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PROSPECTUS SUPPLEMENT NO.66 Filed Pursuant to Rule 424(b)(3)
To the Prospectus dated January 5, 1998 Registration No.: 333-1926
As Supplemented to date
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7,000 Shares
and Options to Purchase
7,000 Shares
of Class B Common Stock of
Doctors Health, Inc.
This Prospectus Supplement relates to the proposed acquisition (the
"Acquisition") of certain assets and liabilities (the "Acquired Business") of
Barbara Furlow, M.D. ("Medical Practice") by Doctors Health, Inc., a Delaware
corporation ("Doctors Health" or the "Company"), and Anne Arundel Medical
Group, a Maryland limited liability company ("Medical Group"). At the
closing of the Acquisition, Doctors Health will issue 7,000 shares and
options to purchase 7,000 shares (the "Share Consideration") of its Class B
Common Stock, par value $.01 per share (the "Class B Common Stock") and will
pay $47,500 ("Cash Consideration") to the Medical Practice in accordance with
the Practice Transfer Agreement described in this Prospectus Supplement.
Doctors Health's principal executive office is located at 10451
Mill Run Circle, Tenth Floor, Owings Mills, Maryland 21117, telephone number
(410) 654-5800. Medical Group's principal executive office is located at
10451 Mill Run Circle, 10th Floor, Owings Mills, Maryland, telephone number
(410) 654-5800. Medical Practice's principal executive office is located at
705 Melvin Avenue, Suite 100, Annapolis, Maryland 21401. The information
presented in this Prospectus Supplement concerning Doctors Health and Medical
Group has been provided by Doctors Health, and the information concerning
Medical Practice has been provided by Medical Practice.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER OF
ANY PERSON TO EXCHANGE OR SELL, OR A SOLICITATION FROM ANY PERSON OF AN OFFER
TO EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS
SUPPLEMENT, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS SUPPLEMENT RELATES
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED THEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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See "Risk Factors" on page S-3 for certain information that should
be considered in connection with an investment in securities of Doctors
Health.
The date of this Prospectus Supplement is June 16, 1998.
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SUMMARY OF TRANSACTION
The following summary is qualified in its entirety by, and subject
to the more detailed information and financial statements contained in this
Prospectus Supplement and the Prospectus dated January 5, 1998, as
supplemented to date by Prospectus Supplements No. 62 and 70. Unless
otherwise defined herein, capitalized terms have the meanings assigned to
them in the Prospectus. See the definitions set forth in the Glossary to the
"Prospectus."
Parties to the Acquisition
Doctors Health. Doctors Health is a Delaware corporation organized
in 1994 to develop and consolidate individual and groups of internists,
pediatricians and family practitioners, specialist physicians, hospitals and
other health care providers into primary care-driven, comprehensive managed
care health care delivery networks.
Anne Arundel Medical Group. Anne Arundel Medical Group ("Medical
Group") is a Maryland Limited Liability Company organized in Anne Arundel
County to conduct medical practices in Anne Arundel County, Maryland.
Medical Practice. The Medical Practice is a Maryland corporation
which conducts business through a Physician, office manager and nurse in
Annapolis, Maryland.
The Acquisition; Closing
Pursuant to the Practice Transfer Agreement (the "Acquisition
Agreement") between Medical Practice and Doctors Health, (i) Medical Practice
shall transfer to Doctors Health all of its right, title and interest in and
to certain assets of the Medical Practice pursuant to the Acquisition
Agreement, subject to certain exclusions stated therein, (ii) Medical
Practice shall transfer to Medical Group all right, title and interest in and
to any assets used to provide laboratory services and other services
ancillary to the Medical Practice, (iii) Doctors Health shall issue 7,000
shares and options to purchase 7,000 shares (the Share Consideration") of
Class B Common Stock to Dr. Barbara Furlow, (iv) Doctors Health shall pay
$47,500 ("Cash Consideration") to Dr. Barbara Furlow, and (v) Doctors Health
shall pay $2,500 to Dr. Barbara Furlow as reimbursement for closing expenses,
on the terms and subject to the conditions set forth in the Form of
Acquisition Agreement. A copy of the Acquisition Agreement is attached to
this Prospectus Supplement as Annex A and is incorporated herein by reference.
The Acquisition is to be consummated as soon as practicable after
all approval and events required for the Acquisition have occurred and all
conditions precedent to the Acquisition have been fulfilled or waived or on
such other date on which Medical Practice and Doctors Health may agree (the
"Closing Date"). It is expected that the Closing Date will occur on or about
June 16, 1998.
Resale of Class B Common Stock
The shares of Class B Common Stock and the options to purchase
shares of Class B Common Stock offered to the Medical Practice by this
Prospectus Supplement have been registered under the Securities Act. The
shares will be subject to the Shareholders Letter Agreement attached hereto
as Annex B and therefore, will not be freely transferable. In addition,
under the Securities Act certain additional restrictions on transfer apply to
resale of shares of the Class B Common Stock received by "affiliates" of
Doctors Health. There is no public market for the Class B Common Stock. See
"Resale of Class B Common Stock."
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RISK FACTORS
Financial Performance of Medical Practice and Doctors Health
Doctors Health negotiated the Share Consideration and Cash
Consideration on the basis of the presence in Medical Practice in a desirable
geographic market into which Doctors Health intends to expand. After the
Closing Date, Doctors Health will recruit additional primary care physicians
to Montgomery County, Maryland. There can be no assurance that after the
Closing Date of the Acquisition, such recruitment will be successful, that
Medical Practice's pre-Acquisition relationships with its patients will be
beneficial to Doctors Health and Medical Group, that Doctors Health will be
able to successfully develop an integrated health care delivery network in
Montgomery County, Maryland, or that Doctors Health can successfully
integrate Medical Practice into Global Capitated Contracts. See the sections
in the Prospectus "Risk Factors -- Uncertainty of Strategy; Acquisition
Risks", and "-- Dependence on Managed Care Contracts."
Doctors Health has a limited operating history and for the fiscal
year ended June 30, 1996 and June 30, 1997, recorded a net loss of
approximately $6.6 million and $14.8 million, respectively. Doctors Health
is likely to record a net loss for the fiscal year ending June 30, 1998.
There can be no assurance that after the Closing Date Doctors Health will
earn operating profits.
Risk Factors set forth in the Prospectus dated January 5, 1998
The Risk Factors set forth in the Prospectus are incorporated
herein by reference and should be read carefully.
PROPOSED ACQUISITION OF MEDICAL PRACTICE BY DOCTORS HEALTH
The following description of the Acquisition does not purport to be
complete and is qualified in its entirety by reference to the Acquisition
Agreement, a copy of which is attached to this Prospectus Supplement as Annex
A and is incorporated herein. Representatives of Medical Practice are urged
to read the Acquisition Agreement in its entirety.
General
On the Closing Date of the Acquisition, (i) Medical Practice shall
transfer to Doctors Health certain of its assets, (ii) Medical Practice
shall transfer to Anne Arundel Medical Group all right, title and interest in
and to any assets used to provide laboratory services and other services
ancillary to the Medical Practice, (iii) Doctors Health shall issue 7,000
shares and options to purchase 7,000 shares (the "Share Consideration") of
Class B Common Stock to Dr. Barbara Furlow, (iv) Doctors Health shall pay
$47,500 ("Cash Consideration") to Dr. Barbara Furlow, and (v) Doctors Health
shall pay $2,500 to Dr. Barbara Furlow as reimbursement for closing expenses,
on the terms and subject to the conditions set forth in the Acquisition
Agreement.
Background of the Acquisition
The health care industry is undergoing rapid evolution, including
the consolidation of individual medical practices into larger medical groups
and independent practice associations as well as radical changes in the way
physicians are compensated for the delivery of medical services.
In Baltimore, Maryland, Washington, D.C., Northern Virginia and
surrounding regions, physicians have increasingly become affiliated with
managed care and medical management companies such as Doctors Health which
provide physicians with certain administrative, billing, bookkeeping and
budgeting services. Companies such as Doctors Health also provide the
physicians with access to Managed Care contracts and necessary tools to
perform such contracts, including state of the art disease management
protocols, care management, referral management and utilization review
services. In this environment, Doctors Health has been entering into
contractual and equity ownership relationships with primary care
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physicians, specialists and other health care providers in order to develop
an Integrated Health Care Delivery System that focuses on managed care.
Against this backdrop, Doctors Health and the Medical Practice
independently reached the conclusion that developing alliances with
additional provider groups and companies focusing on the efficient delivery
of health care would enhance their abilities to respond to changing
conditions in the health care industry.
Reasons for the Acquisition
As part of its business strategy, Doctors Health seeks to negotiate
Global Capitated Contracts by, among other things, providing Payors with
established health care delivery networks capable of providing for the
delivery of medical care to Enrollees of the HMO or other Payor. In order to
accomplish this strategy, Doctors Health seeks to establish networks
throughout the Baltimore and Washington metropolitan area, Northern Virginia
and surrounding regions. For Doctors Health, Medical Practice represents an
opportunity to implement its business plan in a market where it does not
currently operate, and to earn revenues through inclusion of Medical Practice
in Doctors Health's Managed Care contracts.
