice the number
of shares of IOI Common Stock set forth below. IOI Common Stock shall mean
equity securities of Integrated Orthopaedics, Inc., a Texas business
corporation, with the rights and preferences of Common Stock set forth in its
Articles of Incorporation and issued to Existing Practice without registration
under the Securities Act of 1933:
423,917 shares of IOI Common Stock valued at Five Dollars and Thirty-
One Cents ($5.31) per share.
III. APPOINTMENT AND AUTHORITY OF MANAGER.
3.1 MANAGEMENT SERVICES AGREEMENT. In exchange for the consideration paid
to Existing Practice pursuant to Section II above, Existing Practice is
executing this Agreement with IOI Regional.
3.2 ASSETS. This transaction is not intended to be a purchase and sale of
assets and no assets are being sold or purchased hereunder.
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3.3 LIABILITIES. Neither IOI nor Manager is assuming and under no
circumstance shall either IOI or Manager be obligated to pay or assume, any
liability of Existing Practice, arising before, during, or after the Effective
Date, whether known or unknown, fixed or contingent, recorded or unrecorded
("Excluded Liabilities").
3.4 APPOINTMENT. Existing Practice appoints Manager as its sole and
exclusive agent for the management, marketing, and administration of the
business functions and business affairs of Existing Practice, except as
otherwise specifically agreed in writing by Existing Practice and Manager, and
Manager accepts the appointment, subject at all times to the provisions of this
Agreement.
3.5 AUTHORITY. Consistent with the provisions of this Agreement, the
Manager shall have the responsibility and commensurate authority to provide
business, marketing, administrative, and full management services for Existing
Practice, including, without limitation, provision of equipment, supplies,
support services, nonmedical personnel (if any), marketing, office space,
management, administration, financial record keeping and reporting, and other
business office services. The Manager is expressly authorized to provide such
services in any reasonable manner the Manager deems appropriate to meet the day-
to-day requirements of the business functions of Existing Practice. Expenses
shall be as set forth in the Budget or otherwise approved by the Joint Policy
Board and shall be either an Existing Practice Expense or a Manager Expense.
Recognizing the significant financial commitment to be made by Manager
hereunder, Existing Practice also specifically grants to Manager the authority
and responsibility consistent with this Agreement, the Budget, or otherwise as
directed by the Joint Policy Board to make certain financial decisions for
Existing Practice, including the right to approve any obligation involving the
financial resources of Existing Practice; and the right to designate authorized
signatories on the Existing Practice Account.
3.6 LIMITS ON MANAGER AUTHORITY. The parties acknowledge and agree that
Existing 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 or provided to 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 the Physicians as the
Physicians, in their sole discretion, deem appropriate. Manager shall not be or
be deemed to be a partner of Existing Practice or be deemed to be engaged in the
practice of medicine. Manager shall have and exercise absolutely no control or
supervision over the provision of Medical Services.
3.7 PATIENT REFERRALS. Manager and Existing Practice agree that the
benefits to Existing Practice hereunder do not require, 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 of any patient of Existing
Practice to any health care facility, laboratory, or other health care operation
controlled, managed, or operated by the Manager.
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IV. REPRESENTATIONS AND WARRANTIES OF IOI.
As of the Effective Date, IOI, represents and warrants to Existing Practice
and each Shareholder the following. These representations and warranties are
intended to induce Existing Practice and Shareholders to enter into and
consummate this Agreement. They are deemed material and shall survive the
Effective Date.
4.1 CORPORATE CAPACITY. IOI and Manager are corporations validly existing
in good standing under the laws of the States of Texas and Delaware,
respectively. IOI and Manager have the requisite power and authority to enter
into this Agreement, to perform their respective obligations hereunder, and to
conduct its businesses as now being conducted. IOI and Manager are duly
authorized, qualified, and licensed under all applicable laws, regulations,
ordinances, and orders of governmental authorities having jurisdiction to own
properties and conduct business in the place and in the manner now conducted.
4.2 CORPORATE POWERS; CONSENTS; ABSENCE OF CONFLICTS WITH OTHER
AGREEMENTS, ETC. The execution, delivery, and performance of this Agreement by
IOI and Manager and the consummation of the transactions contemplated herein by
IOI and Manager:
A. are within their respective corporate powers and the terms of
their respective Articles of Incorporation, Bylaws or any amendments
thereto, and have been duly and properly authorized by all appropriate
corporate action;
B. to the best of their knowledge, will neither conflict with nor
result in any breach or contravention of, nor permit the acceleration of
the maturity of, or the creation of any lien under, any indenture,
mortgage, agreement, lease, contract, instrument, or understanding to which
IOI or Manager is a party or by which either is bound, except as expressly
provided herein to the contrary;
C. will not violate any judgment, or decree, order, writ, or
injunction of any court or governmental authority to which IOI or Manager
may be subject; and
D. are and will constitute the valid and legally binding obligation
of IOI or Manager enforceable in accordance with the terms of this
Agreement, except as enforceability may be restricted, limited, or delayed
by applicable bankruptcy or other laws affecting creditors' rights
generally and except as enforceability may be subject to general principles
of equity.
4.3 CURRENT PUBLIC INFORMATION. IOI shall use commercially reasonable
efforts to comply with the requirements of Rule 144 under the Securities Act, as
such Rule may be amended from time to time (or any similar rule or regulation
hereafter adopted by the SEC) regarding the availability of current public
information to the extent required to enable any holder of shares of IOI Common
Stock to sell such shares without registration under the Securities Act pursuant
to Rule 144 (or any similar rule or regulation). Upon the request of any holder
of the shares of IOI Common Stock issued pursuant to this Agreement, IOI shall
cause Integrated Orthopaedics, Inc.
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to deliver to such holder a written statement as to whether Integrated
Orthopaedics, Inc. has complied with such requirements.
4.4 RULE 144 COVENANT. IOI believes that the holding period, as
determined by Rule 144(d)(3)(iii) enacted under the Securities Act of 1933, as
in effect on the Effective Date (the "Holding Period"), for any shares of IOI
Common Stock acquired by Existing Practice pursuant to Section 2.3 of this
Agreement should commence on January 5, 1998.
4.5 CAPITAL STOCK. The capital stock of IOI ("Shares") upon issuance to
Existing Practice, will be (i) validly issued and outstanding, (ii) issued in
compliance with all applicable state and federal securities laws, (iii) except
for restrictions on transfer pursuant to applicable state and federal securities
laws, owned by Existing Practice free and clear of all liens, encumbrances or
adverse claims of any nature whatsoever, (iv) fully-paid and non-assessable, and
(v) free of any preemptive right, right of first refusal or similar right to
purchase or subscribe for such Shares. There will be no existing contracts,
options, warrants, calls or similar commitments of any kind granted or issued by
IOI relating to the issuance of such Shares, and there will be no agreements
restricting or otherwise affecting voting, transfer or other rights of such
Shares.
4.6 IOI GUARANTY. In consideration of Existing Practice and the
Shareholders entering into this Agreement and for so long as Existing Practice
and the Shareholders continue to fulfill all of their covenants, representations
and warranties hereunder, IOI as parent of Manager, hereby guarantees the full
and faithful performance by Manager of its obligations pursuant to this
Agreement.
V. ACTION OF IOI ON EFFECTIVE DATE.
On the Effective Date, IOI shall deliver to Existing Practice the
following:
5.1 That portion of the transaction consideration described in Article II
to be paid on the Effective Date;
5.2 Copies of resolutions duly adopted by IOI's and Manager's Boards of
Directors, authorizing and approving IOI's and Manager's performance of the
transactions contemplated hereby and the execution and delivery of this
Agreement and the documents described herein, certified as true and of full
force as of Effective Date by an appropriate officer of IOI and Manager,
respectively, having the full right, power, and authority to do so; and
5.3 Such other instruments and documents as are reasonably necessary to
effect the transactions contemplated hereby.
VI. COVENANTS AND RESPONSIBILITIES OF MANAGER.
During the Term of the Agreement, Manager shall provide all management
services as are necessary and appropriate for the day-to-day administration of
the non-medical aspects of Existing Practice's operations, including without
limitation those set forth in this Article IV, in accordance with
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all applicable law, rules, regulations, and governmental agency guidelines. In
satisfying its obligations hereunder, Manager may perform any service or provide
any material directly or Manager may engage an affiliate or a third party to
perform any service or provide any item, supply, or material.
6.1 OFFICE. As necessary and appropriate, Manager shall lease or
otherwise procure an Office, and permit Existing Practice's use of the Office.
Manager shall be responsible for the repair and maintenance of the Office,
consistent with Manager's responsibilities under the terms of any lease or other
use arrangement. All such maintenance, repair or replacement shall be an
Existing Practice Expense.
6.2 SUPPLIES. Manager shall obtain and provide all reasonable medical,
office, and other supplies, and shall ensure that the Office is at all times
adequately stocked with the supplies that are reasonably necessary and
appropriate for the operation of the Office and the provision of Medical
Services therein; except, however, that Existing Practice shall order, purchase,
stock, and monitor the inventory of pharmaceuticals and other medical supplies,
substances, or items that require a permit, registration, certification, or
identification number through or as a health care provider or that a health care
provider must purchase, maintain, or secure. Manager may advise Existing
Practice on the relationship between medical equipment decisions and the overall
administrative and financial operations of Existing Practice.
6.3 LICENSES AND PERMITS. Manager shall, on behalf of and in the name of
Existing Practice, coordinate all development and planning processes, and apply
for and use Manager's reasonable best efforts to obtain and maintain all
federal, State, and local licenses and regulatory permits required for or in
connection with the operation of Existing Practice and equipment (existing and
future) located therein, other than those relating to the practice of medicine
or the administration of drugs by Existing Practice or Physicians.
6.4 SUPPORT SERVICES. Manager shall provide or arrange for all printing,
stationery, forms, postage, duplication or photocopying services, and other
support services that are reasonably necessary and appropriate for the operation
of the Office and the provision of Medical Services.
6.5 UTILIZATION REVIEW, QUALITY ASSURANCE, AND RISK MANAGEMENT. Manager
shall assist Existing Practice in Existing Practice's establishment and
implementation of procedures to ensure the consistency, quality,
appropriateness, and medical necessity of Medical Services provided by Existing
Practice, and shall provide administrative support for Existing Practice's
overall quality-assurance, risk-management, and utilization-review programs.
Manager shall have no authority to make utilization review or medical necessity
decisions.
6.6 MARKETING AND PUBLIC RELATIONS. Marketing and public relations
services provided by Manager shall be provided in accordance with the standards
of medical ethics of the American Medical Association and the Connecticut
Medical Association and all applicable laws. Prior to publication or
distribution of marketing or public relations material or information, Manager
shall submit such material to Joint Policy Board for its review and approval and
shall make the changes thereto as Existing Practice may direct. Manager shall
be the sole owner and holder of all right, title, and interest in and to any
materials or documents prepared, purchased, or furnished by Manager
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pursuant to this Agreement. All marketing and public relations services provided
by Manager shall be an Existing Practice Expense.
6.7 PERSONNEL.
6.7-1 If requested by Existing Practice, Manager shall, as an
Existing Practice Expense, employ or otherwise retain and shall be
responsible for recruiting, selecting, training, supervising, and
terminating all management, administrative, clerical, secretarial,
bookkeeping, accounting, payroll, billing and collection, and other
nonprofessional personnel as Manager deems reasonably necessary and
appropriate for Manager's performance of its duties and obligations under
this Agreement and for the operation of the Office. Manager shall have
sole responsibility for determining the salaries and providing fringe
benefits, and for withholding, as required by law, any sums for income tax,
unemployment insurance, social security, or any other withholding required
by applicable law or governmental requirement.
