<PAGE>
PROSPECTUS SUPPLEMENT NO.65 Filed Pursuant to Rule 424(b)(3)
To the Prospectus dated January 5, 1998 Registration No.: 333-1926
As Supplemented to date
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
Elaine Arata, 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.
---------------
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.
<PAGE>
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. Elaine Arata, (iv)
Doctors Health shall pay $47,500 ("Cash Consideration") to Dr. Elaine Arata, and
(v) Doctors Health shall pay $2,500 to Dr. Elaine Arata 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. Elaine
Arata, (iv) Doctors Health shall pay $47,500 ("Cash Consideration") to Dr.
Elaine Arata, and (v) Doctors Health shall pay $2,500 to Dr. Elaine Arata 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
S-3
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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 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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<PAGE>
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 Mecical 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. Elaine Arata 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
S-5
<PAGE>
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 substanitally 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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<PAGE>
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. Elaine Arata 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
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
S-8
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APPENDIX A
FORM OF
PRACTICE TRANSFER AGREEMENT
By and Among
Anne Arundel Medical Group, LLC,
Doctors Health, Inc. and
Elaine Arata, M.D.
____________, 1998
<PAGE>
Practice Transfer Agreement
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C> <C>
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
</TABLE>
2
<PAGE>
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 Elaine Arata, 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.
<PAGE>
(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:
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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Owings Mills, Maryland 21117 Legal Services Department
Attention: Legal Services 10451 Mill Run Circle
Department 10th Floor
Owings Mills, MD 21117
If to the Physician:
Elaine Arata, 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.
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)
Elaine Arata, M.D.
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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 Elaine
Arata, 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
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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 Management 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 ofcompensation 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:
Elaine Arata, 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.
WITNESS/ATTEST: Anne Arundel Medical Group, LLC
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_______________________ By: _____________________(SEAL)
Robert Graw, Chairman
WITNESS:
_______________________ __________________________(SEAL)
Elaine Arata, M.D.
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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