Approval by the Doctors Health Board
For the reasons described below, the Doctors Health Board has
approved the Acquisition.
Doctors Health continuously analyzes potential acquisition
candidates in Maryland, the District of Columbia and Virginia. The Doctors
Health Board of Directors believes that the Acquisition is fair to and in the
best interests of Doctors Health for the reasons described below.
Accordingly, the Doctors Health Board of Directors has approved the
Acquisition Agreement and the Acquisition.
The Doctors Health Board of Directors consulted with Doctors Health
management and legal counsel. It considered the following factors to be
material to and in support of its final determination;
(i) The Acquisition is expected to enable Doctors Health to take
advantage of Medical Practice's existing goodwill, infrastructure and
leadership in Anne Arundel County, Maryland market in order to
establish an Integrated Health Care Delivery System in Anne Arundel
County, Maryland. Such expansion of Doctors Health's existing network
is expected to enhance Doctors Health's ability to win new Payor
contracts and to attract additional Enrollees.
(ii) The Acquisition and the efforts of Doctors Health to
establish an Integrated Health Care Delivery System are expected to
substantially increase Doctors Health's size in terms of revenues,
profits, physicians and locations which is expected to enhance Doctors
Health's reputation in the Mid-Atlantic region, making it easier to
attract and retain new physicians and win new Payor contracts.
In addition to the foregoing, the Doctors Health Board of Directors
generally considered those matters discussed under "RISK FACTORS". The Board
of Doctors Health concluded that the risks did not outweigh the advantages of
the Acquisition and that the Acquisition was in the best interests of Doctors
Health and its stockholders.
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Accounting Treatment
The Acquisition will be accounted for as a purchase transaction for
financial reporting purposes under APB 16.
THE ACQUISITION AGREEMENT
Set forth below is a summary of the material terms of the
Acquisition Agreement. The following description does not purport to be
complete and is qualified in its entirety by reference to the Acquisition
Agreement, a copy of which is attached as Annex A to this Prospectus
Supplement and is incorporated by reference herein.
General
On the Closing Date of the Acquisition, (I) Medical Practice shall
transfer to Doctors Health certain of its assets, (ii) Medical Practice shall
transfer to Medical Group its right title and interest in and to any assets
used to provide laboratory services and other services ancillary to the
Medical Practice, (iii) Doctors Health shall issue 7,000 shares of its Class
B Common Stock and options to purchase 7,000 shares of Class B Common Stock
(the "Share Consideration"), (iv) Doctors Health shall pay $47,500 ("Cash
Consideration") to the Physician, and (v) Doctors Health shall pay $2,500 to
Dr. Barbara Furlow as reimbursement for closing expenses, in the terms and
subject to the conditions set forth in the Acquisition Agreement.
Representations and Warranties
The Acquisition Agreement contains various representations and
warranties by Doctors Health relating to, among other things (i) organization
and corporate power and authority, (ii) authority to enter into and perform
the Acquisition Agreement, and (iii) that the shares of the Class B Common
Stock to be issued will be fully paid and nonassessable. The Acquisition
Agreement contains various representations and warranties by Physician and
the Medical Practice relating to, among other things, (i) ownership of the
practice and title and condition to assets, (ii) compliance with agreements,
(iii) compliance with laws, (iv) absence of litigation, (v) information as to
contracts, (vi) information as to taxes, and (vii) information as to
financial statements and accounts receivable.
Additional Covenants and Agreements
Pursuant to the Acquisition Agreement, Medical Practice and
Physician have agreed among other things (i) to provide to Medical Group or
Doctors Health promptly with all information necessary to allow such parties
to comply with applicable law, and (ii) to provide on the Closing Date an
ASCII formatted file with patient demographics and accounts receivable. If
Medical Practice does not have the capability to provide this information,
Doctors Health will assist Medical Practice in converting such information to
a format acceptable to Doctors Health. Pursuant to the Acquisition
Agreement, each of the physicians practicing with the Medical Practice have
agreed that if the employment agreement between such Physician and Medical
Group (each, an "Employment Agreement") is terminated under certain
circumstances provided for in the Employment Agreement, such physician agrees
(a) to cooperate with Doctors Health, Medical Group and each stockholder of
the Medical Group to organize a new corporation or other entity to provide
primary medical care and related services, (b) to engage in the practice of
medicine exclusively through such new primary care entity, and (c) to enter
into an employment agreement with such new entity on terms substantially
similar to the Employment Agreement and to use best efforts to cause such new
entity to enter into an agreement with Doctors Health for the provision of
assets, facilities and non-professional services, substantially similar to
the Physician Services Organization Agreement between Doctors Health and
Medical Group.
Employment Agreement
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At the Closing, the Physician shall enter into an Employment
Agreement with Medical Group substantially in the form attached hereto as
Appendix C"
Option Agreement
At the Closing, the Physician shall enter into an Option Agreement
with Doctors Health substantially in the form attached hereto as Appendix D.
Additions and Withdrawals of Physicians from Medical Group
Under the terms of the Acquisition Agreement, Doctors Health shall
have the exclusive authority (a) to negotiate the price and terms with
respect to the acquisition from time to time of the medical practices of such
additional physicians and such additional physician's employment by Medical
Group or additional medical groups organized by Doctors Health, and (b) to
negotiate the withdrawal of physicians from the Medical Group. In such
connection, each physician practicing with Medical Practice irrevocably
appoints Doctors Health and the Chairman of Medical Group (or their designee)
as attorney-in-fact and agent to execute any documents required to provide
for the admission or withdrawal of physicians as members of Medical Group and
any other transaction related to acquisition of medical practices, and
releases and agrees to indemnify and hold harmless Doctors Health and the
Chairman of Medical Group and their directors, officers, employees or
shareholders from any claims arising in connection with their performance of
their duties in such connection.
Additional Agreements
Pursuant to the Acquisition Agreement, Medical Practice and Doctors
Health have made the following additional agreements:
Access to Information. Medical Practice shall provide to Doctors
Health and Medical Group and their respective accountants, counsel, financial
advisors and other representatives reasonable access during normal business
hours throughout the period prior to the earlier of the termination of the
Acquisition Agreement or the Closing Date to all of their respective
properties, books, contracts, commitments and records (including, but not
limited to, tax returns) and, during such period, shall furnish promptly to
one another (i) a copy of each report, schedule and other document filed or
received by any of them pursuant to the requirements of federal or state
securities laws or filed by any of them with the Commission in connection
with the transactions contemplated by the Acquisition Agreement or which may
have a material effect on their respective businesses, properties or
personnel and (ii) such other information concerning their respective
businesses, properties and personal as they shall reasonably request. The
parties shall hold and shall use their reasonable best efforts to hold in
strict confidence all confidential information obtained in the course of
their respective investigations.
In the event that the Acquisition Agreement is terminated in
accordance with its terms, each party shall promptly return to the other all
non-public written material provided pursuant to this section and shall not
retain any copies, extracts or other reproduction in whole or in part of such
written material.
BUSINESS OF DOCTORS HEALTH
The business of Doctors Health is described in the Prospectus.
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BUSINESS OF MEDICAL PRACTICE
The Medical Practice conducts an internal medicine practice at 705
Melvin Avenue, Suite 100, Annapolis, Maryland 21401. The Medical Practice
conducts its business through one physician, Dr. Barbara Furlow and an office
staff.
RESALE OF CLASS B COMMON STOCK
The shares of Class B Common Stock of Doctors Health offered by
this Prospectus Supplement have been registered under the Securities Act,
allowing persons or entities who are not "affiliates of Doctors Health or
Medical Practice (as defined under the Securities Act, but generally
including directors, certain executive offices, and 10% or more stockholders
of Doctors Health or Medical Practice) to trade them freely and without
restriction under the Securities Act except as limited by certain contractual
restrictions set forth in the Stockholders Agreement or otherwise. Each
person or entity who may be deemed an "affiliate" of Doctors Health will be
subject to certain limitations imposed by the Securities Act, and the rules,
regulations and releases promulgated thereunder, with respect to the sale or
other disposition of the shares of Class B Common Stock to be received by the
"affiliate" pursuant to the Acquisition. This Prospectus does not cover any
resales of Class B Common Stock received by Affiliates of Medical Practice.
In addition to the restrictions on resale that may be imposed on
"affiliates" under the Securities Act, the share of Class B Common Stock of
Doctors Health received by persons or entities (whether or not they are
deemed to be "affiliates") pursuant to the Acquisition are and will be
subject to the terms of Doctors Health's Stockholders Agreement (a copy of
which is attached hereto as Annex B) which provides significant contractual
restrictions on the resale of such Class B Common Stock until an initial
public offering for cash of the Common Stock of Doctors Health or other event
constituting a "change in control" of Doctors Health. The Stockholders
Agreement provides that the signatories may sell and transfer the stock of
the Company held by them only pursuant to such agreement. The Stockholders
Agreement contemplated that Doctors Health may redeem shares of the Class B
Common Stock upon an "Involuntary Transfer" resulting generally from the
insolvency of a stockholder or upon divorce of an individual stockholder.