6.7-2 Manager shall appropriately prepare, maintain, and file all
related and requisite reports and statements regarding such income tax
withholdings, unemployment insurance, social security, workers'
compensation, equal employment opportunity, or other reports and statements
required with respect to such personnel.
6.7-3 Manager expressly agrees to abide by any and all applicable
federal and/or State equal employment opportunity statutes, rules and
regulations, all as may from time to time be modified or amended.
6.8 CONTRACT NEGOTIATIONS. Upon Manager's recommendation to Existing
Practice or the request of Existing Practice, Manager shall advise Existing
Practice with respect to and shall negotiate, either directly or on Existing
Practice's behalf, as appropriate, all contractual arrangements with third
parties that are reasonably necessary and appropriate for Existing Practice's
provision of Medical Services, including, without limitation, negotiated price
agreements with third-party payers, alternative delivery systems, or other
purchasers of group health-care services. Existing Practice shall not execute
any agreement relating to the provision of Medical Services unless Manager has
reviewed the agreement, advised Existing Practice on the financial implications
of the agreement, and approved the nonmedical provisions of the agreement. No
contract or arrangement regarding the provision of Medical Services shall be
entered into without Existing Practice's consent or execution, as appropriate.
6.9 BILLING AND COLLECTION. On behalf of and for the account of Existing
Practice, the Manager shall establish and maintain credit and billing and
collection policies and procedures, and shall timely bill and collect all
billable Medical Services provided by Existing Practice or the Physicians.
Manager shall advise and consult with Existing Practice regarding the fees for
Medical Services provided by Existing Practice; it being understood, however,
that Existing Practice shall establish the fees to be charged for Medical
Services and that Manager shall have no authority whatsoever with respect to the
establishment of such fees. In connection with the billing and collection
services to be provided hereunder, and throughout the Term (and thereafter as
provided in Section 14.3), Existing Practice grants Manager a special power of
attorney and appoints Manager
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as Existing Practice's true and lawful agent and attorney-in-fact, and Manager
accepts such special power of attorney and appointment, for the following
purposes:
6.9-1 To bill Existing Practice's patients, in Existing Practice's
name and on Existing Practice's behalf, for all billable Medical Services
provided by Existing Practice;
6.9-2 To bill in Existing Practice's name and on Existing
Practice's behalf, all claims for reimbursement or indemnification from
Blue Cross/Blue Shield, insurance companies, Medicare, Medicaid, and all
other third-party payers or fiscal intermediaries for all covered billable
Medical Services provided by Existing Practice;
6.9-3 To collect and receive in Existing Practice's name and on
Existing Practice's behalf, all accounts receivable generated by such
billings and claims for reimbursement, to administer such accounts
including, but not limited to, extending the time of payment of any such
accounts for cash, credit or otherwise; discharging or releasing the
obligors of any such accounts; with the Joint Policy Board's approval
suing, assigning or selling at a discount such accounts to collection
agencies; or with the Joint Policy Board's approval taking other measures
to require the payment of any such accounts;
6.9-4 To deposit all amounts collected into the Existing Practice
Account which shall be and at all times remain in Existing Practice's name.
Existing Practice covenants to transfer and deliver to Manager for deposit
into the Existing Practice's Account all funds received by Existing
Practice from patients or third- party payers for Medical Services and from
other sources as payment for medical director fees, honoraria, royalties,
and other services other than Medical Services. Upon receipt by Manager of
any such funds, Manager shall immediately deposit the funds into the
Existing Practice Account. The Manager shall disburse the deposited funds
to creditors and other persons on behalf of Existing Practice, maintaining
records of the receipt and disbursement of funds;
6.9-5 To take possession of, endorse in the name of Existing
Practice, and deposit into the Existing Practice Account any notes, checks,
money orders, insurance payments, and any other instruments received in
payment of accounts receivable for Medical Services or any other
obligations owed the Existing Practice; and
6.9-6 To sign checks, drafts, bank notes or other instruments on
behalf of Existing Practice and to make withdrawals from the Existing
Practice Account for payments specified in this Management Services
Agreement consistent with the Budget or otherwise as requested from time to
time by Existing Practice and approved by the Joint Policy Board.
6.9-7 To receive collections on accounts receivable purchased by
Manager as agent for the Existing Practice, endorse those collections to
Manager, and to deposit those collections in a bank account at a bank
designated by Manager.
Upon request of Manager, Existing Practice shall execute and deliver to the
financial institution wherein the Existing Practice Account is maintained any
additional documents or instruments that may be necessary to evidence or effect
the special power of attorney granted to the Manager by
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Existing Practice pursuant to this Section or pursuant to Section 6.10 of this
Agreement. The special power of attorney granted in this Agreement shall be
coupled with an interest and shall be irrevocable except with the Manager's
written consent. The power of attorney shall expire on the later of when this
Agreement has been terminated; when all accounts receivable purchased by Manager
have been collected and when Manager has made withdrawals from Existing Practice
Account for payments for all dates of services prior to the date of termination
of this Agreement; or when all Management Fees due to Manager have been paid.
Existing Practice shall have the sole authority to draw checks on and make
withdrawals from Existing Practice Account for all dates of service occurring
subsequent to the termination date of this Agreement. If Manager assigns this
Agreement in accordance with its terms, Existing Practice shall execute a power
of attorney in favor of the assignee and in the form of Exhibit 6.9 attached
hereto.
6.10 EXISTING PRACTICE ACCOUNT. Manager shall have access to the Existing
Practice Account solely for the purposes stated in this Agreement. In
connection with this Agreement and throughout the Term, Existing Practice grants
Manager a special power of attorney and appoints Manager as Existing Practice's
true and lawful agent and attorney-in-fact, and Manager accepts such special
power of attorney and appointment, to deposit into the Existing Practice Account
all funds, fees, and revenues generated from Existing Practice's provision of
Medical Services and collected by Manager, and to make withdrawals from the
Existing Practice Account for payments specified in this Agreement and as
requested from time to time by Existing Practice consistent with the Budget and
approved by the Joint Policy Board. Notwithstanding the special power of
attorney granted to Manager under this paragraph, Existing Practice may, upon
notice to Manager, draw checks on the Existing Practice Account; provided,
however, that Existing Practice shall neither draw checks on the Existing
Practice Account nor request Manager to do so if the balance remaining in the
Existing Practice Account after such withdrawal would be insufficient to enable
Manager to pay on behalf of Existing Practice any Existing Practice Expense
attributable to the operations of the Office or to the provision of Medical
Services, and/or any other obligations of Existing Practice. Disbursements
shall be related to, and in an amount to ensure that, disbursements are
consistent with the expenditures authorized by the Budget. Limits on authority
to sign checks and purchase orders shall be mutually agreed upon by Existing
Practice and Manager.
6.11 FISCAL MATTERS.
6.11-1 ANNUAL BUDGET. The initial Budget shall be agreed upon by the
parties before the execution of this Agreement. Thereafter, annually and at
least thirty (30) days prior to the commencement of each fiscal year of
Existing Practice, Manager, in consultation with Existing Practice's
representatives to the Joint Policy Board, shall prepare and deliver to
Existing Practice a Budget, setting forth an estimate of Existing
Practice's revenues and expenses (including, without limitation, all costs
and fees associated with the services provided by Manager under this
Agreement) and capital budget. All subsequent modification and final
approval of the Budget shall be the duty of the Joint Policy Board. Manager
shall endeavor to manage and administer the operations of Existing Practice
as herein provided so that the actual revenues, costs and expenses of the
operation and maintenance of Existing Practice during any applicable period
of the Existing Practice's fiscal year shall be consistent with the Budget.
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6.11-2 BUDGET DEADLOCK. In the event the parties are unable to agree
on a Budget by the beginning of any fiscal year, until an agreement is
reached, the Budget for the prior year shall be deemed to be adopted as the
Budget for the current year.
6.11-3 ACCOUNTING AND FINANCIAL RECORDS. Manager shall establish and
administer accounting procedures, controls, and systems for the
development, preparation, and safekeeping of administrative or financial
records and books of account relating to the business and financial affairs
of Existing Practice and the provision of Medical Services, all of which
shall be prepared and maintained in accordance with generally accepted
accounting principles consistently applied on an accrual basis. Manager
shall prepare and deliver to Existing Practice monthly within sixty (60)
days after the end of each month (and within ninety (90) days after the end
of each calendar year) a balance sheet and a profit-and-loss statement
reflecting the financial status of Existing Practice, all of which shall be
prepared in accordance with generally accepted accounting principles
consistently applied. In addition, Manager shall prepare or assist in the
preparation of any other financial statements or records as Existing
Practice may request from time to time.
6.11-4 PRIORITY OF PAYMENTS. Each month Manager shall apply the
proceeds in the Existing Practice Account in the following order of
priority:
(a) Existing Practice Expenses; then
(b) Physician Compensation and Management Fees shall be applied
concurrently.
Any remaining balance shall be applied as directed by Existing Practice.
6.11-5 REVIEW OF FINANCIAL STATEMENTS. Any of Existing Practice's
representatives to the Joint Policy Board, as well as any accountant
selected by Existing Practice (the cost of which shall be as approved by
the Joint Policy Board), may review the financial statements of the
Existing Practice.
6.11-6 TAX RETURNS AND TAXATION ISSUES.
A. IN GENERAL. Manager shall arrange for the preparation by
an accountant approved in advance by Existing Practice (which
approval shall not be unreasonably withheld) of all appropriate
tax returns and reports required of Existing Practice. Existing
Practice shall approve in advance (which approval shall not be
unreasonably withheld) any accountant representation of Existing
Practice for any IRS audit required of Existing Practice. As
requested by Existing Practice, Manager shall, on behalf of
Existing Practice and as an Existing Practice Expense, protest
and/or file applications regarding regulations, orders, and
determinations that are issued by any governmental taxing
authority and that affect or are issued in connection with
Existing Practice's provision of Medical Services.
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B. SALES AND USE TAXES. Manager and Existing Practice
acknowledge and agree that to the extent that any of the services
to be provided by the Manager hereunder may be subject to any
State sales, franchise, use or other taxes, Manager shall have a
legal obligation to collect such taxes and to remit same to the
appropriate tax collection authorities. Existing Practice agrees
to pay, in addition to the payment of the Management Fee, the
applicable State sales and use taxes in respect to the portion of
the Management Fee attributable to such services.
6.12 REPORTS AND RECORDS.
6.12-1 MEDICAL RECORDS. Manager shall establish, monitor, and
maintain procedures and policies for the timely creation, preparation,
filing, and retrieval of all medical records generated by Existing Practice
in connection with Existing Practice's provision of Medical Services; and,
subject to applicable law, shall ensure that medical records are promptly
available to the Physicians and any other appropriate persons. All medical
records shall be retained and maintained in accordance with all applicable
State and federal laws relating to the confidentiality and retention
thereof. All medical records shall remain the property of Existing Practice
or the Physician performing the Medical Services in accordance with all
applicable State and federal laws.
6.12-2 OTHER REPORTS AND RECORDS. Manager shall timely create,
prepare, and file such additional reports and records as are reasonably
necessary and appropriate for Existing Practice's provision of Medical
Services, and shall be prepared to analyze such reports and records upon
the request of Existing Practice.
