AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1996
REGISTRATION NO. 333-10557
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROFESSIONAL MEDICAL MANAGEMENT COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 8011 75 252 9809
(State or other jurisdiction of (Primary Standard Industry (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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801 CHERRY STREET, SUITE 1450
FORT WORTH, TEXAS 76102
(817) 335-5035
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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H. WAYNE POSEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROFESSIONAL MEDICAL MANAGEMENT COMPANY
801 CHERRY STREET, SUITE 1450
FORT WORTH, TEXAS 76102
(817) 335-5035
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
MICHAEL JOSEPH, ESQ. JEFFREY A. CHAPMAN, ESQ.
DYER ELLIS & JOSEPH, P.C. VINSON & ELKINS L.L.P.
600 NEW HAMPSHIRE AVE., N.W. 3700 TRAMMELL CROW CENTER
SUITE 1000 2001 ROSS AVENUE
WASHINGTON, D.C. 20037 DALLAS, TEXAS 75201
(202) 944-3000 (214) 220-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective. If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.|_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |X|
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable in connection with
the registration of the Common Stock that is the subject of this Registration
Statement, all of which shall be borne by the Company. All the amounts shown are
estimates except for the registration fee, the New York Stock Exchange listing
fee, and the NASD filing fee.
To Be Paid By
Registrant
Securities and Exchange Commission registration fee...... $17,241.38
Nasdaq listing fee....................................... *
National Association of Securities Dealers filing fee.... 5,500
Printing and engraving expenses.......................... *
Legal fees and expenses.................................. *
Accounting fees and expenses............................. *
Blue sky filing fees..................................... *
Miscellaneous............................................ *
---------
Total................................................ $ *
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation and By-laws provide for
indemnification of directors, officers, agents, and employees of the Company to
the fullest extent permitted by law. Under Delaware law, a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to an action (other than an action by or in the right of the corporation) by
reason of his service as a director or officer of the corporation, or his
service, at the corporation's request, as a director, officer, employee or agent
of another corporation or other enterprise, against expenses (including
attorneys' fees) that are actually and reasonably incurred by him ("Expenses"),
and judgments, fines and amounts paid in settlement that are actually and
reasonably incurred by him, in connection with the defense or settlement of such
action, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. Although Delaware law permits a corporation to
indemnify any person referred to above against Expenses in connection with the
defense or settlement of an action by or in the right of the corporation,
provided that he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the corporation's best interests, if such person has
been judged liable to the corporation, indemnification is only permitted to the
extent that the Court of Chancery (or the court in which the action was brought)
determines that, despite the adjudication of liability, such person is entitled
to indemnity for such Expenses as the court deems proper. The determination as
to whether a person seeking indemnification has met the required standard of
conduct is to be made (1) by a majority vote of a quorum of disinterested
members of the board of directors, or (2) by independent legal counsel in a
written opinion, if such a quorum does not exist or if the disinterested
directors so direct, or (3) by the stockholders. The General Corporation Law of
the State of Delaware also provides for mandatory indemnification of any
director, officer, employee or agent against Expenses to the extent such person
has been successful in any proceeding covered by the statute. In addition, the
General Corporation Law of the State of Delaware provides the general
authorization of
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advancement of a director's or officer's litigation expenses in lieu of
requiring the authorization of such advancement by the board of directors in
specific cases, and that indemnification and advancement of expenses provided by
the statute shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception, the Registrant has sold or issued the following
unregistered securities:
(1) In July and August 1994, the Registrant issued an aggregate of
1,148,000 shares of Common Stock at a purchase price of $0.045 per share and
warrants to purchase an aggregate of 885,442 shares of Common Stock at an
exercise price of $1.25 per share to certain of its officers, directors,
employees, its counsel, and certain private investors.
(2) In October and November 1994 the Registrant issued an aggregate of
1,226,150 shares of Class B Common Stock at a purchase price of $0.50 and
warrants to purchase an aggregate of 966,456 shares of Class B Common Stock at
an exercise price of $1.25 per share to certain directors of the Registrant, its
counsel, and a private investor.
(3) In October 1994 the Registrant issued 690,000 shares of Common
Stock at a purchase price of $0.045 per share and warrants to purchase 543,556
shares of Common Stock at an exercise price of $1.25 per share to an individual
who is an officer and director of the Registrant.
