Business Management Agreement

EXHIBIT 10.1


BUSINESS MANAGEMENT AGREEMENT


This Professional Business Management Agreement is made and entered into effective as of February 27, 2000, by and between Eye Care Centers of America, Inc., a Texas corporation ("Professional Business Manager"), and S.L. Christensen, O.D. & Associates, P.C., an Arizona professional corporation (the "Practice").


R E C I T A L S


A. The Practice is currently engaged in the provision of Professional Eye Care Services (as defined below) to the general public in the state of Arizona (the "Practice Area") through individual Professionals (as defined below) each of whom is licensed to practice optometry and/or ophthalmology in Arizona and is employed or otherwise retained by the Practice;


B. The Practice desires to provide Professional Eye Care Services to the general public at office(s) located adjacent to certain optical retail stores operating under the name "EyeMasters" in Arizona and engage the Professional Business Manager to provide management services at such offices (such office locations, each to be listed on Exhibit A as attached hereto and amended from time to time, are hereinafter referred to as the "EyeMasters Practice Locations"); and


C. The Practice desires to engage Professional Business Manager to provide facilities, equipment and such management, administrative and business services as are necessary and appropriate for the day-to-day administration of the non-optometric aspects of the Practice's professional eye care practice at each of the EyeMasters Practice Locations, and Professional Business Manager desires to provide such, upon the terms and conditions hereinafter set forth, for the purpose of enhancing the cost-efficiency and quality of services rendered by the Practice to its patients.


NOW, THEREFORE, for and in consideration of the mutual agreements, terms, covenants and conditions contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:


ARTICLE I


DEFINITIONS


For the purposes of this Professional Business Management Agreement, the following terms shall have the following meanings ascribed thereto, unless otherwise clearly required by the context in which such term is used:


1.1 Adjusted Gross Revenue. The term "Adjusted Gross Revenue" shall mean all revenues for Professional Eye Care Services, or otherwise, generated by or on behalf of the Practice and/or its Professionals or other personnel at, relating to, or arising out of the EyeMasters Practice Locations during the term of this Professional Business Management Agreement, calculated on an accrual basis under GAAP, including all technical fees from ancillary services, all proceeds from key person life and disability insurance policies purchased by Professional Business Manager in agreement with the Practice in accordance with Section 3.15, all amounts paid by third parties for contractual liabilities, including, but not limited to, payments under non-shareholder Professionals' non-competition agreements and compensation


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payments under any service agreement between the Practice and another entity, and all consultant, teaching and expert witness fees minus any allowances for bad debts, uncollectible accounts, Medicare, Medicaid and other payor contractual adjustments, discounts, workers' compensation adjustments, reasonable professional courtesies, and other reductions in collectible revenue that result from activities that do not result in collectible charges.


1.2 Budget. The term "Budget" shall mean an operating budget and capital expenditure budget for each fiscal year as prepared in accordance with Section 3.11(a).


1.3 Capitation Revenues. The term "Capitation Revenues" shall mean all collections from managed care organizations or third-party payors where such payment is made periodically on a per member basis for the partial or total needs of a subscribing patient, less amounts that are payable to other providers of health care items and services to capitation patients. Capitation Revenues shall include any co-payments and incentive bonuses received as a result of a capitation plan.


1.4 Clinical Duties. The term "Clinical Duties " shall mean those duties of Non-Professional Personnel (as defined below) which entail directly or indirectly assisting a Professional (as defined below) in the scheduling, examination or care of patients in the course of providing Professional Eye Care Services, regardless of whether the performance of such duties requires licensure under applicable state law.


1.5 Confidential Information. The term "Confidential Information" shall mean any information of Professional Business Manager or the Practice, as appropriate (whether written or oral), including all business management or economic studies, patient lists, proprietary forms, proprietary business or management methods, marketing data, fee schedules, or trade secrets of the Professional Business Manager or of the Practice, as applicable, whether or not such Confidential Information is disclosed or otherwise made available to one Party by the other Party pursuant to this Professional Business Management Agreement or the Existing Business Management Agreements. Confidential Information shall also include the terms and provisions of this Professional Business Management Agreement and any transaction or document executed by the Parties pursuant to this Professional Business Management Agreement. Confidential Information does not include any information that the receiving party can establish (a) is or becomes generally available to and known by the public or optometric community (other than as a result of an unpermitted disclosure directly or indirectly by the receiving party or its affiliates, advisors, or Representatives); (b) is or becomes available to the receiving party on a nonconfidential basis from a source other than the furnishing party or its affiliates, advisors or Representatives, provided that such source is not and was not bound by a confidentiality agreement with or other obligation of secrecy to the furnishing party of which the receiving party has knowledge; or (c) has already been or is hereafter independently acquired or developed by the receiving party without violating any confidentiality agreement with or other obligation of secrecy to the furnishing party.