6.13 RECRUITMENT OF PHYSICIANS. Upon Existing Practice's request, and
Joint Policy Board approval, Manager shall perform all administrative services
reasonably necessary and appropriate to recruit potential physician personnel to
become employees of Existing Practice. Manager shall provide Existing Practice
with model agreements to document Existing Practice's employment, retention, or
other service arrangements with such individuals. It shall be and shall remain
the sole and complete responsibility of Existing Practice to interview, select,
contract with, supervise, control, and terminate all Physicians performing
Medical Services or other professional services, and the Manager shall have no
authority or responsibility whatsoever with respect to such activities.
6.14 CONFIDENTIALITY. Manager shall keep confidential any financial,
statistical, personal, personnel, or patient information relating to Existing
Practice or any patient of Existing Practice obtained or encountered by Manager
pursuant to Manager carrying out its obligations under this Agreement. However,
Manager shall not be required to keep any information confidential that is
publicly available, that is obtained by Manager from third parties, that was
available to Manager prior to commencement of this Agreement, or that is
required by law to be released. Further, Manager may share utilization review
data, quality assurance data, cost data, outcomes data, or other practice data
of Existing Practice with Existing Practice, other medical groups with whom
Manager has a management relationship, 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 or other unrelated parties;
provided that any disclosure outside of Existing Practice or Manager for any
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purpose not related to managed care contracting shall not identify any patient
or Physician by name without Existing Practice's consent. Manager may disclose
all practice-related information necessary or desirable in connection with any
public or private offering of any Manager security, or in accordance with its
reporting requirements under the Securities Exchange Act of 1934, but no such
data will disclose or divulge patient identifying information.
6.15 MANAGER'S INSURANCE. Throughout the Term, Manager shall, as an
Existing Practice Expense, obtain and maintain with commercial carriers, through
self-insurance, or by some combination thereof, appropriate worker's
compensation coverage for Manager's employed personnel provided at the Office
pursuant to this Agreement, and professional, casualty, and comprehensive
general liability insurance covering Manager, Manager's personnel at the Office,
and all of Manager's equipment in such amounts, on such basis, and upon such
terms and conditions as Manager deems appropriate. Manager shall provide
Existing Practice with a certificate evidencing such insurance coverage.
Manager may also carry key person life and disability insurance on any
shareholder or Physician employee of Existing Practice or business interruption
insurance in amounts determined reasonable and sufficient by Manager, which
expense shall be consistent with the Budget as an Existing Practice Expense or
otherwise approved by the Joint Policy Board. Existing Practice shall be the
owner and beneficiary of any such insurance.
6.16 NO WARRANTY. Existing Practice acknowledges that Manager has not made
and will not make any express or implied warranties or representations that the
services provided by Manager will result in any particular amount or level of
Existing Practice or income to Existing Practice.
6.17 SALES TAX. Existing Practice acknowledges that the scope of Manager's
responsibility pursuant to Section 6 hereof includes management of the Existing
Practice's accounts receivable and claims processing functions, clerical and
secretarial services; accounting, bookkeeping and legal services functions;
payroll recordkeeping and processing services; and, if required by Existing
Practice, recruitment of additional shareholders into the Existing Practice.
Manager and Existing Practice agree that 60% of Manager's duties under this
Agreement are encompassed in the activities set forth above, and that 60% of all
Management Fees paid to Manager shall be attributed thereto.
VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF EXISTING PRACTICE & PHYSICIANS.
The obligations of Existing Practice and Physicians are subject to the
satisfaction, on or prior to the Effective Date, of the following conditions
unless waived in writing by the objecting party. Failure to object in writing
on or before the Effective Date shall be deemed a waiver of the objection:
7.1 REPRESENTATIONS/WARRANTIES. The representations and warranties of IOI
or Manager contained in this Agreement shall be true in all material respects
when made and on and as of the Effective Date as though such representations and
warranties had been made on and as of such Effective Date, and each and all of
the terms, covenants, and conditions of this Agreement to be complied with or
performed by IOI or Manager on or before the Effective Date pursuant to the
terms hereof shall have been duly complied with and performed in all material
respects.
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7.2 ACTION/PROCEEDING. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transaction herein contemplated, and no governmental
agency or body shall have taken any other action or made any request of any of
the parties to this Agreement as a result of which Existing Practice or any
Physician reasonably deems it inadvisable to proceed with the transactions
hereunder.
7.3 EXECUTION AND DELIVERY OF ADDITIONAL AGREEMENTS. Each of the
additional agreements described in Article IV shall have been properly executed
and delivered by IOI or Manager as of the Effective Date.
VIII. REPRESENTATIONS AND WARRANTIES OF EXISTING PRACTICE.
As of the Effective Date, Existing Practice hereby represents and warrants
to IOI and Manager the following. Physicians hereby agree to become jointly and
severally liable with Existing Practice for these representations and
warranties. These representations and warranties are intended to induce IOI and
Manager to enter into and consummate this Agreement. They are deemed material
and shall survive the Effective Date.
8.1 CAPACITY. Existing Practice is duly qualified, and licensed under all
applicable laws, regulations, ordinances, and orders of governmental authorities
to own the properties and conduct its business in the place and in the manner
now conducted.
8.2 CONSENTS; ABSENCE OF CONFLICTS WITH OTHER AGREEMENTS, ETC. The
execution, delivery, and performance of this Agreement by Existing Practice and
the consummation of the transactions contemplated herein by Existing Practice;
A. do not require any approval, consent of, or filing with any person
or entity not a party hereto;
B. will neither conflict with nor result in any breach or
contravention of, nor permit the acceleration of the maturity of, or the
creation of any lien under, any indenture, mortgage, agreement, lease,
contract, instrument, or understanding to which Existing Practice is a
party or by which Existing Practice is bound, except as expressly provided
herein to the contrary;
C. will not violate any judgment, decree, order, writ, or injunction
of any court or governmental authority to which Existing Practice may be
subject; and
D. are and will constitute the valid and legally binding obligation
of Existing Practice enforceable in accordance with the terms of this
Agreement, except as enforceability may be restricted, limited, or delayed
by applicable bankruptcy or other laws affecting creditors' rights
generally and except as enforceability may be subject to general principles
of equity.
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8.3 FINANCIAL STATEMENTS. Existing Practice has delivered to IOI the
financial information regarding the Existing Practice set forth in Schedule 8.3
attached hereto. Such tax returns, audited annual financial statements,
unaudited interim financial statements, and other financial information are
referred to herein collectively as the "Financial Statements," and such
Financial Statements have been prepared in accordance with cash basis federal
income tax requirements with respect to the tax returns, and have been prepared
in accordance with generally accepted accounting principles, consistently
applied, with respect to the audited annual and unaudited interim financial
statements, throughout the periods indicated. Since June 30, 1997 (the "Balance
Sheet Date"), there have occurred no material changes in the financial condition
or business of Existing Practice in the ordinary course of business, except as
otherwise disclosed in Schedule 8.3. For purposes of this Schedule 8.3,
material shall be any amount in excess of Seven Thousand Five Hundred Dollars
($7,500.00) and not in the ordinary course of business.
8.4 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 8.4,
Existing Practice is not subject to any material liability or obligation of any
nature whatsoever, whether absolute, contingent or otherwise or whether due or
to become due, which is not shown or reflected on Existing Practice's Financial
Statements. For purposes of this Section 8.4, material shall be any amount in
excess of Seven Thousand Five Hundred Dollars ($7,500.00).
8.5 REGULATORY COMPLIANCE. To the best of its knowledge, Existing
Practice is in compliance with all applicable rules, regulations, and
requirements of all federal, state, and local commissions, boards, bureaus, and
agencies having jurisdiction over the Existing Practice and its assets and
business including, without limitation, the United States Department of Health
and Human Services. Existing Practice has timely filed all reports, data, and
other information required to be filed with such commissions, boards, bureaus,
and agencies.
8.6 CONTRACTS.
8.6-1 GENERAL. Existing Practice has delivered to IOI an accurate
list and substantially complete description (Schedule 8.6) of all of the
commitments, contracts, leases and agreements which are outstanding and
Existing Practice's obligations thereunder (the "Contracts"). Existing
Practice and each Physician warrants and represents that:
A. To the best knowledge of Existing Practice the Contracts
constitute valid and legally binding obligations of the Existing Practice
and are enforceable in accordance with their terms;
B. Each Contract constitutes the entire agreement by and between the
respective parties thereto and has not been amended except as indicated in
Schedule 8.6;
C. In all material respects, (i) all obligations required to be
performed prior to Effective Date under the terms of the Contracts have
been performed, (ii) no act or omission has occurred or failed to occur
which, with the giving of notice, the lapse of time, or both would
constitute a default under the Contracts, and (iii) each of the Contracts
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is now and will be after the Effective Date in full force and effect
without default on the part of the parties thereto; and
D. To the best knowledge of Existing Practice and each Physician, the
Contracts constitute valid and legally binding obligation of the parties
thereto and are enforceable against such parties in accordance with their
terms.
8.7 EQUIPMENT. Existing Practice has delivered to IOI an accurate list
and a substantially complete description (Schedule 8.7) of all the equipment
associated with, or constituting any part of, the Existing Practice. To the
best knowledge of Existing Practice and each Physician the equipment of Existing
Practice is adequate in all material respects to fully equip and operate the
Existing Practice's level of operation as of the Balance Sheet Date as well as
the Effective Date. To the best knowledge of Existing Practice and each
Physician substantially all of such equipment is in good operating condition and
fit for the purpose for which it is intended. Since the Balance Sheet Date,
Existing Practice has not sold or otherwise disposed of any equipment associated
with, or constituting any part of, the Existing Practice, nor shall it do so at
any time during the term of the Agreement without the consent of the Joint
Policy Board.
8.8 INVENTORY AND SUPPLIES. Existing Practice has delivered to IOI an
accurate list of all of the inventory and supplies constituting any part of the
Existing Practice the value of which is calculated at actual cost, to include
any discounts received or due, and a substantially complete description of all
such inventory and supplies is listed on Schedule 8.8. Substantially all of
such inventory and supplies are of a quality and quantity usable and salable in
the ordinary course of an orthopedic medical practice.
8.9 INSURANCE. IOI has been delivered an accurate schedule (Schedule 8.9
hereto) disclosing the insurance policies covering the ownership and operations
of the Existing Practice and the Physicians, which schedule reflects such
policies' numbers, terms, identity of insurers, amounts, and coverage. All of
such policies are in full force and effect on a claims made basis with no
premium arrearages. True and correct copies of all such policies and any
endorsements thereto have been or will be delivered to IOI prior to the
Effective Date. Existing Practice and each Physician has given in a timely
manner to their insurers all notices required to be given under its insurance
policies with respect to all of the claims and actions covered by insurance and
disclosed on Schedule 8.9, and no insurer has denied coverage of any such claims
or actions or reserved its rights in respect of or rejected any of such claims.