(4) In November 1994 the Registrant issued 40,000 shares of Common
Stock at a purchase price of $0.50 per share to an officer of the Registrant.
(5) In January 1995 the Registrant issued an aggregate of 20,000 shares
of Common Stock at a purchase price of $0.50 per share to an officer of the
Registrant.
(6) On June 15, 1995 the Registrant issued warrants to purchase an
aggregate of 150,000 shares of Common Stock at an exercise price of $2.50 per
share at a purchase price of $2.50 per warrant to two directors of the
Registrant and a private investor.
(7) On June 30, 1995 the Registrant issued, in connection with the
acquisition of a physician group, an aggregate of 138,672 shares of redeemable
Common Stock to the physicians in the practice group in a transaction valued at
$6.00 per share.
(8) In August 1995 the Registrant issued, in connection with the
acquisition of a physician group, an aggregate of 26,624 shares of redeemable
Common Stock to the physicians in the practice group in a transaction valued at
$6.00 per share.
(9) In December 1995 the Registrant issued an aggregate of 500,000
shares of Redeemable Convertible Preferred Stock and warrants to purchase
200,000 shares of Redeemable Convertible Preferred Stock at an exercise price of
$6.00 per share for aggregate net consideration of $2,953,358 to venture capital
investors.
(10) In February 1996 the Registrant issued to a former employee 3,200
shares of Common Stock upon the exercise of options at an exercise price of
$0.50 per share.
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<PAGE>
(11) In February 1996 the Registrant issued 20,000 shares of Common
Stock upon the exercise of options at an exercise price of $6.00 per share by an
individual who is an officer and director of the Registrant.
(12) In March 1996 the Registrant issued, in connection with the
acquisition of two physician groups,$1,800,274 in convertible subordinated notes
to the physicians of the groups.
(13) In June 1996, in connection with the acquisition of a physician
group, the Registrant issued 38,027 shares of Common Stock to the physicians in
the group in a transaction valued at $12.00 per share.
The issuances of securities in the above transactions were deemed to be
exempt from registration under the Act in reliance on Section 4(2) thereof as
transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits furnished:
1* Form of Purchase Agreement
2# Asset Purchase Agreement dated as of January 19, 1996 by and
among ProMedCo, Inc., ProMedCo Of Abilene, Inc. and Abilene
Diagnostic Clinic, P.L.L.C.
2(a) First Amendment to Asset Purchase Agreemente dated as of January
19, 1996 by and among ProMedCo., Inc. ProMedCo of Abilene, Inc.
and Abilene Diagnostic Clinic, P.L.L.C.
3.1* Restated Certificate of Incorporation of Professional Medical
Management Company.
3.2* By-laws of Professional Medical Management Company.
4* Rights Agreement
5* Opinion of Counsel
10.1# Interim Service Agreement dated as of January 19, 1996 by and
between ProMedCo of Abilene, Inc. and Abilene Diagnostic Clinic,
P.L.L.C.
10.1(a) First Amendment to Service Agreement and Interim Service
Agreement dated as of January 19, 1996 by and between ProMedCo
of Abilene, Inc. and Abilene Diagnostic Clinic, P.L.L.C.
10.2# Service Agreement dated as of January 19, 1996 by and between
ProMedCo of Abilene, Inc. and Abilene Diagnostic Clinic, P.L.L.C.
10.3# Service Agreement dated as of March 12, 1996 by and between
ProMedCo, Inc. of Cullman, Inc. and Cullman Primary Care, P.C.
10.4# Service Agreement dated as of April 1, 1996 by and between
ProMedCo of Mayfield, Inc. and Morgan-Haugh, P.S.C.
10.5# Amended and Restated Service Agreement dated as of June 24, 1996
by and between ProMedCo of Lake Worth, Inc. and Tarrant Family
Practice, P.A.
10.6# Service Agreement dated as of June 30, 1995 by and between
ProMedCo of Denton, Inc. and North Texas Medical Surgical
Clinic, P.A.