"Voluntary Transfers" are permitted only after a stockholders offers its
stock , upon the same terms and conditions contained in the offer it wishes
to accept, to all other stockholders on the terms set forth in the
Stockholders Agreement. Individual stockholders may in certain circumstances
make estate planning transfers for the benefit of themselves or family
members on certain conditions.
Under the Stockholders Agreement, in the event of an "Involuntary
Transfer" or the death or disability of a management Stockholder, the
purchase of the stock and the transferring stockholder may agree on the
purchase price of the stock to be sold in such event. If the parties cannot
agree on a price, the price shall be the fair market value of the stock, as
determined by a jointly selected appraiser, as of the last day of the
calendar month immediately preceding the event giving rise to the purchase of
the stock, in accordance with the procedures set forth in the Stockholders
Agreement. in the event of a "Voluntary Transfer", the purchase price to be
paid by the other stockholders or Doctors Health, if they exercise their
options to purchase the stock, will be the price at which the stockholder
proposes to transfer his stock to the proposed third party transferee.
LEGAL MATTERS
The validity of the Class B Common Stock offered hereby have been
passed upon for the Company by Venable, Baetjer and Howard, LLP, Baltimore,
Maryland.
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ATTACHMENTS
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Annex A - Form of Practice Transfer Agreement
Annex B - Shareholders Letter Agreement (delivered to Medical Practice as
Prospectus Supplement No. 70)
Annex C - Form of Employment Agreement
Annex D - Quarterly Report for the Quarter Ended March 31, 1998, delivered to
Physician as Prospectus Supplement No. 76
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APPENDIX A
FORM OF
PRACTICE TRANSFER AGREEMENT
By and Among
Anne Arundel Medical Group, LLC,
Doctors Health, Inc. and
Barbara Furlow, M.D.
____________, 1998
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Practice Transfer Agreement
Table of Contents
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Page
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Section 1 INTRODUCTION 3
Section 2 TRANSFER OF MEDICAL PRACTICE;
PURCHASE PRICE 4
Section 3 REPRESENTATIONS AND WARRANTIES
OF DOCTORS HEALTH AND ANNE ARUNDEL
MEDICAL GROUP, LLC 5
Section 4 REPRESENTATIONS AND WARRANTIES
OF THE PHYSICIAN 6
Section 5 ADDITIONAL COVENANTS AND
AGREEMENTS OF THE PHYSICIAN 7
Section 6 ADDITION AND WITHDRAWAL OF
PHYSICIANS 9
Section 7 LITIGATION 10
Section 8 MISCELLANEOUS 10
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FORM OF
PRACTICE TRANSFER AGREEMENT
This Practice Transfer Agreement, dated as of the 31st day of
March, 1998 (the "Closing Date") by and among Anne Arundel Medical Group,
LLC, a Maryland limited liability company (the "Medical Group"); Doctors
Health, Inc., a Delaware corporation ("Doctors Health"); and Barbara Furlow,
M.D. (the "Physician").
The parties to this Agreement, intending to be legally bound, agree
as follows:
1. Purpose. The Physician has decided to transfer certain
assets and liabilities of his medical practice (the "Medical Practice") to
Doctors Health and the Medical Group and to engage in the practice of
medicine exclusively through and with the Medical Group and as an employee of
the Medical Group. The Physician began her affiliation with Doctors Health
on April 1, 1996 as an employee of Baltimore Medical Group (the "BMG Date").
Such employment with Baltimore Medical Group terminated on the Closing Date.
Doctors Health and the Medical Group desire to acquire certain assets and
liabilities of the Medical Practice, and the Medical Group wishes to admit
the Physician as a member and to employ the Physician.
2. Transfer of the Medical Practice.
2.1. Transfer of Assets. The Physician transfers to
Doctors Health all of his or her right, title and interest in and to the
Medical Practice, including all assets relating thereto (excluding assets
used by the Physician to provide laboratory services and other services
ancillary to his or her Medical Practice and excluding the accounts
receivables of the Medical Practice outstanding on the BMG Date or related to
services provided by the Physician on or before the BMG Date) as listed on
Schedule 2.1(a). The Physician transfers to the Medical Group all of his or
her right, title and interest in and to any assets used by the Physician to
provide laboratory services and other services ancillary to his or her
Medical Practice as set forth on Schedule 2.1(b). The assets listed on
Schedules 2.1(a) and 2.1(b) are referred to in this Agreement as the "Assets."
2.2. Assumption of Liabilities.
(a) Doctors Health assumes the liabilities and
obligations of the Physician listed on Schedule 2.2(a) to the extent that
such liabilities and obligations relate to the conduct of the Medical
Practice after the BMG Date. The Medical Group assumes the liabilities and
obligations of the Physician listed on Schedule 2.2(b). Neither Doctors
Health nor the Medical Group assume any other liabilities or obligations of
the Physician except as listed on Schedules 2.2(a) and 2.2(b), respectively.
The liabilities listed on Schedules 2.2(a) and 2.2(b) are referred to in this
Agreement as the "Liabilities." Doctors Health shall defend, indemnify and
hold the Physician harmless with respect to any damage or loss with respect
to a breach of the lease for the office space at Suite 100, 705 Melvin
Avenue, Annapolis, Maryland which occurs after the Closing Date.
(b) On the BMG Date, the Physician shall have paid
all trade payables and other obligations or liabilities of the Medical
Practice which have been incurred and invoiced on or before the BMG Date and,
in any event, the Physician shall be liable for all such trade payables
without regard to when the Physician receives an invoice with respect to such
trade payables. Doctors Health does not assume any responsibility for payment
of any trade payables and other obligations and liabilities of the Medical
Practice other than those Liabilities listed on Schedule 2.2(a) and 2.2(b)
attached hereto.
2.3. Purchase Price.
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(a) As payment for the transfer of the Assets to Doctors Health and
the Medical Group and the assumption of the Liabilities by Doctors Health and
the Medical Group, Doctors Health has delivered to the Physician the following
(which shall constitute the "Purchase Price"):
(i) A check in the amount of $24,000 ; and
(ii) 7,000 shares of Class B Common Stock of Doctors Health
(the "Shares");
(iii) deferred compensation in the amount of $21,000 payable
at the rate of $3,000 per year beginning on April 1, 1999 (the "Deferred Cash
Compensation") and 7,000 shares of Class B Common Stock issuable pursuant to
a Stock Option Agreement dated March 31, 1998 (collectively, the "Deferred
Compensation"). The Physician shall not be entitled to the Deferred
Compensation for following termination of the Physician's Employment
Agreement with the Medical Group.
(b) To the extent any sales taxes must be paid in
connection with the transfer of Assets pursuant to this Agreement, Doctors
Health shall pay such sales taxes and Doctors Health hereby agrees to
indemnify and hold the Physician harmless with respect to the payment of such
sales taxes.
2.4. Closing Documents. The parties shall execute and
deliver the following closing documents which shall be effective as of the
Closing Date: (i) Employment Agreement between the Physician and the Medical
Group (the "Employment Agreement"); (ii) Shareholders Letter Agreement;
(iii) Amendment to the Operating Agreement of the Medical Group admitting the
physician as a member of the Medical Group; (iv) a Bill of Sale substantially
in the form attached hereto as Exhibit 2.4 (v) any other documents executed
in connection with this Agreement (the "Closing Documents"). Doctors Health
has delivered to the Physician a Prospectus dated January 5, 1998 a
Prospectus Supplement dated March 3, 1998 prepared pursuant to Doctors
Health's Registration Statement as defined below (collectively, the
"Prospectus").
2.5. Employees. Effective on the date hereof, the
Physician's non-physician employees listed on Schedule 2.5 shall become
employees of Doctors Health or the Medical Group, as specified in such
Schedule.
3. Representations and Warranties of Doctors Health and the
Medical Group.
3.1. Doctors Health represents and warrants to the
Physician as of the Closing Date as follows:
(a) Organization and Power. Doctors Health is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Maryland. Doctors Health has full power and authority
(corporate and other) to own and hold its properties and to conduct its
business as currently conducted.
(b) Authorization of Agreement. The execution, delivery and
performance of this Agreement and the other Closing Documents to which it is
a party have been duly and validly authorized by Doctors Health and executed
on behalf of Doctors Health, and no other proceedings are necessary to
authorize this Agreement.
(c) Class B Common Stock. The Board of Directors of Doctors
Health has authorized the issuance of the Shares to the physician, and upon
issuance to the Physician of the Shares, the Shares shall constitute fully
paid and nonassessable shares of the Class B Common Stock of Doctors Health.
(d) Registration Statement. The Shares have been registered
pursuant to the Securities Act of 1933 pursuant to a registration statement,
which includes a Prospectus and any Prospectus Supplements, covering the
issuance of shares of Class B Common Stock of Doctors Health (the
"Registration Statement"). The Registration Statement is in effect and there
are no stop orders issued
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by federal or state authorities with respect to the issuance of securities
pursuant to the Registration Statement. The Registration Statement (i)
complies as to form in all material respects with the rules and regulations
of the U.S. Securities and Exchange Commission and (ii) will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statement contained therein, in
light of the circumstances under which they were or will be made, not
misleading.