8.10 EMPLOYEE RELATIONS. To the best knowledge of Existing Practice,
Existing Practice is in material compliance with all federal and state laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and Existing Practice has not engaged in any
unfair labor practices. Schedule 8.10 sets forth a list of the current names,
titles and cash compensation, including, without limitation, wages, salaries,
bonuses and other cash compensation of all Existing Practice employees. Except
as set forth in Schedule 8.10, all present and former Existing Practice
employees have been paid in full all wages, salaries, commissions, bonuses,
severance and termination pay, and other direct compensation for all services
performed by them that was accrued by them up to the Effective
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Date, payable in accordance with the obligations of Existing Practice under any
employment practices and policies, or any collective bargaining agreement or
other employment agreement to which Existing Practice is a party, as the case
may be, or by which Existing Practice may be bound. All of the employees listed
on Schedule 8.10 attached hereto who work in the United States are lawfully
authorized to work in the United States according to federal immigration laws.
Except as set forth on Schedule 8.10, no present or former Existing Practice
employee or party representing said employees or former employees, has claims,
charges, investigations, complaints, proceedings, suits, demands or actions
which are pending or have been asserted or threatened in writing against
Existing Practice or any "Related Person" (defined below) for, including without
limitation: (i) overtime pay, other than overtime pay for the current period;
(ii) wages, salaries, or profit-sharing (excluding wages, salaries or profit-
sharing for the current payroll period); (iii) vacations, sick leave, time off,
or pay in lieu of vacation or time off; (iv) any violation of any statute,
ordinance, contract or regulation relating to minimum wages or maximum hours of
work; (v) discrimination against employees on any basis; (vi) unlawful or
wrongful employment or termination practices; (vii) breach of contract or other
claim arising under a collective bargaining or individual employment agreement
or any other employment covenant whether express or implied; (viii) any
violation of occupational safety and health standards; or (ix) any violation of
immigration, workers' compensation, disability, unemployment compensation,
whistle blower laws or other employment or labor relations laws. A "Related
Person" shall mean any entity that controls, is controlled by, or under common
control with Existing Practice or any partner or manager of Existing Practice.
8.11 TAX LIABILITIES. All tax and information returns, including, without
limitation, income tax returns, employee payroll tax returns, employee
unemployment tax returns and franchise tax returns, for periods prior to and
including Effective Date which are required to be filed by Existing Practice
(collectively "Returns") have been filed or will be filed within the time and in
the manner provided by law (including any valid extensions thereof), and all
Returns are true and correct and accurately reflect the tax liabilities of
Existing Practice, as the case may be. There are no tax liens on any of part of
the Existing Practice.
8.12 EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule 8.12 hereto,
Existing Practice does not have and has never had any pension, profit sharing,
deferred compensation, or other employee pension or health or welfare benefit
plan or arrangement relating to the operation of the Existing Practice and the
NonMedical Assets. To the best knowledge of Existing Practice, all employee
pension benefit plans and employee health or welfare benefit plans (as such
terms are defined in the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder ("ERISA"),
collectively "Benefit Plans") have been administered in accordance with ERISA
and the applicable provisions of the Code. There are no "accumulated funding
deficiencies" within the meaning of ERISA or the Code or any federal excise tax
or liability on account of any deficient fundings in respect of the Benefit
Plans. Existing Practice has not committed any reportable event(s) (within the
meaning of ERISA) or prohibited transaction(s) (within the meaning of the Code)
in respect of the Benefit Plans. There are no threatened or pending claims by
or on behalf of the Benefit Plans or by any Existing Practice employee alleging
a breach or breaches of fiduciary duties or violations of other applicable state
or Federal law which could result in liability on the part of Existing Practice
or
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the Benefit Plans under ERISA or any other law, nor to the best knowledge of
Existing Practice is there any basis for such a claim. The Benefit Plans do not
discriminate in operating in favor of employees who are officers or highly
compensated. All returns, reports, disclosure statements, and premium payments
required to be made under ERISA and the Code with respect to the Benefit Plans
have been timely filed or delivered. The Benefit Plans have not been audited or
investigated by either the Internal Revenue Service, the Department of Labor, or
the Pension Benefit Guaranty Corporation within the last five (5) years, and
there are no outstanding issues with respect to the Benefit Plans pending before
said governmental agencies.
8.13 LITIGATION OR PROCEEDINGS. Other than as listed on Schedule 8.13, the
Existing Practice has not received notice of any claims, actions, suits,
proceedings or investigations pending against the Existing Practice or any
Physician, and to the best of their knowledge, no incidents have occurred upon
which one could be based or threatened against, or affecting Existing Practice
or any Physician, at law or in equity, or before or by any federal, state,
municipal, or other governmental department, commission, board, bureau, agency,
or instrumentality wherever located.
8.14 ACCRUED LEAVE. Except as set forth in Schedule 8.14, Existing
Practice does not have any liability to any of Existing Practice's employees for
accrued vacation or sick leave.
8.15 HAZARDOUS MATERIALS. To Existing Practice's actual knowledge no
Hazardous Materials (as hereinafter defined) have been incorporated, used,
generated, manufactured, stored, or disposed of in, on, under, or about the
premises where the Existing Practice are located (the "Premises") or transferred
to or from the Premises, except for Hazardous Substance brought, kept or used in
the operation of the Premises in commercial quantities and qualities similar to
those quantities and qualities usually kept in or about similar buildings by
others in the same business and which are used and kept in compliance with
applicable public health, safety and environmental laws, and there are no
claims, litigation, administrative or other proceedings, whether actual or, to
Existing Practice's actual knowledge, threatened, or judgments or orders,
relating to the use, generation, manufacture, storage or disposal of any
Hazardous Materials on, under or about the Premises. As used in this Agreement,
the term "Hazardous Materials" shall mean any flammables, explosives,
radioactive materials, hazardous waste, toxic substances or related materials,
including, without limitation, asbestos, PCBs and substances defined as
"hazardous substances," "hazardous materials" or "toxic substances" in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. (S) 9601, et seq.; the Hazardous Materials Transportation
Act, 49 U.S.C. (S) 1801, et seq.; and the Resources Conservation and Recovery
Act, 42 U.S.C. Sec. 6901, et seq.
8.16 INVESTMENT REPRESENTATIONS.
A. Existing Practice is acquiring shares ("Shares") of IOI Common
Stock to be issued to it as transaction consideration, in accordance with
this Agreement, for its own account for investment and not with a view
toward, or for sale in connection with, any distribution thereof (other
than to its own Shareholders), and has no present or contemplated
agreement, undertaking, arrangement, indebtedness or commitment
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providing for the disposition thereof, except in accordance with a
distribution thereof registered under the Securities Act of 1933, as
amended (the "Securities Act").
B. Existing Practice understands that because the shares of Common
Stock to be issued have not been registered under the Securities Act, it
cannot dispose of any or all of such shares unless such shares are
subsequently registered under the Securities Act or exemptions from such
registration are available. Existing Practice further understands that IOI
may, as a condition to the transfer of any of such shares, require that the
request for transfer be accompanied by an opinion of counsel, in form and
substance satisfactory to Integrated Orthopaedics, Inc., to the effect that
the proposed transfer does not result in a violation of the Securities Act,
unless such transfer is covered by an effective registration statement
under the Securities Act. Existing Practice acknowledges and understands
that the certificates for the shares of Common Stock will bear a legend
substantially to such effect. Existing Practice acknowledges and
understands that it has no independent right to require Integrated
Orthopaedics, Inc. to register the Shares.
C. Existing Practice either alone or together with its purchaser
representative is knowledgeable and experienced in business and financial
matters and capable of evaluating the merits and risks of the investment in
such Shares, is able to bear the economic risk of loss of its investment in
Integrated Orthopaedics, Inc., has been granted the opportunity to make a
thorough investigation of the affairs of Integrated Orthopaedics, Inc.,
and has availed itself of such opportunity either directly or through its
authorized representatives.
D. Existing Practice has been advised that such shares have not been
and are not being registered under the Securities Act or under the "blue
sky" laws of any jurisdiction and that Integrated Orthopaedics, Inc. in
issuing such shares is relying upon, among other things, the
representations and warranties of Existing Practice contained in this
Section 5.8 in concluding that each such issuance is a "private offering"
and does not require compliance with the registration provisions of the
Securities Act.
E. Existing Practice is a professional corporation.
F. Existing Practice has had an opportunity to ask questions of and
receive answers from Integrated Orthopaedics, Inc. or a person or persons
acting on its behalf, concerning the stock (consideration, etc.)
investment, and all such questions have been answered to the Existing
Practice's full satisfaction. Existing Practice has had an opportunity to
obtain all additional information necessary to verify the accuracy of the
foregoing. Existing Practice has received no representations or
warranties, other than any contained in this Agreement or in the IOI
Confidential Private Placement Memorandum dated September 4, 1997
("Memorandum") from Integrated Orthopaedics, Inc. or any of its
affiliates, employees or agents, and, in making Existing Practice's
investment decision, Existing Practice is relying solely on the information
contained in the Memorandum and investigations made by Existing Practice.
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8.1 FULL DISCLOSURE. This Agreement and Schedules hereto and all other
documents and information furnished to IOI and its representatives in connection
with IOI's due diligence investigation pursuant hereto do not and will not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made and to be made not misleading in any
material respect. Copies of all executed Contracts, licenses, and Financial
Statements and other material information furnished pursuant to this Agreement
to IOI and Manager are complete, true, and correct in all material respects.
IX. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.
As of the Effective Date, each Shareholder hereby severally represents and
warrants to IOI and Manager the following. Existing Practice hereby agrees to
become liable with each Shareholder for these representations and warranties.
These representations and warranties are intended to induce IOI and Manager to
enter into and consummate this Agreement. They are deemed material and shall
survive the Effective Date.
9.1 CAPACITY. Shareholder has the requisite power and authority to enter
into this Agreement, to perform Shareholder's obligations hereunder, and to
conduct Shareholder's services as are now being conducted. Shareholder is
qualified and licensed under all applicable laws, regulations, ordinances, and
orders of governmental authorities having jurisdiction over Shareholder.
9.2 CONSENTS; ABSENCE OF CONFLICTS WITH OTHER AGREEMENTS, ETC. The
execution, delivery, and performance of this Agreement by Shareholder and the
consummation of the transactions contemplated herein by Shareholder:
A. do not require any approval, consent of, or filing with any
person, entity or governmental agency not a party hereto;
B. will neither conflict with nor result in any breach or
contravention of, nor permit the acceleration of the maturity of, or the
creation of any lien under, any indenture, mortgage, agreement, lease,
contract, instrument, or understanding to which Shareholder is a party or
by which Shareholder or the Existing Practice is bound;
C. will not violate any judgment, decree, order, writ, or injunction
of any court or governmental authority to which Shareholder, or the
Existing Practice may be subject; and
D. are and will constitute the valid and legally binding obligation
of Shareholder, enforceable in accordance with the terms of this Agreement,
except as enforceability may be restricted, limited, or delayed by
applicable bankruptcy or other laws affecting creditors' rights generally
and except as enforceability may be subject to general principles of
equity.
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9.3 REGULATORY COMPLIANCE. To the best knowledge of Shareholder,
Shareholder is in material compliance with all applicable rules, regulations,
and requirements of all federal, state, and local commissions, boards, bureaus,
and agencies having jurisdiction over the Shareholder and Shareholder's assets
and business including, without limitation, the United States Department of
Health and Human Services, and Shareholder has timely filed all reports, data,
and other information required to be filed with such commissions, boards,
bureaus, and agencies.
9.4 LITIGATION OR PROCEEDINGS. Other than as listed on Schedule 9.4, the
Shareholder has not received notice of any claims, actions, suits, proceedings
or investigations pending against Shareholder and to the best of Shareholder's
knowledge, no incidents have occurred upon which one could be based or
threatened against, or affecting Shareholder, at law or in equity, or before or
by any federal, state, municipal, or other governmental department, commission,
board, bureau, agency, or instrumentality wherever located.