1.6 Executive Office Administrator. The term "Executive Office Administrator" shall mean the employee of Professional Business Manager having executive authority and responsibility for the general and active management of the Professional Business Manager.


1.7 EyeMasters Practice Locations. The term "EyeMasters Practice Locations" shall have the meaning set forth in the Recitals.


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1.8 GAAP. The term "GAAP" shall mean generally accepted United States accounting principles.


1.9 Management Fee. The term "Management Fee" shall mean the Professional Business Manager's compensation established as described in Article V hereof.


1.10 Management Services. The term "Management Services" shall mean the business, administrative, and management services to be provided for the Practice and the Office hereunder, including, without limitation, the provision of equipment, inventory and supplies, support services, personnel (excluding Professionals) management, administration, financial record keeping, and reporting, and other business office services, all as reasonably contemplated by this Professional Business Management Agreement and which are necessary for the conduct of the Practice's business at the EyeMasters Practice Locations.


1.11 Non-Professional Personnel. The term "Non-Professional Personnel" shall mean those individuals employed primarily at the Office who are not Optometrists or Ophthalmologists.


1.12 Office. The term "Office" shall mean the facilities and locations used by the Practice with respect to the EyeMasters Practice Locations, all business operations related to the Practice's optometric and/or therapeutic optometric practice at the EyeMasters Practice Locations, and all related business operations of the Practice which are to be administered by Professional Business Manager under this Professional Business Management Agreement.


1.13 Office Expense. The term "Office Expense" shall mean all operating and non-operating expenses incurred by the Professional Business Manager in the provision of Management Services to the Office and shall include all operating and non-operating expenses incurred by the Practice relating to the items set forth in this Section. The Professional Business Manager shall be reimbursed by the Practice for any reasonable Office Expense incurred by the Professional Business Manager in the provision of services to the Practice hereunder, upon request by the Professional Business Manager. Office Expense shall not include any Professional Business Manager Expense, Practice Expense or Shareholder Expense or any state, local or federal income or franchise tax. Without limitation, Office Expense shall include the following expenses to the extent relating to the EyeMasters Practice Locations:


(a) the salaries, benefits, payroll taxes, and other direct costs of all employees of Professional Business Manager primarily working at the Office and the salaries, benefits, payroll taxes, and other direct costs of the Non-Professional Personnel of the Practice primarily working at the Office, but not the salaries, benefits, payroll taxes or other direct costs of the Professionals;


(b) the direct cost of any employee or consultant that provides services at or in connection with the Office for improved Office performance, such as management, billing and collections, business office consultation, and accounting and legal services, but only when such services are coordinated by Professional Business Manager and/or included in the Budget;


(c) reasonable recruitment costs and out-of-pocket expenses of Professional Business Manager or the Practice associated with the recruitment of additional Professionals, other employees of the Practice and Professional Business Manager's employees primarily located at the Office;


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(d) personal property and intangible property taxes assessed against Professional Business Manager's assets used in connection with the operation of the Office;


(e) comprehensive general and professional liability insurance covering the Office, employees of the Practice in connection with the operation of the Office and employees of Professional Business Manager in connection with the operation of the Office;


(f) the expense of using, leasing, purchasing or otherwise procuring and maintaining the Office;


(g) the cost of capital (whether as actual interest on indebtedness incurred on behalf of the Practice or reasonable imputed interest on capital advanced by Professional Business Manager which shall be equal to the average cost of borrowing by Professional Business Manager as reflected on its most recent published financial statements, or in the absence of either of the foregoing, eight percent (8%)) to finance or refinance obligations of the Practice incurred in connection with the Office, or to finance new ventures of the Practice in connection with the Office; in any such case only as such cost of capital is set forth in the Budget or otherwise approved in advance by the Practice Advisory Council;