3.2 The Medical Group represents and warrants to the
Physician as of the Closing Date as follows:
(a) Organization and Power. The Medical Group is a limited
liability company organized, validly existing and in good standing under the
laws of the State of Maryland. The Medical Group has full power and
authority to own and hold its properties and to conduct its business as
currently conducted.
(b) Authorization of Agreement. The execution, delivery and
performance of this Agreement and the other Closing Documents to which it is
a party have been duly and validly authorized by the Medical Group and
executed on behalf of the Medical Group, and no other proceedings are
necessary to authorize this Agreement.
4. Representations and Warranties of the Physician. The
Physician hereby represents and warrants to the other parties hereto as of
the Closing Date as follows:
4.1. Ownership of Practice; Title to and Condition of Assets.
Except as listed on Schedule 4.1, the Physician owns and has good and
marketable title to all of the Assets and all rights, franchises and
privileges used or usable in his or her Medical Practice, free and clear of
all liens or encumbrances of any kind. The Assets are in good operating
condition and repair, ordinary wear and tear excepted. Except for a
leasehold interest in the office space used to conduct the Medical Practice,
the Physician does not hold fee title to any real property related to the
Medical Practice.
4.2. No Conflicts. The execution, delivery and performance
by the Physician of this Agreement and the other Closing Documents to which
he is a party do not conflict with or violate any contract or agreement to
which the Physician is subject.
4.3. Compliance With Laws. The Physician is not in violation
of any order, writ, decree, or judgment of any court, or governmental or
regulatory body which violation would (i) affect the legality, validity or
enforceability of this Agreement or any other Closing Documents or (ii) have
a material adverse effect on the Assets or the Physician's Medical Practice.
4.4. Litigation. Except as disclosed on Schedule 4.4, there
are no lawsuits, proceedings or investigations pending or threatened against
the Physician or the Physician's Medical Practice.
4.5. Contracts. Schedule 4.5 is a true and complete list of
all material contracts or agreements of the Physician related to the Medical
Practice (the "Contracts"). All of the Contracts are in full force and
effect, and there exists no default under any such Contract. There are no
written or oral binding "side agreements" with any Person whereby the
Physician has agreed to do any material act or thing beyond the requirements
of the Contracts.
4.6. Taxes. The Physician has duly filed or will file when
due all Medical Practice and personal federal, state and local tax returns,
declarations or statements which are required to be filed for all periods up
to and through the Closing Date and paid all taxes due relating thereto.
4.7. Financial Statements;. Attached as Schedule 4.7 is a
true and complete copy of an internally prepared or audited accrual basis
financial statement of the Medical Practice dated as of [March 31, 1996].
Such financial statements fairly and accurately present the assets,
liabilities and results
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of operations of the Medical Practice and there are no undisclosed
liabilities or obligations (contingent or accrued, including trade payables
and liabilities arising in the ordinary course of business in excess of
$1,000 in the aggregate) that are not reflected on such financial statements
or set forth on Schedule 4.7.
4.8 Receipt of Prospectus. The Physician acknowledges that
she has received the Prospectus.
4.9 Employee Benefit Plans. Except as disclosed on Schedule
4.9, there are no health, life insurance, pension, profit sharing, 401(k) or
other benefit plans made available to the Physician or any employees of the
Medical Practice.
5. Additional Covenants and Agreements of the Physician.
5.1. Information. The Physician agrees to provide to the
Medical Group or to Doctors Health promptly upon request all information
necessary to allow the Medical Group or Doctors Health to comply with
applicable law, including, without limitation, information relating to
employees of the Physicians and employee benefits provided by the Physician
to such employees. On the Closing Date, the Physician has provided Doctors
Health an ASCII-formatted file with patient demographics and an
ASCII-formatted file which identifies each patient and accounts receivable
attributable to such patient. If the Physician does not have the capability
of providing this information, Doctors Health will assist the Physician in
converting such information to a format acceptable to Doctor Health as soon
as practicable.
5.2. Reformation of Group Practice. If the Employment
Agreement between the Physician and the Medical Group is terminated on the
basis of Section 4.7 of the Employment Agreement or otherwise as a result of
the Insolvency (as that term is defined in Section 4.7 of the Employment
Agreement) of the Medical Group, the Physician agrees to (a) cooperate with
Doctors Health, the Medical Group and each other Member of the Medical Group
to organize a new corporation, partnership or limited liability company to
provide primary medical care and related services and (b) to engage in the
practice of medicine exclusively through such new primary care entity. The
Physician will enter into an employment agreement with such new entity on
terms substantially similar to the terms of the Employment Agreement and will
use his or her best efforts to cause such new entity to enter into an
agreement with Doctors Health for the provision of assets, facilities and
non-professional services, including management services, on terms, including
provisions for Management Fees, substantially similar to the terms of the
Physician Services Organization Agreement between Doctors Health and the
Medical Group.
5.3 Accounts Receivable. The accounts receivable and trade
payables of the Medical Practice incurred prior to the Closing Date shall
remain owned by or the liability of the Physician, as the case may be. The
Physician shall collect such pre-closing accounts receivable and deposit them
weekly into a Doctors Health bank account. Such funds shall be used to pay
the operating expenses of the Medical Practice (including employee payroll
and benefits, rent and other operating expenses). After payment of expenses,
Doctors Health shall pay any net income to the Physician as Compensation.
After the Closing, the Physician shall be responsible for the billing and
collection of all revenues from medical care until such time as Doctors
Health converts the Medical Practices billing to the Doctors Health billing
system. During such time as the Physician is solely responsible for billing
and collection of accounts receivable, the Physician shall be entitled to use
the services of his or her former employees and other assistance of Doctors
Health.
6. Additional Consideration. Doctors Health shall pay to the
Physician the sum of $28,500 as additional consideration for the loss of the
Physician's accounts receivable prior to the Physician's affiliation with
Doctors Health. Baltimore Medical Group, LLC and the Medical Group (the
"Additional Consideration") as follows:
(i) The Additional Consideration and all accrued but unpaid
interest thereon shall be due and payable in full upon the occurrence of the
earlier to occur of: (a) termination of the Employment Agreement of even
date herewith between the Physician and the Medical Group (the "Employment
Agreement") for any reason other than pursuant to Section 4.3(a) of the
Employment Agreement (termination for good cause); (b) a liquidating
distribution to the shareholders of Doctors
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Health; (c) a combination, consolidation or merger involving Doctors Health
where Doctors Health is not the survivor; (d) any sale, exchange or other
disposition of all, or substantially all, of Doctors Health assets; or (e)
any underwritten public offering of Doctors Health securities at a company
value of at least $25 million with proceeds to Doctors Health of at least $15
million; the date of such occurrence being hereinafter referred to as the
"Payment Date." Interest on the additional Consideration shall accrue at an
annual rate equal to 6.5% applied on the basis of a 365-day year.
(ii) The Additional Compensation may be paid in whole or in part by
the mutual agreement of the Physician and Doctors Health before the Payment
Date at any time. Each such prepayment shall be accompanied by the payment
of accrued interest.
7. Addition and Withdrawal of Physicians. Doctors Health shall
have exclusive authority to (a) negotiate the price and terms with respect to
the acquisition from time to time of the medical practices of additional
physicians and such physicians' employment by the Medical Group or other
Medical Groups organized by Doctors Health, and (b) negotiate the withdrawal
of physicians from the Medical Group. Each party agrees to use its best
efforts to permit the addition and withdrawal of physicians as members of the
Medical Group.
7.1. Appointment as Agent; Specific Performance; Release.
The Physician irrevocably appoints Doctors Health and the Chairman of the
Medical Group (or their designees) as his or her attorney in fact and agent
to carry out the provisions of this Section 7, to execute on his or her
behalf any document required to provide for the admission or withdrawal of
physicians as members of the Medical Group, and any other transaction related
to acquisition of medical practices. The parties agree that this appointment
is coupled with an interest. The Physician releases and agrees to indemnify
and hold harmless Doctors Health and the Chairman of the Medical Group and
their directors, officers, employees or shareholders from any claims arising
in connection with the performance of their duties within the scope of this
Section 6.
7.2. Acquisitions and Withdrawals Other Than Through The
Medical Group. If Doctors Health decides to acquire physician practices or
services through one or more additional medical groups or other entities and
not through the Medical Group, the foregoing provisions of this Section 6
shall apply with appropriate modifications to reflect the substitution of
such additional medical groups or other entities.
8. Litigation. The parties hereby submit to the jurisdiction and
venue of the courts of the State of Maryland. NO PARTY SHALL ELECT A TRIAL
BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THIS AGREEMENT.
9. Miscellaneous.
9.1. Notices. Any notices given with respect to this
Agreement shall be deemed given on the date of delivery if in writing and
delivered or mailed by registered or certified mail, postage prepaid, return
receipt requested, reliable overnight courier service, hand delivery or other
delivery service providing written evidence of delivery. When giving any
notices hereunder, the addresses shall be as follows:
<TABLE>
<S> <C>
If to DOCTORS HEALTH: If to the Medical Group:
Doctors Health, Inc. Anne Arundel Medical Group,
10451 Mill Run Circle LLC
10th Floor c/o Doctors Health, Inc.