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<PAGE>
10.7# Credit Agreement dated as of June 12, 1996 among ProMedCo, Inc.,
the Lenders referred to therein, and Nationscredit Commercial
Corporation, as Agent
10.8* Director Stock Option Plan
10.9* Employee Stock Option Plan
10.10* Employee Stock Purchase Plan
10.11* Physician Stock Option Plan
10.12* Employment Agreement with H. Wayne Posey
10.13* Employment Agreement with Richard R. D'Antoni
10.14* Employment Agreement with Dale K. Edwards
10.15* Employment Agreement with R. Alan Gleghorn
10.16* Employment Agreement with Steve W. Ratton, Jr.
11* Computation of Net Income Per Share
22* List of Subsidiaries
23.1+ Consent of Independent Accountants
23.2* Consent of Counsel (included as part of Exhibit 5)
24+ Powers of Attorney
27+ Financial Data Schedule
____________________
* To be filed by amendment
+ Previously filed
# Confidential treatment requested
(b) The following is a list of financial statement schedules
furnished:
Schedule II Valuation and qualifying accounts for the period from inception
(July 1, 1994) to December 31, 1994, the year ended December 31,
1995 and the six months ended June 30, 1996
Schedules not listed above have been omitted because they are not
applicable or because required information is included in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
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(1) To provide to the Underwriters at the closing specified in the
Purchase Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort Worth
and State of Texas on the 23rd day of August, 1996.
PROFESSIONAL MEDICAL MANAGEMENT
COMPANY
By: *
H. Wayne Posey
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
*
H. Wayne Posey President, Chief Executive August 23, 1996
Officer, and Director
(Principal Executive Officer)
*
Steve W. Ratton, Jr. Vice President - Finance August 23, 1996
(Principal Financial and
Accounting Officer)
*
Richard E. Ragsdale Chairman August 23, 1996
*
E. Thomas Chaney Director August 23, 1996
*
David T. Bailey, M.D. Director August 23, 1996
*
Richard R. D'Antoni Director August 23, 1996
James F. Herd, M.D. Director August , 1996
*
Jack W. McCaslin Director August 23, 1996
By: /s/ MICHAEL JOSEPH
Michael Joseph
Attorney-in-Fact
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CONFIDENTIAL TREATMENT REQUESTED
ASSET PURCHASE AGREEMENT
By and Among
PROMEDCO, INC.,
PROMEDCO OF ABILENE, INC.
and
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
January 19, 1996
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is not a part of the Agreement and is only for
convenience of reference.)
Page
ARTICLE I. PURCHASE OF CERTAIN ASSETS................................. 1
1.1 Purchase of Certain Assets..................................... 1
1.2 Financial Books and Records................................ 2
1.3 Assumption of Certain Liabilities.......................... 2
1.4 Liabilities Not Assumed.................................... 2
1.5 Service Agreement.......................................... 3
1.6 Collection of Accounts Receivable.......................... 3
1.7 Right of Offset............................................ 3
1.8 Occasional Sale............................................ 4
ARTICLE II.PURCHASE PRICE............................................. 4
2.1 Purchase Price............................................. 4
2.2 Adjustment to Purchase Price............................... 5
2.3 Stockholders Agreement..................................... 5
2.4 Tax........................................................ 5
2.5 Allocation of Purchase Price............................... 5
RTICLE III. CLOSING................................................... 6
ARTICLE IV. ITEMS TO BE DELIVERED AT OR PRIOR
TO CLOSING/CONDITIONS TO CLOSING...................................... 6
4.1 By ADC................................................ 6
4.2 By Purchaser.......................................... 6
4.3 Conditions to Purchaser's Obligations................. 7
4.4 Conditions to ADC's Obligations....................... 8
ARTICLE V. ITEMS TO BE DELIVERED AT OR PRIOR TO EXECUTION............. 9
5.1 Employment Agreements......................................... 9
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF ADC.................... 9
6.1 Organization and Authority to Enter into Agreements............. 9
6.2 Material Contracts.......................................... 9
6.3 Insurance; Malpractice...................................... 10
6.4 No Changes Prior to Closing Date............................ 10
6.5 Title; Condition........................................... 10
6.6 Litigation, Court Orders and Decrees........................ 11
6.7 Permits and Licenses........................................ 11
6.8 Authority................................................... 11
6.9 Tax Matters................................................ 11
6.10 Employee Benefit Plans.................................. 12
6.11 Third Party Relations................................... 13
6.12 Leased Property............................................... 13
6.13 Compliance with Applicable Laws............................... 14
6.15 Environmental Matters...................................... 14