(h) the reasonable travel expenses associated with attending meetings, conferences, or seminars to benefit the Practice so long as such expenses are related to individuals located at the Office and the Practice's pro rata share for individuals who are consultants of or employed by Professional Business Manager who provide material services to the Office;


(i) the cost of office supplies, inventory and utilities;


(j) billing and collection costs and expenses;


(k) the Practice's pro-rata share of reasonable corporate overhead charges or other reasonable expenses (including computer and data processing costs) which are incurred by Professional Business Manager in connection with corporate headquarters expenses which relate to the provision of benefits or services by Professional Business Manager to the Office and are reflected in the Budget including without limitation direct or indirect costs of the Executive Office Administrator and other Professional Business Manager personnel;


(l) all other expenses which are set forth in the Budget and which directly or indirectly benefit the Practice incurred by Professional Business Manager in carrying out its obligations under this Professional Business Management Agreement;


(m) reasonable costs and expenses (to the extent not covered by insurance) of lawsuits or claims against the Professional Business Manager or its personnel, or the Practice, its Professional(s), or its other personnel related to their performance of duties at the Office or their interest in assets used in connection with the Office, provided that if any of the Professional Business Manager or its personnel, or the Practice, its Professional(s), or its other personnel do not prevail in the lawsuit or claim or settle the matter with a material payment by the party (the party at "fault"), such costs and expenses shall be deemed a Professional Business Manager Expense in the event of Professional Business Manager's fault or the fault of its personnel and a Practice Expense in the event of fault by the Practice, its Professional(s), or its other personnel whereupon the Practice and such Professional(s) or other personnel shall be jointly responsible for the immediate reimbursement of the sums advanced by Professional Business Manager;


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provided further that Professional Business Manager shall not advance such costs and expenses from the Account if the Practice Advisory Council concludes that (i) it is unlikely that the Account will be reimbursed if the party involved will not prevail in the lawsuit or claim, or (ii) a reasonable third person would believe that obtaining a reimbursement of the advanced sums will be difficult to achieve; and the Parties acknowledge that nothing in this Section shall create any liability on the part of a Professional who would otherwise be shielded from personal liability by the corporate or limited liability structure of the Practice;


(n) key person life and disability insurance premiums related to policies which the Parties agree to acquire on the life of the Practice's Shareholders or Professionals, whereupon any proceeds shall be paid to the Account as Adjusted Gross Revenues, unless the Parties agree to a specific split of the proceeds. Should only the Practice choose to obtain key person life insurance, the Practice shall pay all premiums as a Practice Expense and shall receive all proceeds. Further, if only the Professional Business Manager chooses to obtain such insurance, Professional Business Manager shall pay all premiums as a Professional Business Manager Expense and shall receive all proceeds. The Practice shall cause its Shareholders and Professionals to submit to a medical examination necessary to obtain such insurance.


In the event that any of the individuals described in Section 1.14(b) devote a substantial amount of time to serving one or more optometric practices other than the Practice with respect to the EyeMasters Practice Locations, which is not prohibited hereunder, or the above described Office is utilized to a substantial degree by one or more optometric practices other than the Practice with respect to the EyeMasters Practice Locations, the Office Expenses shall be allocated between the Practice with respect to the EyeMasters Practice Locations and such other optometric practices to reflect each practice's pro-rata share of any expenses or costs relating to such individuals or Office (including the recruitment costs of such individuals and the comprehensive and general liability insurance expenses with respect to such individuals). Expenses contemplated in this paragraph which potentially and primarily relate to Sections 1.14 (b), (c), (d), (e), (f), (g), (h), (k), and (l) shall be in the Budget or approved by the Practice Advisory Council, and where reasonably determinable, are intended to be reasonable and customary based upon similar relationships generally existing between national practice management companies and practices they manage. The Practice's pro-rata portion of expenses related to individuals who are consultants of or employed by Professional Business Manager and who provide services benefiting practices other than the Practice with respect to the EyeMasters Practice Locations shall be based upon the actual time expended by the individuals in performing such services as compared to the time spent by such individuals with other practices managed by the Professional Business Manager, or, if not reasonably calculable, as determined by the Professional Business Manager, based upon the estimated proportionate revenue size of the Practice with respect to the EyeMasters Practice Locations as compared to the aggregate revenue size as estimated in all of the Budgets of all other practices managed by the Professional Business Manager which are benefiting from such individual's services. Likewise, other benefits provided by the Professional Business Manager to the Practice with respect to the EyeMasters Practice Locations and other practice locations shall be split pro-rata based upon the use or benefit derived by each practice, but if not calculable, shall be based upon the estimated proportionate revenue size as set forth in the preceding sentence. Notwithstanding anything to the contrary herein, unless expressly designated as a Professional Business Manager Expense, a Practice Expense or a Shareholder Expense in this Professional Business Management Agreement or any exhibit thereto, all expenses incurred by Professional Business Manager in providing services pursuant to this Professional Business Management Agreement shall be considered Office Expenses