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<S> <C>
Owings Mills, Maryland 21117 Legal Services Department
Attention: Legal Services 10451 Mill Run Circle
Department 10th Floor
Owings Mills, MD 21117
</TABLE>
If to the Physician:
Barbara Furlow, M.D.
705 Melvin Avenue
Suite 100
Annapolis, Maryland 21401
9.2 Entire Agreement. This Agreement and the other Closing
Documents contain the entire understanding among the parties with respect to
the subject matters contained in this Agreement and supersede any prior
understanding and agreements between or among them respecting such subject
matters.
9.3 Severability. If any provision of this Agreement, or the
application thereof to any person or circumstances shall, for any reason and
to any extent, be invalid or unenforceable, the remainder of this Agreement
and the application of such provision to other persons or circumstances shall
not be affected thereby, but rather shall be enforced to the greatest extent
permitted by law.
9.4 Assignment. No party to this Agreement shall have any
right to transfer, convey or assign its rights or obligations under this
Agreement to any person or entity, except that Doctors Health may make such
transfer conveyances or assignments as it deems necessary or appropriate to
any of its affiliates. Each party to this Agreement which is a business
entity reserves the right to change its name to any other name that it
believes desirable or appropriate to the operation of its business or
otherwise.
9.5 Additional Documents And Acts. Each party agrees to
execute and deliver such additional documents and instruments (including a
stockholders agreement with each other Doctors Health stockholder) and to
perform such additional acts as may be reasonably necessary or appropriate to
effectuate, carry out and perform all of the terms, provisions and conditions
of this Agreement, and the transactions contemplated by this Agreement.
9.6 Interpretation. This Agreement shall be governed by the
laws of the State of Maryland, without regard to principles of conflicts of
laws.
9.7 Amendment. This Agreement, including the Exhibits,
Appendices and Schedules hereto, may not be amended, altered or modified
except by instrument in writing executed by each party hereto, including
through its duly authorized attorney-in-fact.
9.8 Survival. All warranties, representations, covenants,
undertakings and indemnifications of each party contained herein shall
survive closing and the execution and delivery of this Agreement for a period
of three (3) years following the execution and delivery of this Agreement.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties have executed this Agreement as
an instrument under seal as of the day and year first above written.
<TABLE>
<S> <C>
ATTEST/WITNESS:
ANNE ARUNDEL MEDICAL GROUP, LLC
By:
- ----------------------------- ------------------------(SEAL)
Robert Graw, M.D., Chairman
ATTEST: DOCTORS HEALTH, INC.
By:
- ----------------------------- ------------------------(SEAL)
Stewart B. Gold, President
WITNESS: PHYSICIAN
- ----------------------------- ----------------------------(SEAL)
Barbara Furlow, M.D.
</TABLE>
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APPENDIX C
FORM OF
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is executed as of this _____ day of
_________, 1998 ("Effective Date"), by and between Anne Arundel Medical
Group, LLC, a Maryland limited liability company (the "Medical Group"), and
Barbara Furlow, M.D. (the "Physician").
The parties to this Agreement, intending to be legally bound, agree
as follows:
1. Purpose. The Medical Group desires to employ the Physician to
engage in the practice of medicine through the Medical Group (the "Medical
Practice") and the Physician desires to be employed by the Medical Group on
the terms and conditions set forth in this Agreement.
2. Scope of Employment; Physician Covenants.
2.1 Employment. The Physician agrees to devote his or her
best efforts and full professional time to the practice of medicine
exclusively on behalf of the Medical Group. The Physician agrees that,
except for those activities described on Schedule 2.1, he or she will not
engage in any other employment or professional activity during the Term of
this Agreement without the prior written consent of the management committee
of the Medical Group (the "Management Committee").
2.2 Law and policies. (a) The Physician agrees to comply
with all of (i) the terms and provisions of applicable law and professional
ethical standards relating to the practice of medicine in Maryland, (ii) the
policies and procedures established by the Management Committee, (iii) the
rules and regulations at any hospital at which the Physician agrees to
practice medicine on behalf of the Medical Group and (iv) the credentialing
policies of Doctors Health, Inc. ("Doctors Health"). The Physician agrees to
notify the Medical Group as soon as possible of any personal illness and/or
other inability to work.
(b) Physician has received a copy of the Physician Services
Organization Agreement ("PSO Agreement") between the Medical Group and the
Manager thereunder, and agrees to use his or her best efforts to enable the
Medical Group to comply with all of the provisions thereof. In addition, the
Physician agrees to be bound by the provisions of the PSO Agreement requiring
each Medical Group Physician to take, or refrain from taking, certain actions
including, but not limited to those set forth in Section 4.d thereof, as if
such provisions were part of this Agreement.
2.3 Reimbursement Agreements. The Physician agrees to
execute any agreements necessary for the Medical Group and Physician's
participation in and reimbursement from medical programs administered by
public or private third party payors and other private managed care programs
approved by the Medical Group or with whom the Medical Group otherwise
contracts (directly or indirectly through one or more agents) as a
participant or a provider. Physician agrees to maintain such practice
patterns, including abiding by specialty consultation and other referral
restrictions, as may be required by the Medical Group, whether as a result of
such public or private managed care programs, or otherwise.
3. Term. The "Initial Term" of this Agreement shall begin on the
date first above written and shall end on [March 31, 2006]. This Agreement
shall automatically be renewed thereafter for additional terms (each an
"Additional Term") of three (3) years each unless written notice of the
intention not to renew at the end of the Initial Term or any Additional Term
is given by the Physician to the Medical Group at least one hundred twenty
(120) days prior to the end of such term. (The Initial Term and all
Additional Terms are herein referred to as the "Term.") The length of the
Initial Term reflects the two years service of the Physician or an employee
of Baltimore Medical Group from April 1, 1996 to March 31, 1998. For
purposes of Section 4.6 of this Agreement, the parties agree that the
physician's employment with the
<PAGE>
Medical Group will be deemed to have begun on April 1, 1996 for purposes of
measurement of 5 years of service with the medical Group because of the
Physician's employment with Baltimore Medical Group which begun on April 1,
1996.
4. Termination.
4.1 Termination upon Death. If the Physician dies during the
Term, the Physician's employment shall terminate as of the date of death of
the Physician.
4.2 Termination upon Disability. Notwithstanding any other
provision of this Agreement, if during the Term the Physician becomes
physically, mentally or emotionally disabled, as determined by an independent
qualified physician, so that the Physician is, in the good faith
determination of the Management Committee, substantially unable to perform
his or her services hereunder for (i) a period of 6 consecutive months, or
(ii) shorter periods aggregating 180 days during any twelve month period,
then the Physician's employment hereunder shall terminate as of the date of
such determination. However, in the event the Physician has within his or her
employ during the period of total disability, a physician duly licensed to
practice medicine in the state of Maryland, who is approved in advance by the
Medical Group, and who continues to generate sufficient revenues to permit
the Medical Group to pay all direct and indirect costs associated with
Physician's Medical Practice during any period of disability, then the
Physician's employment shall not terminate as provided above.
4.3 Termination by the Medical Group.
(a) The Medical Group may terminate this Agreement for
"Good Cause" immediately upon written notice to the Physician if the
Management Committee, after delivery of reasonable prior notice to the
Physician and a fair hearing on the merits attended by the Physician and his
or her attorney, determines that:
(i) the Physician is no longer authorized to practice
medicine in the State of Maryland or has had his or her
license to practice medicine in any state, including
Maryland, limited or suspended by action of any
regulatory body;
(ii) where applicable, unless approved in advance by the
Committee, the Physician ceases to have admitting
privileges at the hospitals and other institutions
scheduled on Schedule 4.3(a)(ii), or his or her
privileges at any such hospital or other institution
are suspended or limited in any material way, for
reasons other than temporary suspensions for record
keeping or a voluntary relinquishment of such
privileges which has been approved by the Management
Committee;
(iii) in the good faith determination of the Management
Committee, the Physician fails to perform his or her
duties in a manner consistent with the professional and
ethical standards of the medical profession and as
established by the Management Committee;
(iv) the Medical Group is dissolved;
(v) all of the Physician's interest in the Medical Group is
redeemed, purchased or otherwise transferred or
attempted to be transferred;
(vi) in the good faith determination of the Management
Committee, the Physician engages in illegal or other
wrongful conduct or is guilty of dishonesty or chronic
absenteeism substantially detrimental to the Medical
Group or the reputation of the Medical Group or its
affiliates, including other Medical Group physicians;
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(vii) the Physician becomes insolvent or is unable to pay his
or her debts as they come due and these circumstances
negatively affect the Physician's ability to practice
medicine in an efficient and professional manner;
(viii) the Physician fails to cooperate with the Medical Group
in arranging professional liability insurance coverage,
or becomes ineligible in the State of Maryland for
professional liability insurance coverage at
commercially reasonable rates;
(ix) the Physician, as a Member of the Medical Group,
violates any material provision of the Operating
Agreement of the Medical Group;
(x) the Physician is found to have knowingly violated any
material rule, regulation or policy imposed with regard
to the Medicare program, or becomes ineligible to
participate or is barred from participation in, or
otherwise sanctioned by, the Medicare program;
(xi) in the good faith determination of the Management
Committee, the Physician fails for any six month period
to generate sufficient revenues to permit the Medical
Group to pay all Direct Medical Facility Costs (as
hereinafter defined) associated with his or her
employment or the operation of the Physician's
medical facility; provided, however, that the
Management Committee in the exercise of its
discretion hereunder shall take into account
any extraordinary circumstances that prevent the
Physician from rendering such services (other than
those circumstances otherwise set forth in this
Section 4.3(a)); or
(xii) the Physician fails to observe or perform any material
obligation set forth in this Agreement, which failure
is not cured to the reasonable satisfaction of the
Management Committee within thirty (30) days after
receipt of notice from the Management Committee.