9.5 PERMITS. To the best of Shareholder's knowledge, Shareholder has all
permits, licenses, orders and approvals necessary to perform the services
performed by Shareholder in connection with the conduct of the Existing
Practice. All such permits, licenses, orders and approvals are in full force
and effect and no suspension or cancellation of any of them is pending or
threatened. To the best of such Shareholder's knowledge, none of such permits,
licenses, orders or approvals, and no application for any such permits,
licenses, orders or approvals will be adversely affected by the consummation of
the transactions contemplated by this Agreement. Shareholder is certified to
participate in the Medicare program. Shareholder has never been disciplined,
sanctioned or excluded from the Medicare program and has not been subject to any
plan of correction imposed by any professional review body.
9.6 STAFF PRIVILEGES. Schedule 9.6 lists all hospitals at which
Shareholder has clinical privileges. Such privileges have not been revoked,
surrendered, suspended or terminated, and to the best of such Shareholder's
knowledge, there are no, and have not been any, facts, conditions or incidents
that may result in any such revocation, surrender, suspension or termination.
9.7 INTENTIONS. Except as set forth on Schedule 9.7, Shareholder intends
to continue practicing medicine on a full-time basis throughout Shareholder's
entire professional career, and in any event for the next five (5) years with
the Existing Practice and does not know of any fact or condition that materially
adversely affects, or in the future may materially adversely affect,
Shareholder's ability or intention to practice medicine on a full-time basis for
at least the next five years with Existing Practice.
9.8 INVESTMENT REPRESENTATIONS.
A. Shareholder is acquiring shares ("Shares") of IOI Common Stock
through Existing Practice to be issued as transaction consideration, in
accordance with this Agreement, for Shareholders' own account for
investment and not with a view toward, or for sale in connection with, any
distribution thereof, and has no present or contemplated agreement,
undertaking, arrangement, indebtedness or commitment providing for the
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disposition thereof, except in accordance with a distribution thereof
registered under the Securities Act of 1933, as amended (the "Securities
Act").
B. Shareholder understands that because the shares of Common Stock to
be issued have not been registered under the Securities Act, it cannot
dispose of any or all of such shares unless such shares are subsequently
registered under the Securities Act or exemptions from such registration
are available. Shareholder further understands that IOI may, as a
condition to the transfer of any of such shares, require that the request
for transfer be accompanied by an opinion of counsel, in form and substance
satisfactory to Integrated Orthopaedics, Inc., to the effect that the
proposed transfer does not result in a violation of the Securities Act,
unless such transfer is covered by an effective registration statement
under the Securities Act. Shareholder acknowledges and understands that
the certificates for the shares of Common Stock will bear a legend
substantially to such effect. Shareholder acknowledges and understands that
it has no independent right to require Integrated Orthopaedics, Inc. to
register the Shares.
C. Shareholder either alone or together with its purchaser
representative is knowledgeable and experienced in business and financial
matters and capable of evaluating the merits and risks of the investment in
such Shares, is able to bear the economic risk of loss of its investment in
Integrated Orthopaedics, Inc., has been granted the opportunity to make a
thorough investigation of the affairs of Integrated Orthopaedics, Inc.,
and has availed itself of such opportunity either directly or through its
authorized representatives.
D. Shareholder has been advised that such shares have not been and
are not being registered under the Securities Act or under the "blue sky"
laws of any jurisdiction and that Integrated Orthopaedics, Inc. in issuing
such shares is relying upon, among other things, the representations and
warranties of Shareholder contained in this Section 5.8 in concluding that
each such issuance is a "private offering" and does not require compliance
with the registration provisions of the Securities Act.
E. Shareholder is an individual.
F. Shareholder has had an opportunity to ask questions of and receive
answers from Integrated Orthopaedics, Inc. or a person or persons acting
on its behalf, concerning the stock (consideration, etc.) investment, and
all such questions have been answered to the Shareholder's full
satisfaction. Shareholder has had an opportunity to obtain all additional
information necessary to verify the accuracy of the foregoing. Shareholder
has received no representations or warranties (other than any contained in
this Agreement or the Memorandum) from Integrated Orthopaedics, Inc. or
any of its affiliates, employees or agents, and, in making Shareholder's
investment decision, Shareholder is relying solely on the information
contained in the Memorandum and investigations made by Shareholder.
9.9 FULL DISCLOSURE. This Agreement and Schedules hereto and all other
documents and information furnished by Shareholder to IOI and their
representatives in connection with IOI's due diligence investigation pursuant
hereto do not and will not include any untrue statement of a
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material fact or omit to state any material fact necessary to make the
statements made and to be made not misleading in any material respect. Copies of
all executed contracts, licenses, and financial statements and other material
information furnished pursuant to this Agreement by Shareholder to IOI are
complete, true, and correct in all material respects.
X. ACTION OF EXISTING PRACTICE ON EFFECTIVE DATE.
On the Effective Date, Existing Practice shall deliver to IOI and Manager
the following in such form as IOI and Manager may reasonably request:
10.1 Shareholder Employment Agreements as required under Section 4.3-1
herein, executed by Shareholders and Gerard Girasole, M.D. and Existing
Practice;
10.2 Copies of resolutions duly adopted by Existing Practice's Board of
Directors and Shareholders ratifying the execution, delivery, and performance of
this Agreement and authorizing the execution, delivery, and performance of the
other documents described herein and that the person or persons executing the
Effective Date documents on behalf of Existing Practice have full right, power,
and authority to do so; and
10.3 Such other instruments and documents, as are reasonably necessary to
effect the transactions contemplated herein.
XI. COVENANTS AND RESPONSIBILITIES OF EXISTING PRACTICE.
11.1 ORGANIZATION AND OPERATION. Existing Practice, as a continuing
condition of Manager's obligations under this 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. Existing
Practice shall, within the Existing Practice Area, operate and maintain a full
time Existing Practice specializing in the provision of Medical Services.
11.2 EXISTING PRACTICE PERSONNEL.
11.2-1 PHYSICIAN PERSONNEL. Existing Practice shall retain, but
specifically not as an Existing Practice Expense, the number of Physicians,
sufficient in the sole discretion of Existing Practice, that is necessary
and appropriate for the provision of Medical Services, each of whom shall
be bound by and subject to all applicable provisions of this Agreement;
provided, however that Existing Practice shall maintain at least that
number of Physicians engaged in the full time practice of medicine as such
Physicians were so engaged immediately prior to the effective date of this
Agreement (which number shall not include Dr. Warren Axelein). Should any
Physician cease to be employed by and practice through Existing Practice at
any time during the term of this Agreement, the parties agree that Existing
Practice shall act in good faith and use its best efforts to replace such
departed Physician as soon as possible but in no event longer than 6
months, unless Manager recognizes Existing Practice has maintained its
collectible net revenue levels without such Physician and agrees that
Existing Practice continues to comply with the requirements of this Section
11.2-1 without
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replacing the Physician. Each Physician shall hold and maintain a valid and
unrestricted license to practice medicine in the State and shall be
competent in the practice of their specialty of medicine and to provide
Medical Services. Existing Practice shall enter into and maintain with each
Shareholder a written employment agreement in the form of Exhibit 11.2-
1(A). Existing Practice shall also maintain and enforce employment
agreements in the form of Exhibit 11.2-1(B) with any nonshareholder
Physician employees of Existing Practice. Existing Practice shall not amend
the employment agreements in any manner which would cause such agreements
to be in breach of the terms of this Agreement. Recognizing that Manager
would not have entered into this Agreement but for Existing Practice's
covenant to maintain employment agreements with its original shareholders,
Existing Practice agrees that any damages, compensation, payment, or
settlement received by Existing Practice as liquidated damages from a
Physician who terminates the employment agreement without cause or whose
employment agreement is terminated by Existing Practice for cause shall be
treated as Ancillary Services Income under this Agreement, and shall be set
aside to be utilized solely for recruitment and retention efforts of
Existing Practice, as determined by the Joint Policy Board. Throughout the
term of this Agreement, Existing Practice shall also maintain and enforce a
written Buy-Sell Agreement in the form of Exhibit 11.2-1(C) with the
shareholders of Existing Practice, and shall cause all new shareholders of
Existing Practice to execute such agreement prior to becoming shareholders.
Existing Practice shall not amend the Buy-Sell Agreement or waive any
rights thereunder without the prior written consent of Manager.
Existing Practice shall be responsible for paying from Physician
Compensation the compensation for all Physicians and for withholding, as
required by law, any sums for income tax, unemployment insurance, social
security, or any other withholding required by applicable law. Manager
shall, on behalf of Existing Practice, establish and administer the
compensation with respect to such individuals in accordance with the
applicable employment agreement. Manager shall neither control nor direct
any Physician in the provision of Medical Services to patients; however,
supervision and direction of such personnel's daily performance of all
other responsibilities shall be Manager's as set forth in Section 6.7 of
this Agreement.
11.2-2 PHYSICIAN EXTENDER HEALTH-CARE PERSONNEL. All physician
extender health care personnel, including physician assistants and advanced
nurse practitioners who provide patient care services on behalf of Existing
Practice shall be employed or retained by Existing Practice and paid from
Physician Compensation by Existing Practice. Existing Practice shall also
be responsible for any withholding, as required by law, and any sums for
income tax, unemployment insurance, social security, or any other
withholding required by applicable law.
11.2-3 NONPHYSICIAN HEALTH-CARE PERSONNEL. All nonphysician health-
care personnel, other than physician extender personnel, who provide
patient-care services on behalf of Existing Practice shall be employed by
or retained by Existing Practice as an Existing Practice Expense and shall
be under Existing Practice's control, supervision, and direction in the
performance of or in connection with provision of Medical Services for
patients.
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11.2-4 NONPHYSICIAN ADMINISTRATIVE PERSONNEL. If requested by
Existing Practice, nonphysician administrative personnel may be employed or
retained by Manager as an Existing Practice Expense to be under the
control, supervision and direction of Manager, subject to the Joint Policy
Board's ability to make decisions regarding employment, termination and
corrective actions.
11.3 PROFESSIONAL STANDARDS. As a continuing condition of Existing
Practice's obligations under this Agreement, each Physician must (i) have and
maintain a valid and unrestricted license to practice medicine in the State,
(ii) comply with, be controlled and governed by, and otherwise provide Medical
Services in accordance with applicable federal, State, and municipal laws,
rules, regulations, ordinances, and orders, and the ethics and standards of care
of the medical community wherein the Physician practices, and (iii) obtain and
retain appropriate medical staff membership with appropriate clinical privileges
at any hospital or health-care facility at which Medical Services are to be
provided and/or which managed care contracts require.
11.4 MEDICAL SERVICES. Existing Practice shall ensure that Physicians and
NonPhysician health-care personnel are available as necessary to provide Medical
Services to patients. Existing Practice and the Physicians shall be responsible
for scheduling Physician and NonPhysician health-care personnel coverage of all
medical procedures. Existing Practice shall cause all Physicians to exert their
best efforts to develop and promote Existing Practice in a manner designed to
ensure that Existing Practice is able to serve the diverse needs of the
community.
11.5 PEER REVIEW/QUALITY ASSURANCE. Existing Practice shall adopt a peer-
review/quality-assurance program to monitor and evaluate the quality and cost
effectiveness of Medical Services provided by Physicians. Upon the request of
Existing Practice, Manager shall provide administrative assistance to Existing
Practice in performing its peer-review/quality-assurance activities.