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1.14 Optometrist. The term "Optometrist" shall mean each individually licensed Optometrist, if any, who is employed or otherwise retained by or associated with the Practice, and shall meet at all times the qualifications described in Section 4.3 and Section 4.4.


1.15 Ophthalmologist. The term "Ophthalmologist" shall mean each individually licensed Ophthalmologist, if any, who is employed or otherwise retained by or associated with the Practice, and shall meet at all times the qualifications described in Section 4.3 and Section 4.4.


1.16 Parties. The term "Parties" shall mean the Practice and Professional Business Manager.


1.17 Permitted Shareholder Expense. The "Permitted Shareholder Expense" shall mean the amount equal to (i) $5,000 per EyeMasters Practice Location on an annualized basis (such amount to be prorated for any partial year in which an EyeMasters Practice Location operates) plus (ii) the amount of any compensation paid to the Shareholder under the President's Employment Agreement described in Section 4.3 hereof. The Parties acknowledge that the amount referenced in clause (i) of this paragraph may be (A) expended by the Practice on additional benefits to be provided to Shareholder that would not otherwise be included as an Office Expense or Practice Expense or provided under the President's Employment Agreement, (B) paid to an affiliate of the Practice for consulting or other services to the Practice, or (C) distributed to Shareholder.


1.18 Practice. The term "Practice" shall have the meaning set forth in the Recitals.


1.19 Practice Advisory Council. The term "Practice Advisory Council" shall have the meaning set forth in Section 2.6 of this Agreement.


1.20 Practice Expenses. The term "Practice Expenses" shall mean, to the extent relating to the EyeMasters Practice Locations, (a) all reasonable non-shareholder Professionals' salaries, benefits, payroll taxes and other direct costs related to their services to the Practice (including reasonable and customary professional dues, subscriptions, continuing education and technical training expenses, and severance payments), (b) the cost of optometric supplies (including, but not limited to, drugs, pharmaceuticals, products, substances, items or optometric devices); (c) reasonable and customary professional liability insurance expenses of Professionals; (d) travel costs for continuing education, technical training and necessary business travel for non-shareholder Professionals; (e) to the extent not covered by insurance and subject to the advance provisions contained herein, the defense costs and expenses of any litigation or claims brought against the Practice, its Professionals, or its other personnel by any third party in which the Practice, its Professionals, or its other personnel do not prevail or the matter settles with a material payment and the Practice, its Professionals, or other personnel are at fault, and any liability judgment or material settlement assessed against the Practice or its Professionals or other personnel; (f) certain equipment expenses described in Sections 3.2(c) and 3.2(d) of this Professional Business Management Agreement; (g) interest on any funds advanced to the Practice by Professional Business Manager to the extent that Professional Business Manager is a net lender in accordance with the terms of this Professional Business Management Agreement; (h) any income taxes or franchise taxes of the Practice; and (i) consulting, accounting, or legal fees which relate solely to the Practice. Notwithstanding the foregoing, the term Practice Expenses shall specifically exclude (i) business travel requested by Professional Business Manager, which shall be an Office Expense, (ii) any and all compensation or expenses attributable to Shareholders, which shall be Shareholder Expenses (except reasonable and customary expenses for malpractice insurance which shall be a Practice Expense), (iii) "tail" insurance coverage for Shareholders, which shall be a Shareholder Expense, or (iv) such other items agreed to in advance in writing by the Parties


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hereto. During this Professional Business Management Agreement, for so long as a current Shareholder of the Practice is an employee of, contractor to, or Shareholder of the Practice, such Shareholder shall be deemed to be a Shareholder for the purposes of this definition. Such expenses are to be approved annually in the Budget.