(b) In addition to the Medical Group's right to
terminate the Physician's employment pursuant to Section 4.3(a), and
notwithstanding any other provision of this Agreement, the Medical Group may,
for any or for no reason, and without "Good Cause", terminate the Physician's
employment upon 60 days prior written notice to the Physician only upon the
payment of all amounts described in Section 4.5(b).
4.4 Termination by the Physician.
(a) Notwithstanding any other provision of this
Agreement, the Physician shall be entitled to terminate his or her
employment, effective on the sixtieth (60th) day following written notice of
termination delivered to the Management Committee, if the Medical Group
commits a material breach of this Agreement or otherwise engages in acts or
omissions that would constitute a "Constructive Termination" (defined below)
of the Physician's employment with the Medical Group and such material breach
or Constructive Termination remains uncured by the Medical Group after
reasonable prior written notice of termination from the Physician; provided,
however, that if such Constructive Termination is caused by the Physician's
incapacity or inability to serve due to a disability of the type described in
Section 4.2 above and the Medical Group elects to terminate the Physician
pursuant to the provisions of Section 4.2, the Physician shall, for purposes
of this Agreement, be deemed to have been terminated pursuant to the
provisions of Section 4.2 and not of this Section 4.4.
(b) For purposes of this Section 4.4, "Constructive Termination" shall be
limited to only those circumstances where (i) the Medical Group creates
working conditions that a reasonable physician in the Physician's position
would consider unreasonable and intolerable or (ii) the
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Medical Group fails to pay the Physician his or her Residual Income, as
hereinafter defined, when there are adequate funds in the Physician's
financial account maintained by Doctors Health with respect to the revenues
and expenses of the Physician's Medical Facility to pay such Residual Income.
4.5 Compensation and Benefits Following Termination of
Employment.
(a) In the event of termination of the Physician's
employment for any reason other than a termination pursuant to Section 4.3(b)
(without "Good Cause") or Section 4.4(a) ("Constructive Termination"):
(i) all compensation and other benefits payable or provided
hereunder shall cease as of the date of termination;
and
(ii) Residual Income (if any) and any Bonus then payable or
accrued through the date of termination and all accrued
benefits (if any) then payable to the Physician
pursuant to this Agreement shall be paid to the
Physician (or to his or her heirs, legatees and/or
legal representatives) through the date of termination.
(b) In the event of termination of the Physician's
employment pursuant to Section 4.3(b) (without "Good Cause") or Section
4.4(a) ("Constructive Termination"), the Physician (or, in the event of the
Physician's subsequent death or disability, his or her heirs, legatees and/or
legal representatives) shall receive each of the following payments and
benefits:
(i) Residual Income (if any) and any Bonus then payable or
accrued through the date of termination and all accrued
benefits (if any) then payable to the Physician
pursuant to this Agreement shall be paid to the
Physician (or to his or her heirs, legatees and/or
legal representatives) through the date of termination;
and
(ii) when and as the same would have been payable hereunder
if the Physician's employment had not so terminated,
for a period equal to the shorter of (A) six (6)
months, (B) the balance of the Term then in effect or
(C) such time as the Physician establishes himself or
herself in the practice of medicine (and not in
violation of any of the provisions of Section 11),
payments of the full Residual Income which would have
been due to the Physician at a rate based upon the
average of the last six (6) payments (or all payments
if the Physician's employment is terminated prior to
receiving six payments) of Residual Income received by
the Physician immediately prior to termination as if
this Agreement were still in effect, together with a
pro rata share (based upon the number of months the
Physician was employed during a Calendar Year) of a
Bonus payment for the Calendar Year in which such
termination of employment occurred, the amount of such
pro rata share of a Bonus as determined by the
Management Committee in its sole discretion; provided,
however, that the amounts otherwise payable under this
subsection (ii) shall be subject to setoff with respect
to any funds owed by the Physician to the Medical Group
or shall cease to be payable upon any breach by the
Physician of any of the provisions of Section 11
hereof.
(c) In the event of termination under Section 4.2
(disability), the Physician or his or her legal representative, as the case
may be, shall, in addition to such other payments as may be due under Section
4.5(a) above, be entitled to receive the proceeds of any disability policies
maintained by or for the Medical Group and payable to the Physician.
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(d) In the event of termination as a result of
Retirement under Section 4.6, the Physician or his or her legal
representatives, as the case may be, shall, in addition to such other payment
as may be due under Section 4.5(a) above, be entitled to receive the benefits
of any retirement, pension or similar plans maintained by or for the Medical
Group for the benefit of the Physician.
4.6 Retirement. The Physician shall be entitled to retire at
any time after the Physician (a) has completed five (5) years of service with
the Medical Group (measured from the Effective Date); and (b) has attained
the age of sixty (60). For purposes of this Agreement, "retirement" shall
mean retirement from the full time practice of medicine (either in private
practice or in a hospital based practice), excluding teaching. In addition
to the foregoing, the Medical Group will negotiate with any Physician
otherwise entitled to retire, if he desires to retire, terms and conditions
of a "phase-out" of the performance of services by the Physician (at his or
her request), which phase-out results in a full retirement upon the
conclusion thereof.
4.7 Termination Upon Insolvency of the Medical Group. The
Medical Group shall terminate this Agreement upon the Insolvency (as defined
below) of the Medical Group. For purposes of this Section 4.7, "Insolvency"
shall mean the occurrence or existence of any one or more of the following
events: (a) an assignment by the Medical Group for the benefit of creditors;
(b) filing by the Medical Group of a case under any provision of the federal
bankruptcy law or any other law relating to the insolvency or relief of
debtors; (c) a case or proceeding against the Medical Group by any other
person or entity under any provision of the federal bankruptcy law or any
other law relating to insolvency or relief of debtors which is not dismissed
within sixty (60) days after the commencement thereof; (d) a receiver,
liquidator, assignee, custodian, trustee or similar official is appointed for
the Medical Group or the property of the Medical Group; (e) the Medical Group
becomes generally unable to pay its debts or other financial obligations
(including without limitation the Residual Income, bonus and other benefits
pursuant to this Agreement) as they mature; provided, however, that the
conditions set forth in Section 6.2 of this Agreement shall not be deemed an
event of Insolvency under this Section 4.7(e).
4.8 Purchase of Property and Equipment. In the event of
termination of this Agreement for any reason other than Retirement under
Section 4.6 hereof, the Physician, the Medical Group and Doctors Health shall
use their best efforts to permit the Physician to purchase the property and
equipment used by the Physician in connection with his or her practice of
medicine. The parties shall execute and deliver such agreements as shall be
necessary to complete any transfer of such property and equipment to the
Physician, including, if appropriate and consistent with other provisions of
this Agreement, the assignment of office and equipment leases, and the
delivery of patient medical and billing records.
5. Fees for Services; Recordkeeeping.
5.1 Except for fees, monies and other compensation paid or
payable to the Physician (i) by an Affiliate of the Medical Group as the
result of an employment arrangement approved by the Management Committee, and
(ii) as a result of the activities described in Schedule 2.1, all fees and
monies or other compensation of any kind earned, paid or given to the
Physician or to the Medical Group with respect to the Physician's practice of
medicine, shall be the property of the Medical Group, and all such work shall
be performed and such goods or professional services provided by the
Physician on behalf of the Medical Group and subject to the direction,
supervision and control of the Medical Group, and not on the Physician's own
behalf.
5.2 The Physician agrees to furnish promptly to the Medical
Group complete and accurate information sufficient to permit billing and
collecting fees for professional services rendered by the Physician. The
Physician agrees to cooperate with the Medical Group to maintain all books,
records, documents and other evidence necessary to certify the nature and
extent of the services provided by the Physician pursuant to this Agreement
in accordance with accepted professional and business and accounting
practices and any applicable regulations promulgated by any governmental
entity or officer.
5.3 The Physician hereby assigns to the Medical Group the
exclusive right to bill and
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receive payment of all fees for services provided by the Physician pursuant
to this Agreement. Any fees or other compensation received by the Physician
or the Medical Group for services performed pursuant to this Agreement shall,
as a condition of this Agreement, be the property of the Medical Group and
shall be paid over to the Medical Group immediately. This reassignment is
intended to comply with the requirements the Medicare Carrier's Manual, as
well as the technical requirements of all other relevant third party payors.