11.6 EXISTING PRACTICE'S INSURANCE. Existing Practice shall, as an
Existing Practice Expense, obtain and maintain with commercial carriers
acceptable to Manager and Existing Practice appropriate worker's compensation
coverage for employees of Manager at the Office and Existing Practice's employed
personnel, if any, and professional and comprehensive general liability
insurance covering Existing Practice, Physicians and employees of Manager (if
any) at the Office. The comprehensive general liability coverage shall be in
the minimum amount of One Million Dollars ($1,000,000); and professional
liability coverage shall be in the minimum amount of One Million Dollars
($1,000,000) for each occurrence, Three Million Dollars ($3,000,000) annual
physician aggregate and Ten Million Dollars ($10,000,000) annual policy
aggregate. The insurance policy or policies shall provide for at least thirty
(30) days advance written notice to Existing Practice from the insurer as to any
alteration of coverage, cancellation, or proposed cancellation for any cause.
Existing Practice shall cause to be issued by the insurer or insurers a
certificate reflecting such coverage and shall obtain the consent of the insurer
or insurers to provide prior written notice to the Manager equal to notice given
to Physician or Existing Practice, as applicable, of the cancellation or
proposed cancellation of insurance for any cause. The parties recognize that
the insurance coverage in effect for Existing Practice immediately prior to the
Effective Date includes "tail" professional liability insurance at no additional
cost as long as Existing Practice maintains such coverage. If, upon the
termination of this Agreement for any reason, such existing coverage has been
replaced by Manager, then Manager may obtain for Existing Practice and maintain
"tail" professional liability coverage, in
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such amount and upon such conditions as determined by the Manager, for the
reporting period or extended reporting period that is standard in the industry
or otherwise required by law. Recognizing that the insurance coverage maintained
by Existing Practice as of the Effective Date of this Agreement includes such
requisite tail coverage, Manager agrees that if Manager mandates a change in
insurance carriers to obtain different tail coverage, Manager shall be
responsible for paying all premiums for "tail" insurance coverage.
11.7 INDEMNIFICATION BY EXISTING PRACTICE. Existing Practice and each
Physician, jointly and severally, shall indemnify and hold IOI and Manager
harmless from and against any and all liability, loss, damage, claims, causes of
action, deficiency and expenses (including, without limitation, reasonable
attorneys' fees and associated costs) associated with or directly or indirectly
resulting from any act or omission of Existing Practice, its employees, agents,
or independent contractors during the Term, but not including any acts or
omissions of Existing Practice caused by or resulting from any statutory or
regulatory changes over which Existing Practice can exercise no control, any
misrepresentation, breach of warranty, or nonfulfillment of any agreement on the
part of Existing Practice or Physicians under this Agreement or under any
certificate or other instrument furnished or to be furnished by Existing
Practice or Physicians hereunder, and from the ownership, management,
operations, and interests of Existing Practice prior to, during, and after the
Effective Date hereof and prior to, during, and after Effective Date, and from
any act or omission of Existing Practice or its partners, agents, employees, and
independent contractors in respect of periods both prior to, during, and after
the Effective Date hereof and prior to, during, and after Effective Date, and
professional malpractice liability of any Physicians or Existing Practice
arising from or related to any incident occurring prior to, during, and after
the Effective Date hereof and prior to, during, and after Effective Date and
from the Excluded Liabilities. To be entitled to such indemnification, IOI must
give Existing Practice and each Physician written notice of the assertion by a
third party, to which IOI has knowledge, of any claim with respect to which IOI
might bring a claim for indemnification hereunder, and in all events must have
supplied such notice to Existing Practice and each Physician within the
applicable period for defense of such claim by Existing Practice and each
Physician. Existing Practice shall, as an Existing Practice Expense, have the
right to defend and litigate any such third-party claim.
11.8 CONFIDENTIAL AND PROPRIETARY INFORMATION. Existing Practice
acknowledges the confidentiality of its relationship with Manager and of any
Confidential Information of which it may learn or obtain during the Term of this
Agreement. Existing Practice shall not, either during the Term of this
Agreement or at any time after the expiration or sooner termination of this
Agreement, directly or indirectly, disclose to any person or entity other than
employees, agents or independent contractors engaged by Existing Practice, any
Confidential Information obtained or learned by Existing Practice. Existing
Practice also agrees (i) to place any person, including each Physician, to whom
Confidential Information is disclosed for the purpose of performance, under
legal obligation to treat Confidential Information as strictly confidential, and
(ii) agrees to be responsible for any breaches of this Section 4.8.
11.9 NONCOMPETITION. Existing Practice recognizes that IOI's and Manager's
decision to enter into this Agreement is induced primarily because of the
covenants and assurances made by Existing Practice in this Agreement; that
Existing Practice's covenant not to compete is necessary to ensure the
continuation of the business and the reputation of IOI and Manager; and
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that irrevocable harm and damage will be done to IOI and Manager if Existing
Practice competes with IOI and Manager within certain specified areas. Existing
Practice recognizes and acknowledges that Manager will incur substantial costs
in providing the equipment, support services, personnel, marketing, management,
administration, and other items and services that are the subject matter of this
Agreement, and that in the process of providing services under this Agreement,
Existing Practice will be privy to financial and confidential information to
which Existing Practice would not otherwise be exposed. The parties also
recognize that the services to be provided by Manager will be feasible only if
Existing Practice operates an active practice to which the Physicians associated
with Existing Practice devote their full time and attention, and that Manager
would not have entered into this Agreement without the following covenants.
11.9-1 Existing Practice agrees that during the term of this
Agreement, and for one year thereafter, it shall not establish, operate, or
provide Medical Services at a medical office, clinic, or other health-care
facility anywhere within the Existing Practice Area.
11.9-2 Except as specifically agreed to by Manager in writing,
Existing Practice covenants and agrees that during the Term and for one (1)
year thereafter, Existing Practice shall not directly or indirectly in any
capacity own, manage, operate, control, or be otherwise associated with,
participate in the management or control of, be employed by, consult with,
lend funds to, lend its name to, receive any remuneration from, or maintain
or continue any interest whatsoever in any enterprise (i) having to do with
the provision, distribution, marketing, promotion, or advertising of any
type of management or administrative services or products in competition
with IOI or Manager in the Existing Practice Area; and/or (ii) offering any
type of service(s) or product(s) similar to those offered by IOI or Manager
in the Existing Practice Area.
11.9-3 Existing Practice shall obtain and enforce formal agreements
from all of its Physicians (with the exception of Dr. Warren Axelein)
pursuant to which they agree not to own, establish, operate, manage, or
provide Medical Services or other services competitive with those of
Existing Practice, the Physicians, or Manager within the Existing Practice
Area during the term of their employment with Existing Practice and for one
(1) year thereafter.
11.9-4 Existing Practice understands and acknowledges that the
provisions in Section 11.8 and Section 11.9 are designed to preserve the
goodwill of Manager and of the individual Physicians. Accordingly, if
Existing Practice breaches any obligation of Section 11.8 or Section 11.9,
in addition to any other remedies available under this Agreement, at law or
in equity, Manager shall be entitled to enforce this Agreement by
injunctive relief and by specific performance of the Agreement, such relief
to be without the necessity of posting a bond, cash or otherwise.
Additionally, nothing in this paragraph shall limit Manager's right to
recover any other damages to which it is entitled as result of Existing
Practice's breach. If any provision of the restrictive covenants is held by
a court of competent jurisdiction to be unenforceable due to an excessive
time period, geographic area, or restricted activity, the restrictive
covenant shall be reformed to comply with the time period, geographic area,
or restricted activity that would be held enforceable.
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XII. RESPONSIBILITIES OF THE JOINT POLICY BOARD
12.1 FORMATION AND OPERATION OF THE JOINT POLICY BOARD. The parties shall
establish a Joint Policy Board which shall develop and implement management,
administrative and operational polices for Existing Practice, all as allowed by
law and in accordance with applicable industry standards or guidelines. The
Joint Policy Board shall consist of representatives of both Existing Practice
and Manager. Manager and Existing Practice shall each designate, in their sole
discretion, two (2) individuals as their representative members of the Joint
Policy Board. The Joint Policy Board members selected by Existing Practice
shall be shareholders of Existing Practice. If the option is exercised pursuant
to that certain Option to Designate New Shareholder of even date herewith,
selection by Existing Practice of its Joint Policy Board representatives shall
require the majority vote of the shareholders of Existing Practice other than
the new shareholder or shareholders designated pursuant to the aforementioned
Option. Each party's representatives to the Joint Policy Board shall have the
authority to make decisions on behalf of the respective party. Except as may
otherwise be provided, the number of total votes the members shall be authorized
to cast shall be equal as between Manager and Existing Practice and a majority
vote of the members of the Joint Policy Board shall be the act of the Joint
Policy Board.
The Joint Policy Board meetings shall be held as mutually agreed, but at
least quarterly, and meetings shall be open to others in accordance with the
Joint Policy Board's policies and procedures.
12.2 DUTIES AND RESPONSIBILITIES OF THE JOINT POLICY BOARD. The Joint
Policy Board shall have duties, obligations and authority for administrative,
management and operational issues related to Existing Practice as are
specifically delineated in the Joint Policy Board's policies and procedures
adopted by the Joint Policy Board as of the effective date of this Agreement
(and as may be amended from time to time by the Joint Policy Board), including
but not limited to review and approval of: capital improvements and expansion
issues; Existing Practice marketing and advertising decisions; collection
policies; and related dispute resolutions; ancillary services; provider/payor
relationships; strategic planning; capital expenditures; Existing Practice
hiring; and grievances.
12.3 MEDICAL DECISIONS. Notwithstanding the above-referenced scope of
Joint Policy Board review, all medical decisions shall be made solely by
Physicians. Further, although NonPhysician members of the Joint Policy Board
may participate only in the discussion process, the Physician members of the
Joint Policy Board shall review and resolve issues relating to: Medical
Services to be provided; physician recruitment to Existing Practice; acquisition
of or merger with any Existing Practices in the Existing Practice Area, fee
schedules, and any other function or decision that the parties agree is
medically related.
XIII. FINANCIAL ARRANGEMENT.
13.1 MANAGEMENT FEE. Existing Practice and Manager mutually recognize and
acknowledge that Manager will incur substantial costs and business risks in
arranging for Existing Practice's use of the Office and in providing the
management expertise, strategic planning, marketing, capital access, resource
retention, equipment, contract analysis and support, purchasing and other
management and administrative oversight services that are the subject matter of
this Agreement. Existing Practice and Manager further recognize that certain of
such costs and expenses can vary to
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a considerable degree according to the extent of Existing Practice's business
and services. It is the intent of the parties that the fees paid to Manager be
reasonable and approximate its costs and expenses plus a reasonable return
considering the investment and risk taken by Manager and the value of the
services provided by Manager. Each month, in the priority established by Section
6.11-4, the parties agree that Manager shall cause the following to be paid:
(1) Existing Practice Expenses; and
(2) Physician Compensation shall be forwarded to Existing Practice
concurrent with the Management Fee being paid by Existing Practice
to Manager pursuant to the criteria and formula set forth in
Exhibit 13.1.
Any remaining balance shall be applied as directed by Existing Practice.
13.2 EVALUATION OF REASONABLENESS. The Management Fee criteria shall be
re-evaluated at least annually as part of the Budget process to ensure that the
Management Fee continues to reflect the fair market value of Manager's services.