6.16 Healthcare Compliance...................................... 14
6.17 Fraud and Abuse............................................ 14
6.18 Facility Compliance........................................ 15
6.19 Rates and Reimbursement Policies........................... 15
6.20 Accounts Receivable........................................ 15
6.21 Trade Relations............................................ 16
6.22 [Reserved]................................................. 16
6.23 Full Disclosure............................................ 16
6.24 Liabilities................................................ 16
6.25 Investment Representation and Access....................... 16
6.26 Membership Interest........................................ 17
6.27 Financial Statements...................................... 18
<PAGE>
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF PURCHASER........ 18
7.1 Organization......................................... 18
7.2 Authority............................................ 18
7.3 Absence of Litigation................................ 19
7.4 Shares............................................... 19
7.5 Financial Statements................................. 19
7.6 Trade Relations...................................... 19
7.7 ProMedCo Stock Options and Warrants.................. 19
7.8 Fraud and Abuse...................................... 19
7.9 Full Disclosure...................................... 20
ARTICLE VIII. CONDUCT OF BUSINESS: REVIEW.......................... 20
8.1 Conduct of Business of ADC................................. 20
8.2 Review of ADC by ProMedCo.................................. 20
ARTICLE IX. TRANSFERS AND FURTHER ASSURANCES.......................... 21
ARTICLE X. INDEMNIFICATION............................................ 21
10.1 Indemnification............................................ 21
10.2 Rules Regarding Indemnification............................ 22
10.3 Survival................................................... 23
10.4 Notice to ADC: Opportunity to Defend....................... 23
10.5 Notice to Purchaser: Opportunity to Defend................. 23
10.6 Security for Indemnity..................................... 23
10.7 Indemnification Deductible................................. 23
ARTICLE XI. EXPENSES.................................................. 24
ARTICLE XII. COSTS..................................................... 24
ARTICLE XIII. TERMINATION.............................................. 24
ARTICLE XIV. NOTICES.................................................. 25
ARTICLE XV. AMENDMENT AND WAIVER...................................... 25
ARTICLE XVI. EMPLOYEES - EMPLOYEE BENEFITS............................ 26
16.1 Affected Employees......................................... 26
16.2 Responsibilities........................................... 26
16.3 Payroll and Payoll Taxes................................... 26
16.4 Termination Benefits....................................... 26
16.5 Employee Benefit Plans..................................... 27
ARTICLE XVII. DEFINITIONS............................................. 27
ARTICLE XVIII. MISCELLANEOUS.......................................... 28
18.1 Press Release........................................ 28
18.2 Binding Effect....................................... 28
18.3 Entire Agreement..................................... 28
18.4 Governing Law; Venue................................. 28
18.5 Counterparts......................................... 28
18.6 Headings............................................. 28
18.7 Finders.............................................. 28
18.8 No Third Party Benefit............................... 28
18.9 Materiality.......................................... 28
18.10 Arbitration.......................................... 29
18.11 Assignment and Delegation............................ 29
18.12 Knowledge.......................................... 29
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is entered into this the
19th day of January, 1996, by and among ABILENE DIAGNOSTIC CLINIC, P.L.L.C., a
professional limited liability company organized under the laws of the State of
Texas (hereinafter referred to as "ADC"), PROMEDCO, INC., a corporation
organized under the laws of the State of Texas (hereinafter referred to as
"ProMedCo") and PROMEDCO OF ABILENE, INC., a corporation organized under the
laws of the State of Texas (hereinafter referred to as "POA").
WITNESSETH:
WHEREAS, ADC is the owner and operator of a group medical practice in
Taylor County, Texas ("Practice") and is engaged in the practice of providing
medical care to patients;
WHEREAS, ProMedCo, through its 100% owned subsidiary POA, is engaged in
the business of providing medical practice facilities, nonmedical personnel, and
medical practice management and administrative services (ProMedCo and POA being
herein collectively referred to as "Purchaser");
WHEREAS, ADC wishes to transfer certain of the Practice Assets to POA in
exchange for voting shares of ProMedCo; and
WHEREAS, the parties desire to set forth in writing the terms and
conditions under which said exchange will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, it is agreed as
follows:
ARTICLE I.