1.21 Professional. The term "Professional" shall mean any Optometrist or Ophthalmologist.


1.22 Professional Business Management Agreement. The term "Professional Business Management Agreement" shall mean this instrument as originally executed and delivered, or, if amended or supplemented, as so amended or supplemented.


1.23 Professional Business Manager. The term "Professional Business Manager" shall have the meaning set forth in the Recitals hereto.


1.24 Professional Business Manager Expense. The term "Professional Business Manager Expense" shall mean an expense or cost incurred by the Professional Business Manager, for which the Professional Business Manager is financially liable and is not entitled to reimbursement from the Practice. Professional Business Manager Expense shall specifically include: (a) any income or franchise taxes of the Professional Business Manager; (b) the expense of providing, leasing, purchasing or otherwise procuring and maintaining the Office equipment, including depreciation in the case of furniture and equipment; and (c) any other expenses or costs that are not reasonable and customary reimbursements based upon a national practice management company's usual arrangement with a practice it manages.


1.25 Professional Eye Care Services. The term "Professional Eye Care Services" shall mean professional health care items and services, including, but not limited to, the practice of optometry, and all related professional health care services provided by the Practice through Optometrists, Ophthalmologists, and other professional health care providers that are retained by or professionally affiliated with the Practice.


1.26 Professional Practice Account. The term "Professional Practice Account" shall mean the bank account described in Section 3.10.


1.27 Representatives. The term "Representatives" shall mean a Party's officers, directors, managers, employees, or other agents.


1.28 Shareholder. The term "Shareholder" shall mean any current or future shareholder of the Practice.


1.29 Shareholder Expense. The term "Shareholder Expense" shall be limited to the following expenses: (a) Shareholders' salaries, benefits, payroll taxes, and other direct costs as provided in the President's Employment Agreement (including professional dues, subscriptions, continuing education expenses, severance payments, and entertainment and travel costs for continuing education or other business travel but excluding business travel requested by Professional Business Manager, which shall be an Office Expense, and excluding any other expense of a Shareholder approved as an Office Expense in advance by the Parties); (b) "tail" coverage malpractice insurance expenses for the Shareholders and any malpractice insurance expenses of any Professional which are in excess of those which are customary and reasonable; and (c) consulting, accounting, or legal fees which relate solely to the Shareholders. The Practice shall reimburse the Professional Business Manager for any Shareholder Expense incurred by the Professional


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Business Manager. Unless expressly designated as a Management Fee, a Professional Business Manager Expense, an Office Expense, or a Practice Expense in this Professional Business Management Agreement or in any exhibit hereto or in any written agreement of the Parties, any expense incurred by the Practice shall be considered a Shareholder Expense. Notwithstanding the above, the Practice may require certain Professionals to pay certain expenses incurred for them specifically. Nothing in this Section shall create personal liability on the part of the Practice's Shareholders.


1.30 Term. The term "Term" shall mean the initial and any renewal periods of duration of this Professional Business Management Agreement as described in Section 6.1.


ARTICLE II


APPOINTMENT OF PROFESSIONAL BUSINESS MANAGER


2.1 Appointment. The Practice hereby appoints Professional Business Manager as its sole and exclusive agent for the management and administration of the business functions and business affairs of the Office, and Professional Business Manager hereby accepts such appointment, subject at all times to the provisions of this Professional Business Management Agreement. Notwithstanding any provisions in this Agreement to the contrary, Professional Business Manager's duties, responsibilities and authority hereunder shall only extend to the management of the EyeMasters Practice Locations set forth on Exhibit A hereto, which may be amended from time to time with the consent of the Practice and Professional Business Manager or as provided in Section 6.2(c) hereof.


2.2 Authority. Consistent with the provisions of this Professional Business Management Agreement, Professional Business Manager shall have the responsibility and commensurate authority to provide Management Services for the Practice at the EyeMasters Practice Locations. The Practice shall give Professional Business Manager thirty (30) days' prior notice of the Practice's intent to execute any agreement creating a binding legal obligation on the Practice to the extent relating to the EyeMasters Practice Locations. The Parties acknowledge and agree that the Practice, through its Professionals, shall be responsible for and shall have complete authority, responsibi ...