6. Compensation.
6.1 Practice Residual Income.
(a) During the Initial Term of this Agreement, the
Medical Group shall pay to the Physician compensation computed pursuant to
the provisions of Section 6.1(b) hereof ("Residual Income"). The Residual
Income shall be payable in arrears in equal bi-weekly installments, less such
amounts as are required to be deducted or withheld under the provisions of
applicable law.
(b) The Residual Income shall be equal to the sum of (i)
Medical Service Fees, (ii) the Primary Care Capitation Component, (iii) all
Medical Consulting Fees and (iv) all Incidental Services Fees, less all
Direct Medical Facility Costs.
(c) For purposes of this Section 6.1, the following
terms shall have the following meanings:
(i) "Medical Service Fees" means all fees actually
collected by the Medical Group or Doctors Health in the immediately preceding
calendar month with respect to the performance of primary care medical
services by the Physician on a fee for services basis.
(ii) "Primary Care Capitation Component" means,
with respect to the performance of medical services by the Physician on a
capitation basis, all capitation actually collected by the Medical Group or
Doctors Health in the immediately preceding calendar month as the primary
care component of any capitation payment. If the primary care capitation
amount has not been separately allocated, Doctors Health shall make such
allocation on the basis of the best available information and shall use its
good faith in determining, with the Medical Group, a commercially reasonable
allocation.
(iii) "Medical Consulting Fees" means the fees
actually collected by the Medical Group or Doctors Health in the immediately
preceding calendar month with respect to professional services rendered by
the Physician in connection with primary care consultations, examinations,
reports, testimony, treatment and surgery; salaries for teaching medicine;
fees or royalties received from speaking engagements relating to medical
subjects or writing medical related books, pamphlets and articles; fees or
salaries for medical directorships; and any other form of compensation or
remuneration for professional services, or goods or other services provided
by, through or for the Physician in connection with professional services.
(iv) "Incidental Services Fees" means the quotient
obtained by dividing
(A) all fees (other than amounts collected or
billed as referral fees derived from, or otherwise with
respect to, the provision of ancillary services) actually
collected by the Medical Group or by Doctors Health in the
immediately preceding calendar month with respect to the
performance of services by nurses, physician-extenders and
others that are billed "incident to" the provision of
medical services by the Physician and all of the other
Member Physicians practicing with the Physician at a
single office or medical care facility (the "Medical
Facility") (the Physician and such Member Physicians
being collectively referred to as the "Associated Medical
Facility Physicians") and provided under the supervision
of such Associated Medical Facility Physicians during the
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immediately preceding calendar month by
(B) the number of Associated Medical Facility
Physicians during the immediately preceding calendar month.
(v) "Direct Medical Facility Costs" means the
quotient obtained by dividing
(A) all expenses (which shall not include any
management fee paid to or accrued by the Medical Group or
Doctors Health) that have been generated during the
immediately preceding calendar month directly by, or with
respect to the operation of, the Medical Facility where the
Associated Medical Facility Physicians regularly provide
their medical services, including but not limited to
malpractice and other insurance, rent, and salary of all
persons employed at the Medical Facility including employed
non-Member physicians, by:
(B) the number of Associated Medical Facility
Physicians during the immediately preceding calendar month.
(c) Direct Medical Facility Costs shall
exclude (i) all of the Residual Income paid to Associated
Medical Facility Physicians; (ii) any compensation paid or
accrued by the Medical Group or Doctors Health; (iii) the
direct expense attributable to the provision of ancillary
services by the Medical Group, including but not limited to,
laboratory services, radiology services, or any other
service classified as a designated health service for the
purpose of the prohibition on physician self-referral
contained in the Social Security Act ("Ancillary Services").
(d) For purposes of paragraphs (iv) and (v) of Section 6.1(c)
of this Agreement, if the Physician provides medical services for the Medical
Group at more than one office or Medical Facility of the Medical Group, the
calculation of Incidental Services Fees and Direct Medical Facility Costs,
respectively, shall take into consideration all such offices or Medical
Facilities and the data relating to each of them utilized in such
calculations shall be weighted based upon the aggregate of all Medical
Service Fees, Primary Care Capitation Components and Medical Consulting Fees
generated by the Physician at each such office or Medical Facility.
(e) The calculation of the Physician's Residual Income shall
not include, and the Physician shall not be compensated by the Medical Group
for or in respect of, fees collected by the Medical Group or Doctors Health
for or in respect of laboratory services, radiology services, or any other
ancillary services identified as designated health services under federal
physician self-referral prohibitions. All such revenues shall be considered
to be revenues of the Medical Group. The Medical Group agrees to distribute
such net revenues among the Physicians in accordance with a plan of
distribution that does not take into account the volume or value of any
referrals for such services by any Physician.
6.2 Deferral. If the Physician is, or during the Term of
this Agreement becomes, a Member of the Medical Group, the Physician
acknowledges and agrees that (i) payments of his or her Residual Income and
Bonus (as hereinafter defined) are conditioned upon, subordinated to and
shall be made only after all of the Direct Medical Facility Costs of the
Medical Facility have been made or, in the discretion of the Management
Committee, reasonably reserved or otherwise provided for, and (ii) the
Management Committee may, in its discretion, defer payments of Residual
Income and Bonus to Member Physicians of the Medical Group until such time as
the foregoing condition has, in the discretion of the Management Committee,
been satisfied.
6.3 Bonus. For each calendar year or portion thereof
during the Term of this Agreement (each a "Bonus Year"), the Physician shall
be eligible to participate in distributions from a Bonus Pool established by
the Management Committee (or any duly constituted subcommittee thereof) for
each Bonus Year occurring during the Term only in such years in which the
Physician meets or exceeds
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such standards as may be established by the Management Committee in its
discretion from time to time.
7. Vacation and Sick Leave. The Physician will be entitled to
such time off for vacation, professional meetings, medical education,
sick/personal leave as determined by the Physician, provided that the
Physician arranges for adequate coverage by other physician employees of the
Medical Group to provide necessary services during his or her absence, all
subject to and in accordance with the policies established from time to time
by the Management Committee.
8. Medical Malpractice Insurance.
8.1 The Physician shall cooperate with the Medical Group in
maintaining, at all times during the term of this Agreement, professional
liability insurance coverage in form and with an insurer acceptable to the
Medical Group for professional services rendered pursuant to this Agreement
in the minimum amount of One Million Dollars ($1,000,000) per occurrence, per
person; Three Million Dollars ($3,000,000) total limit excess coverage, which
policy shall, unless expressly waived by the Medical Group and Doctors
Health, name the Medical Group and Doctors Health as additional named
insureds. All such premiums shall constitute a Direct Medical Facility Cost
and be charged to the Physician.
8.2 The Physician shall furnish to the Medical Group a written
notice of each malpractice claim threatened or filed against him within five
(5) business days of receipt of the claim or threat which notice shall
describe the claim in reasonable detail.
8.3 Unless expressly waived by the Medical Group and Doctors
Health, the Physician agrees to and does hereby indemnify and hold the
Medical Group and its affiliates harmless from any liability, claim, demand,
judgment or costs relating to or arising out of any acts or occurrences of or
relating to the Physician which either arose prior to April 1, 1996 or which
are outside the scope of the Physician's employment and duties hereunder.
8.4 If the Physician carried a policy of "claims made"
insurance prior to his or her employment with the Medical Group, then the
Physician shall cooperate with the Medical Group in purchasing, at the
expense of the Physician, coverage that will prevent a lapse of insurance
coverage of the Physician ("tail coverage") and shall keep such coverage in
effect as long as the Management Committee determines is necessary to protect
the Medical Group against claims arising against the Physician.
9. Other Benefits. The Medical Group shall provide the Physician
with additional benefits as the Management Committee may in its discretion
establish, based upon the same eligibility criteria and on the same basis as
such benefits are available to similarly situated physician employees of the
Medical Group, and using the Effective Date as the Physician's anniversary
date to determine eligibility.
10. Patient Records.
10.1 All patient records, files, charts, x-ray films and
other written or recorded material pertaining to patients of the Medical
Group shall, as between the Physician and the Medical Group, be and remain
the sole and exclusive property of the Medical Group during the Term of this
Agreement and thereafter, provided, however, that nothing contained herein
shall be construed as preventing or impairing the right of any patient to
select the physician of his or her choice to render services to that patient,
and the Medical Group shall comply with all reasonable requests of any
patient following the termination of the Physician's employment regarding the
disposition of copies of said patient's records, including but not limited
to, x-ray films, subject to the Medical Group right to preserve the original
records for its files.
10.2 If following the termination of the Physician's
employment, any patient should request the transfer of copies of his or her
records (including x-ray films) (the "Records") to the Physician, the Medical
Group shall immediately transfer duplicate copies of the Records to the
Physician and the Physician shall reimburse the Medical Group promptly for
all reasonable out-of-pocket costs incurred by the Medical Group in
connection with the duplication of the Records and/or transmission of copies
of the
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Records to the Physician. The Medical Group shall pay duplication costs
referred to herein when the Physician's employment has been terminated under
the circumstances described in Section 4.3(b) or Section 4.4 of this
Agreement. The Medical Group shall have the full right to set-off all costs
and expenses reimbursable to it under the terms of this Section 10.2 from any
amounts payable to the Physician by the Medical Group after the termination
of the Physician's employment, whether such amount is payable under this
Agreement or otherwise.