Payment of the Management Fee is not intended to be and shall not be interpreted
or applied as permitting Manager to share in Existing 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 Manager pursuant to this Agreement, as more
specifically set forth in Article VI herein, considering the nature and extent
of the services required and the risks assumed by the Manager.
13.3 PAYMENT OF MANAGEMENT FEE. To facilitate the payment of the Existing
Practice Expense and Management Fee, Existing Practice expressly authorizes
Manager to withdraw the Management Fee and other amounts due to Manager as
reimbursement of expense and other reimbursable expenses from the Existing
Practice Account in accordance with the Budget, the Joint Policy Board approval
process and/or the special power of attorney set forth in Section 6.11 herein,
as applicable.
13.4 PERFORMANCE ENHANCEMENT BENEFIT. To further assure the enhanced value
to Existing Practice that is intended to be afforded by the services provided by
Manager under this Agreement, Manager agrees to pay Existing Practice an amount
equal to:
(a) any increase to Adjusted Gross Profit between the Baseline
Amount (as defined and agreed upon by the parties in the Budget) and the
Adjusted Gross Profit for the seventh and eighth full calendar quarters
post-Effective Date, annualized;
(b) that number then multiplied by thirty percent (30%); and
(c) that number then multiplied by five (5).
The resultant amount shall be tendered to Existing Practice in three (3) equal
installments, beginning on January 2, 2000 and annually thereafter through and
including January 2, 2002.
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13.5 ACCOUNTS RECEIVABLE. To assure that Existing Practice receives the
entire amount of professional fees for its services and to assist Existing
Practice in maintaining reasonable cash flow for the payment of Existing
Practice Expense, Manager shall on an ongoing basis as such accounts receivable
are generated, during the Term, purchase, with recourse to Existing Practice for
the full amount of the purchase, the accounts receivable of Existing Practice
not already purchased by transferring the consideration described below into the
Existing Practice Account. The consideration for the purchase shall be an
amount equal to the estimate of expected collections on an accrual basis, which
calculation and amount shall be presented to Existing Practice on a monthly
basis in accordance with Manager's obligations under Section 6.12 of this
Agreement. Manager shall be entitled to offset Existing Practice Expenses and
Management Fee due to Manager against the amount payable for the accounts
receivable. If and to the extent Manager determines an account to be
uncollectible, Manager shall return such account to Existing Practice and be
credited with the amount of the unpaid balance. If and to the extent that the
Manager shall collect funds for any account receivable in excess of the
consideration paid by the Manager for such account receivable, the Manager shall
pay such excess amount to the Existing Practice and such excess amount shall
constitute additional Professional Income for purposes of this Agreement.
Although it is the intention of the parties that Manager purchase and thereby
become the owner of the accounts receivable of Existing Practice, in the event
such purchase shall be ineffective for any reason, Existing Practice is
concurrently herewith granting to Manager a security interest in the accounts
receivable, and Existing Practice shall cooperate with Manager and execute all
documents in connection with the pledge of such accounts receivable to Manager.
All collections in respect to such accounts receivable purchased by Manager
shall be received by Manager as the agent of Existing Practice and shall be
endorsed to Manager and deposited in a bank account at a bank designated by
Manager. To the extent Existing Practice comes into possession of any payments
in respect of such accounts receivable, Existing Practice shall direct such
payments to Manager for deposit in bank accounts designated by Manager.
XIV. TERM AND TERMINATION.
14.1 INITIAL AND RENEWAL TERM. The Term of this Agreement shall be for an
initial period of forty (40) years after the effective date of this Agreement
and shall be automatically renewed for successive five (5) year periods
thereafter, provided that neither Manager nor Existing Practice shall have given
notice of termination of this Agreement at least one hundred twenty (120) days
but not more than one hundred fifty (150) days before the end of the initial
forty-year term or any subsequent five-year renewal term, unless otherwise
terminated in accordance with this Agreement.
14.2 TERMINATION.
14.2-1 TERMINATION BY MANAGER. Manager may terminate this Agreement
upon the occurrence of any one of the following events:
a. Immediately upon the revocation, suspension, cancellation,
surrender, or restriction of any Existing Practice Physician's license
to practice medicine in the State for greater than thirty (30) days
and for professional competence or quality of care reasons if Manager
reasonably believes that such revocation, suspension, cancellation,
surrender or restriction will materially and adversely affect Existing
Practice's financial viability. Manager shall not exercise such
reasonable belief and shall not
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terminate this Agreement, however, if Manager recognizes that Existing
Practice has maintained its collectible net revenue levels during such
period without Physician;
b. Immediately upon Existing Practice's loss or suspension of
its Medicare or Medicaid provider number and/or Existing Practice's
restriction from treating beneficiaries of the Medicare or Medicaid
programs; or
c. The dissolution of Existing Practice or the filing of a
petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or any other action taken voluntarily or involuntarily
under any state or federal statute for the protection of debtors.
d. At the close of the thirty (30) day notice period if Existing
Practice breaches any of its material obligations under this Agreement
and fails to cure such breach within thirty (30) days of Existing
Practice's receipt of written notice regarding same.
e. At the close of a thirty (30) day notice period if Existing
Practice fails to maintain a sufficient number of Physicians engaged
in the full time practice of medicine through Existing Practice as
specifically required pursuant to Section 11.2-1 of this Agreement
(except if such lesser number occurs due to any Physician's death or
disability), unless otherwise agreed upon by Manager and Existing
Practice.
14.2-2 TERMINATION BY EXISTING PRACTICE. Existing Practice may
terminate this Agreement upon the occurrence of any one of the following
events:
a. The dissolution of Manager;
b. At the close of the thirty (30) day notice period if Manager
breaches any of its material obligations under this Agreement and
fails to cure such breach within thirty (30) days of Manager's receipt
of written notice regarding same;
c. At the close of the ten (10) day notice period if Manager, in
any way, breaches its delivery obligation for the Transaction
Consideration under Article II hereunder and such payment default or
failure to deliver the Transaction Consideration hereunder continues
for ten (10) days after notice has been given to Manager;
d. Immediately after an arbitrator pursuant to Section 15.14
makes a final determination that Manager has materially failed to
perform its obligations to Existing Practice hereunder;
14.2-3 TERMINATION BY AGREEMENT. If Existing Practice and Manager
shall mutually agree in writing, this Agreement may be terminated on the
date specified in the written agreement.
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14.2-4 LEGISLATIVE, REGULATORY OR ADMINISTRATIVE CHANGE. If there
shall be a change in the Medicare or Medicaid laws, regulations or general
instructions, new case law interpretations, the adoption of new
legislation, or a change in any third-party reimbursement system, any of
which materially affects the manner in which either party performs or is
compensated for its services under this Agreement, the parties shall
immediately propose a new service arrangement or basis for compensation for
the services furnished pursuant to this Agreement. If such notice of new
service arrangement or basis for compensation is given and if Manager and
Existing Practice are unable within thirty (30) days thereafter to agree
upon a new service arrangement or basis for compensation, either party may
terminate this Agreement by thirty (30) days notice to the other on any
future date specified in the notice. Upon such termination, no penalties or
ongoing obligations under this Agreement shall accrue to either party
except for any applicable obligations under subsection (i) of Section 14.3
herein.
14.3 EFFECTS OF TERMINATION. Upon termination of this Agreement, as
hereinabove provided, neither party shall have any further obligations under
this Agreement except for (i) obligations accruing prior to the date of
termination, including, without limitation, payment of all Existing Practice
Expenses and the Management Fee relating to services provided in the month or
portion of month prior to the termination of this Agreement and (ii)
obligations, promises, or covenants set forth in this Agreement that are
expressly made to extend beyond the Term, including, without limitation,
indemnities and noncompetition provisions (which noncompetition provisions shall
not apply if Existing Practice terminates this Agreement pursuant to Section
14.2-2 herein or if this Agreement is terminated pursuant to Section 14.2-4
herein). In effectuating the provisions of this Section, Existing Practice
specifically acknowledges and agrees that Manager shall, in accordance with the
power of attorney established in Section 6.9, continue to collect and receive on
behalf of Existing Practice all cash collections from accounts receivable in
existence at the time this Agreement expires or is terminated, amounts which
shall be applied first to outstanding Existing Practice Expense and any other
liabilities existing as of the date of expiration or termination, and then to
any Management Fee owed to Manager for management services already rendered.
Upon the termination of this Agreement under Section 14.2, and for a period of
one (1) year from the date of such termination or expiration, Existing Practice
will refrain from employing any individual that had been employed by Manager
during the term of this Agreement. Upon the expiration or termination of this
Agreement for any reason or cause whatsoever, Manager shall surrender to
Existing Practice all books and records pertaining to Existing Practice's
Existing Practice; provided, however, that Manager shall retain the right to
audit cash accounts of Existing Practice and Existing Practice shall provide
Manager with access to such books and records and provide copies thereof which
are reasonably required to collect accounts receivable of Existing Practice as
of the expiration or termination of this Agreement.
14.4 REPURCHASE OBLIGATION. Upon termination of this Agreement by Manager
cause or by Existing Practice without cause, Manager, in its sole
discretion, may require Existing Practice to comply with the following
repurchase requirements:
(a) Purchase from Manager any real estate owned by Manager and used as an
Office at the greater of (i) the appraised fair market value or (ii) the then
book value thereof. In the event of any repurchase of real property, the
appraised value shall be determined by Manager and Existing
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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;
(b) Purchase at book value all improvements, additions, or leasehold
improvements that have been made by Manager at any Office and that relate solely
to the performance of Manager's obligations under this Agreement;
(c) Repurchase from Manager any accounts receivable of Existing Practice
that were purchased pursuant to Section 13.5 of this Agreement, consideration
for which shall be as set forth therein;
(d) Assume all debt, and all contracts, payables, and leases that are
obligations of Manager or IOI and that relate principally to the performance of
Manager's obligations under this Agreement or the properties leased or subleased
hereunder by Manager;
(e) Purchase from Manager or IOI any intangibles, deferred charges and
covenants set forth on the books of Manager or IOI at the original cost of such
intangibles multiplied by a fraction, the denominator of which is four hundred
eighty (480) and the numerator of which is four hundred eighty (480) minus the
number of months that have elapsed since the effective date of this Agreement;
and
(f) Purchase from Manager at book value all other amounts on the books of
Manager relating to the Agreement and not otherwise provided for herein as
adjusted through the last day of the month most recently ended prior to the date
of such termination to reflect amortization or depreciation of such amounts over
a period of forty (40) years.
Existing Practice shall pay cash to fulfill these repurchase obligations, with
the purchase price to be reduced by the amount of debt and liabilities of
Manager, if any, assumed by Existing Practice provided, however, that partial
payment of the purchase price may be made by Existing Practice's assignment to
Manager of any payment toward liquidated damages owed Existing Practice under
Physician's separate employment agreement with Existing Practice. Such
assignment(s) shall in no way obviate Existing Practice's payment of the total
amount of the purchase price for such repurchase obligations. Existing Practice
and any Physician associated with Existing Practice shall execute such documents
as may be required to assume the liabilities set forth in this Section and to
remove Manager from any liability with respect to such repurchase obligations
and any property leased or subleased by Manager. The closing date for the
repurchase shall be determined by mutual agreement of the parties but shall not
occur later than sixty (60) days from the date of the notice of termination.
From and after any termination, each party shall provide the other party with
reasonable access of 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.
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XV. MISCELLANEOUS.
15.1 ADMINISTRATIVE SERVICES ONLY. Nothing in this Agreement is intended
or shall be construed to allow Manager to exercise control or direction over the
manner or method by which Existing Practice and its Physicians perform Medical
Services or other professional health-care services. The rendition of all
Medical Services, including, but not limited to, orthopaedic medicine and
ancillary services, shall be the sole responsibility of Existing Practice and
its Physicians, and Manager shall not interfere in any manner or to any extent
therewith. Nothing in this Agreement shall be construed to permit Manager to
engage in the practice of medicine, it being the sole intention of the parties
that the services to be rendered to Existing Practice by Manager are solely for
the purpose of providing nonmedical management and administrative services to
Existing Practice so that Existing Practice can devote its full time and
energies to the professional conduct of its Existing Practice and to the
provision of Medical Services to its patients and not to administration,
marketing, or practice management.
15.2 STATUS OF CONTRACTOR. It is expressly acknowledged that the parties
are independent contractors, and nothing in this Agreement is intended and
nothing shall be construed to create an employer-employee, partnership, joint-
venture, or other type of relationship, or to allow either party to exercise
control or direction over the manner or method by which the other performs the
services that are the subject matter of this Agreement; provided always that the
services to be provided under this Agreement shall be furnished in a manner
consistent with the standards governing those services and the provisions of
this Agreement. Each party understands and agrees that (i) the other will not
be treated as an employee for federal tax purposes, (ii) neither will withhold
on behalf of the other 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, (iii) all of such payments, withholdings, and benefits, if any, are
the sole responsibility of the party incurring the liability, and (iv) each 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.
15.3 NOTICES. Any notice, demand, or communication required, permitted, or
desired to be given under this Agreement shall be deemed effectively given when
in writing and personally delivered, mailed by prepaid certified or registered
mail, return receipt requested, or deposited with a nationally recognized
overnight courier service for overnight delivery, addressed as follows:
EXISTING PRACTICE: Merritt Orthopaedics Associates, P.C.
3909 Main Street
Bridgeport, Connecticut 06606
Attn: President
PHYSICIAN: Patrick J. Carolan, M.D.
3909 Main Street
Bridgeport, CT 06606
Facsimile Number: (203) 372-1585
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PHYSICIAN: Mark E. Wilchinsky, M.D.
3909 Main Street
Bridgeport, CT 06606
Facsimile Number: (203) 372-1583
IOI: Integrated Orthopaedics, Inc.
Three Riverway, Suite 1430
Houston, Texas 77056
Attention: President
Facsimile Number: (713) 439-0826
MANAGER: Integrated Management Services of Connecticut, Inc.
c/o Integrated Orthopaedics, Inc.
Three Riverway, Suite 1430
Houston, Texas 77056
ATTN: President
or to another address, or to the attention of another person or officer, that
either party may designate by written notice.
15.4 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware. Delaware law was chosen by the parties to govern
interpretation of this Agreement because Manager is a Delaware corporation. The
federal and state courts of Fairfield County, Connecticut shall be the courts of
venue for any litigation, special proceeding, or other proceeding as between the
parties that may be brought in connection with or by reason of, or arise out of,
this Agreement.
15.5 ASSIGNMENT. Except as may specifically provided in this Agreement to
the contrary, this Agreement shall inure to the benefit of and be binding upon
the parties and their respective legal representatives, successors, and assigns;
provided, however, that Existing Practice may not assign this Agreement without
the prior written consent of IOI and the Manager, which consent IOI and the
Manager may withhold in its sole discretion. The sale, transfer, pledge, or
assignment of any of the common shares held by any shareholder of Existing
Practice or the issuance by Existing 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 Existing Practice fail to
maintain a super-majority equaling two-thirds (2/3) of the voting interests in
Existing Practice, shall be deemed an attempted assignment by Existing Practice,
and shall be null and void unless consented to in writing by 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 Agreement, and in
the event of such a breach, the Manager may terminate this Agreement upon
twenty-four (24) hours notice to Existing Practice. IOI and Manager shall have
the right (i) to assign their rights and obligations under this Agreement to any
third party and (ii) collaterally to assign their interest in this Agreement and
the right to collect Management Fees under this Agreement to any financial
institution or other third party without the consent of Existing Practice or any
Physician. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto any rights, remedies,
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obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
15.6 SCHEDULES AND EXHIBITS. Each Schedule and Exhibit to this Agreement
shall be incorporated herein and considered a part hereof as if set forth herein
in full.
15.7 NO BROKERAGE. All parties to this Agreement represent to each other
that no broker has in any way been contacted in connection with the transactions
contemplated hereby. Existing Practice and each Physician, jointly and
severally, agree to indemnify IOI and Manager from and against all loss, cost,
damage or expense arising out of claims for fees or commissions of brokers
employed or alleged to have been employed by Existing Practice or any Physician.
IOI and Manager, jointly and severally, agree to indemnify Existing Practice
and each Physician from and against all loss, cost, damage or expense arising
out of claims for fees or commissions of brokers employed or alleged to have
been employed by IOI.
15.8 COST OF TRANSACTION AND TAXES. Except as otherwise set forth in this
Agreement, each party to this Agreement will pay its own expenses and
disbursements and its own agents, representatives, and accountants. Existing
Practice and each Physician shall be jointly and severally liable for any sales,
transfer, and other taxes, if any, imposed upon any party to this Agreement in
connection with the transactions contemplated by this Agreement irrespective on
whom the taxes are assessed.
15.9 WAIVER OF BREACH. The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to
constitute, a waiver of any subsequent breach of the same or another provision.
15.10 ENFORCEMENT. If either party resorts to legal action to enforce or
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover the costs and expenses of the action, including, without
limitation, reasonable attorneys' fees, in addition to any other relief to which
such party shall be entitled.
15.11 GENDER AND NUMBER. Whenever the context of this Agreement requires,
the gender of all words shall include the masculine, feminine, and neuter, and
the number of all words shall include the singular and plural.
15.12 ADDITIONAL ASSURANCES. Except as may be specifically provided in
this Agreement to the contrary, the provisions of this 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 any
additional instruments and take any additional acts that are reasonable and that
the requesting party may deem necessary to effectuate this Agreement.
15.13 CONSENTS, APPROVALS, AND EXERCISE OF DISCRETION. Whenever this
Agreement requires any consent or approval to be given by either party or either
party must or may exercise discretion, the parties agree that the consent or
approval shall not be unreasonably withheld or delayed and that the discretion
shall be reasonably exercised.
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15.14 DISPUTE RESOLUTION/ARBITRATION. Manager and Existing Practice shall
use good faith negotiation to resolve any dispute that may arise under this
Agreement. In the event Manager and Existing Practice cannot reach agreement on
any issue, the issue shall be submitted by either party to binding arbitration
according to the rules of arbitration of the National Health Lawyers
Association. Arbitration shall take place in Atlanta, Georgia or some other
geographically neutral location agreed upon by the parties, and the prevailing
party shall be entitled to recover costs as set forth in Section 8.7 herein.
15.15 FORCE MAJEURE. Neither party shall be liable or deemed to be in
default for any delay or failure in performance under this 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, fires,
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 the delay or failure in
performance is expressly addressed elsewhere in this Agreement.
15.16 SEVERABILITY. The parties have negotiated and prepared the terms of
this Agreement in good faith and with the intent that every term, covenant, and
condition 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 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, that
provision shall be as narrowly construed as possible, and all the remaining
terms, provisions, promises, covenants, and conditions of this 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 Agreement is in violation of applicable law, then the
parties agree to negotiate in good faith to amend the Agreement, to the extent
possible consistent with its purposes, to conform to applicable law.
15.17 DIVISIONS AND HEADINGS. The divisions of this 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 Agreement.
15.18 ENTIRE AGREEMENT/AMENDMENT. This Agreement supersedes all previous
contracts and constitutes the entire agreement of whatsoever kind or nature
existing between or among the parties respecting the within subject matter, and
no party shall be entitled to benefits other than those specified herein. As
between or among the parties, no oral statements or prior written material not
specifically incorporated herein shall be of any force or effect. The parties
specifically acknowledge that in entering into and executing this Agreement, the
parties are relying solely upon the representations and agreements contained in
this Agreement and no others. All prior representations or agreements, whether
written or verbal, not expressly incorporated herein are superseded and no
changes in or additions to this Agreement shall be recognized unless and until
made in writing and signed by all parties hereto. The representations,
warranties, and agreements of the parties set forth herein shall survive the
Effective Date and remain of full force and effect, and shall survive the
execution and delivery of all other agreements described, referenced, or
contemplated herein, and shall not be merged therewith.
39
<PAGE>
15.19 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each and all of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, Existing Practice and Manager have caused this
Agreement to be executed by their duly authorized representatives, all as of the
day and year first above written.
EXISTING PRACTICE: MERRITT ORTHOPAEDIC ASSOCIATES, P.C.
By:
--------------------------------
Name:
--------------------------------
President
IOI: INTEGRATED ORTHOPAEDICS, INC.
By:
--------------------------------
Ronald E. Pierce
President and Chief Operating Officer
PHYSICIAN: ---------------------------------
Patrick J. Carolan, M.D.
PHYSICIAN: ---------------------------------
Mark E. Wilchinsky, M.D.
MANAGER: IOI MANAGEMENT SERVICES OF CONNECTICUT, INC.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
40
<PAGE>
EXHIBIT 2
AGREEMENT
TO CHANGE EFFECTIVE DATE
The undersigned parties to this Agreement to Change Effective Date (the
"Agreement") do hereby agree and consent to change the Effective Date, as
defined therein, from September 22, 1997 to October 1, 1997 in each of the
following documents:
Accounts Receivable Bill of Sale
Buy-Sell Agreement Among Merritt Orthopaedic Associates, P.C. Shareholders.
Option to Designate New Shareholder(s)
Physician (Shareholder) Employment Agreement between Merritt Orthopaedic
Associates, P.C. and Patrick J. Carolan, M.D.
Physician (Shareholder) Employment Agreement between Merritt Orthopaedic
Associates, P.C. and Mark E. Wilchinsky, M.D.
Physician Employment Agreement between Merritt Orthopaedic Associates, P.C. and
Gerard Girasole, M.D.
Physician (Non-Shareholder) Employment Agreement between Merritt Orthopaedic
Associates, P.C. and Beverly Carolan, M.D.
Management Services Agreement
Power of Attorney
Lease Agreement between IOI Management Services of Connecticut, Inc. and Patrick
J. Carolan, M.D.
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
September 29, 1997.
EXISTING PRACTICE: MERRITT ORTHOPAEDIC ASSOCIATES, P.C.
By:
---------------------------------
Name: Patrick J. Carolan, M.D.
President
<PAGE>
IOI: INTEGRATED ORTHOPAEDICS, INC.
By:
----------------------------
Ronald E. Pierce
President and Chief Operating Officer
PHYSICIAN: _______________________________
Patrick J. Carolan, M.D.
PHYSICIAN: _______________________________
Mark E. Wilchinsky, M.D.
PHYSICIAN: _______________________________
Beverly Carolan, M.D.
PHYSICIAN: _______________________________
Girard J. Girasole, M.D.
MANAGER: IOI MANAGEMENT SERVICES OF CONNECTICUT, INC.
By:
----------------------------
Name: Ronald E. Pierce
Title: President