11. Non-Competition.
11.1 General. The parties acknowledge that the Medical
Group is engaged in the business of providing health care services as part of
an integrated health care delivery system, including providing these services
under Managed Care contracts with HMOs and other payors (the "Managed Care
Business"). In connection with Physician's employment, the Physician will
gain access to new patients, payors, providers and confidential information
concerning the Managed Care Business. The provisions of this Section 11 are
necessary to protect the business and goodwill of the Medical Group and its
affiliates.
11.2 Non-Competition. During the Term hereof and, unless
the Physician's employment is terminated pursuant to Sections 4.3(b)
(termination without cause), or Section 4.4(a) (constructive termination),
for a period of twenty-four (24) months (the "Limitation Period") after the
Termination Date, the Physician shall not, directly or indirectly, for
himself or herself or on behalf of any other Person, whether as a principal,
agent, employee, stockholder, partner, officer, member, director, sole
proprietor, consultant, independent contractor or otherwise:
(i) earn 1/3 or more of his or her gross revenues as the
result of becoming, directly or indirectly through IPAs or similar
arrangements, a participating primary care provider, within the five miles
[urban Medical Groups] twenty-five miles [rural Medical Groups] of the
Physician's Medical Facility (the "Service Area"), in one or more managed
care contracts or other similar arrangements (including a Medicare HMO or
risk contract) with or through any single person or entity;
(ii) earn more than 5% of his gross revenues, as the
result of becoming, directly or indirectly through IPAs or similar
arrangements, a participating primary care provider, within the Service Area,
in one or more managed care contracts or other similar arrangements
(including a Medicare HMO or risk contract) involving any single person or
entity which, together with its affiliates, has a substantial presence in the
Managed Care Business in the region which includes the Service Area;
(iii) become an employee of any HMO, managed health care
provider, managed care delivery system or any other Person, firm, corporation
or entity engaged in the Managed Care Business in the Service Area;
(iv) except by way of general advertisement in the public
media, solicit Patient Members of the Medical Group or other patients of its
affiliates, or persuade or attempt to persuade any such person, to associate
with the Physician with respect to any of the foregoing or to otherwise
discontinue an existing relationship with the Medical Group, its affiliates
or any payor which has entered into a managed care contract with Doctors
Health;
(v) subject to the Physician's professional obligations
regarding abandonment of patients, send any written notice or participate in
any direct mailing, or otherwise communicate with any patient of the Medical
Group (whether or not such member was an active patient of the Physician at
the time of termination of employment), except for a communication limited to
stating that the Physician is no longer a participating provider in any
Doctors Health managed care contracts or similar arrangements;
(vi) take any knowing or willful action or engage in
repeated and persistent conduct (including, without limitation, the making of
statements), after written notice from the Medical Group, that is intended or
should reasonably be expected to interfere with the Managed Care Business; or
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(vii) solicit, entice, or aid or cooperate with any other
Person in soliciting or enticing, any employee of the Medical Group, Doctors
Health or their affiliates, or any person who was employed by the Medical
Group, Doctors Health or their affiliates, during the twelve (12) month
period immediately preceding the Termination Date (other than employees of
the Physician as of the date of this Agreement) to leave the employ of the
Medical Group, Doctors Health or their affiliates, or to hire or engage any
such persons as consultants or independent contractors.
For purposes of this Section 11, a person or entity in the
Managed Care Business shall be presumed to have a "substantial" presence in
the Managed Care Business in a given region if such person or entity has a
15% or greater market share or 3,000 or more enrolled members in such region.
11.3 Trade Secrets and Confidential Information. During
the Term of the Physician's employment with the Medical Group, the Physician
agrees to maintain the secrecy and confidentiality of the Medical Group's
trade secrets and confidential information and shall not (i) divulge, furnish
or make accessible to anyone or in any way or use, for his own benefit or for
the benefit of any other individual firm or entity (other than in the
ordinary course of business), any trade secret or confidential information;
(ii) take or permit any action to be taken which would reduce the value of
the trade secrets or confidential information; or (iii) otherwise
misappropriate or suffer the misappropriation of the trade secrets or the
confidential information. After the Termination Date, the Physician shall
continue to maintain the secrecy and confidentiality of such trade secrets
and confidential information. Notwithstanding anything herein to the
contrary, the obligations of secrecy and confidentiality set forth herein
shall not apply to any information which is now generally publicly known or
which subsequently becomes generally publicly known other than as a direct or
indirect result of the breach of this Agreement by the Physician or which is
required by law or order of any court to be disclosed.
11.4 Property of the Medical Group. All memoranda,
notes, lists, records and other documents or papers (and all copies thereof),
including but not limited to, such items stored in computer memories, on
microfiche or by any other means, made or compiled by or on behalf of the
Physician, or made available to the Physician concerning the Managed Care
Business, are and shall be the property of the Medical Group and/or its
affiliates, and shall be delivered to the Medical Group promptly upon the
termination of the Physician's employment with the Medical Group or at any
other time on request; provided however, that the Physician may inspect
during normal business hours such records as shall be necessary for the
purposes of (a) assisting the Physician to file, or prepare for an audit of,
his personal income tax returns; (b) defending any legal proceeding brought
against the Physician related to his or her practice of medicine; or (c) in
connection with the treatment of the Physician's patients.
11.5 Offset. The Medical Group shall have the right to
offset, against any amount payable by it to the Physician pursuant to this
Agreement, the amount of any damages incurred by it as a result of the breach
by the Physician of the provisions of this Agreement. The Medical Group
shall cooperate with Physician in promptly utilizing the dispute resolution
procedures set forth in Section 12.1 hereof for the purpose of resolving any
dispute that may exist between the parties relating to the existence and
amount of such damages.
12. Dispute Resolution.
12.1. Arbitration. Any dispute between parties to this
Agreement arising under or with respect to this Agreement shall be submitted
to binding arbitration according to procedures described on Schedule 12 and
any arbitral award may be enforced by a court of competent jurisdiction.
12.2. Litigation. The parties hereby submit to the
jurisdiction and venue of the courts of the State of Maryland. NO PARTY
SHALL ELECT A TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT.
13. Miscellaneous Provisions.
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13.1. Notices. Any notices given with respect to this
Agreement shall be effective when received and shall be deemed given if in
writing and delivered or mailed by registered or certified mail, postage
prepaid, return receipt requested, reliable overnight courier service, hand
delivery or other delivery service providing written evidence of delivery.
When giving any notices hereunder, the addresses shall be as follows:
If to The Medical Group:
Anne Arundel Medical Group, LLC
c/o Doctors Health, Inc.
Legal Department
10451 Mill Run Circle
10th Floor
Owings Mills, MD 21117
If to the Physician:
Barbara Furlow, M.D.
705 Melvin Avenue
Suite 100
Annapolis, Maryland 21401
13.2. Entire Agreement/Binding Agreement. This Agreement and
the other Closing Documents (as defined in the Practice Transfer Agreement of
even date herewith) contain the entire understanding between the parties and
supersede any prior understanding and agreements between them respecting such
subject matters. This Agreement shall be binding upon and inure to the
benefit of the parties, their successors, heirs, personal representatives and
other legal representatives.
13.3. Severability. If any provision of this Agreement, or
the application thereof to any person or circumstances shall, for any reason
and to any extent, be invalid or unenforceable, the remainder of this
Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby, but rather shall be enforced to
the greatest extent permitted by law. The parties acknowledge that the
non-competition provisions of Section 11 are reasonable in all respects. If
a court or arbitrator determines that the non-competition provisions are
invalid or unenforceable, the remainder of the non-competition provisions
shall not be affected and shall be given full effect.
13.4. Assignment. No party to this Agreement shall have any
right to transfer, convey or assign its rights or obligations under this
Agreement to any Person. Each party to this Agreement reserves the right to
change its name to any other name that it believes desirable or appropriate
to the operation of its business or otherwise.
13.5. Interpretation. This Agreement and the rights and
obligations of the respective parties hereunder shall be governed by and
interpreted and enforced in accordance with the laws of the State of
Maryland, without regard to principles of conflicts of laws.
13.6. Amendment. This Agreement, including the Exhibits,
Appendices and Schedules hereto, may not be amended, altered or modified
except by instrument in writing executed by each party hereto, including
through its duly authorized attorney-in-fact.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as an instrument under seal as of the day and year first above
written.
<TABLE>
<S> <C>
WITNESS/ATTEST: Anne Arundel Medical Group, LLC
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<S> <C>
By: (SEAL)
- ----------------------- ---------------------
Robert Graw, Chairman
WITNESS:
(SEAL)
- ----------------------- ---------------------
Barbara Furlow, M.D.
</TABLE>
Doctors Health, Inc. enters into this agreement solely for the
purpose of acknowledging its agreement to use its best efforts as provided in
Section 4.8 of the Employment Agreement.
DOCTORS HEALTH, INC.
By:
----------------------------
Stewart B. Gold, President
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