PURCHASE OF CERTAIN ASSETS
1.1 Purchase of Certain Assets. On the Closing Date (as hereafter
defined) ProMedCo and POA shall acquire from ADC certain of the Practice assets
(the "Practice Assets") of ADC. The Practice Assets shall be more particularly
described on Exhibit 1. 1.
The Practice Assets shall include, but not be limited to ADC's certain
accounts receivable, furnishings and equipment that are currently covered under
the Hospital Agreements referenced in Section 1.5. The furnishings and equipment
subject to the Hospital Agreements shall become the property of POA upon the
reimbursement of ADC by POA for the cost of the furnishings and equipment as
specified in the purchase option detailed in the Hospital Agreements. The
reimbursement of ADC by POA, in the event that the Hospital Agreements complete
their initial terms, shall be the reacquisition price incurred by ADC according
to the Hospital Agreements for furnishings, equipment and replacements thereof
purchased by the hospitals prior to January 17, 1996, plus any furnishings,
equipment and replacements thereof that were
<PAGE>
purchased pursuant to the Hospital Agreements after January 17, 1996, that were
approved by the Policy Council, as defined in that Interim Services Agreement
between the parties dated January 19, 1996 (the "Interim Services Agreement").
In the event that the Hospital Agreements are terminated, with or without cause
by ADC prior to the initial term of the Hospital Agreements, then the
reimbursement of ADC by POA shall be limited to ten percent (10%) of the
original acquisition price of such furnishings, equipment and replacements
thereof that were purchased pursuant to such Hospital Agreements prior to
January 17, 1996, plus the reacquisition price, according to the terms of such
Hospital Agreements, of any furnishings, equipment and replacements thereof that
were purchased pursuant to such Hospital Agreements after January 17, 1996, and
that were approved by the Policy Council, as defined in the Interim Services
Agreement.
In either case above, the reimbursement of ADC by POA shall be reduced
by the reacquisition price of any assets associated with any physicians who
became members of ADC concurrent with the formation of ADC on January 17, 1996,
and who sold their assets to either local hospital according to the Hospital
Agroctnents, subsequent to January 17, 1996.
ADC agrees that upon the termination of the Hospital Agreements, ADC will
exercise its option to repurchase the equipment owned by the hospital under the
Hospital Agreements.
1.2 Financial Books and Records. At Closing, all right, title and
interest in and possession of the financial books and records of ADC shall be
delivered to POA. POA shall grant to ADC the right, at reasonable times, to
inspect and copy (at ADC's own expense) said records for the purposes of
preparing for federal, state and local tax audits, any governmental enforcement
procedures or preparing for the defenses of any claims, causes of action or
other similar matters; provided however, POA shall provide one copy of such
financial books and records to ADC as are sufficient for ADC to maintain its own
books and records at Closing at no cost.
1.3 Assumption of Certain Liabilities. At the Closing, POA shall assume,
pay, perform and discharge only the liabilities of ADC set forth on Exhibit 1.3.
To the extent POA assumes any liabilities, ADC must pay cash equal to the
liabilities assumed.
1.4 Liabilities Not Assumed. It is expressly acknowledged and agreed
that Purchaser will not assume and shall not be liable, either expressly or
impuey, for any of the obligations Or liabilities Of ADC of any kind and nature
other than those specifically assumed in Section 1.3; without limiting the
foregoing, Purchaser shall not assume or become liable (expressly or impliedly)
with respect to any of the following liabilities that accrue prior to the
Closing Date:
(a) any liability of ADC, either directly or indirectly, for
either principal or interest, with respect to advances or loans made to or owed
by ADC;
(b) any liability or claim arising out of or related to the operation
and use of the Practice Assets prior to and including the Closing Date,
including, without limitations any obligations or abilities of ADC with respect
to inedical malpractice, Medicare or Medicaid fraud
<PAGE>
or abuse, overpayments under any Third Party Payor Programs, negligence, strict
liability in tort, product liability or breach of warranty claims;
(c) liabilities and obligations that may arise out of or relate to any
noncompliance with the provisions of the Bulk Sales law under the Uniform
Commercial Code as adopted by any applicable state in connection with the
transaction herein contemplated;
(d) any liability arising out of any employee benefit plans maintained
by ADC for the benefit of any employees of ADC or any other liability of ADC
with respect to any employees including but not limited to incentive
compensation plans, severance pay, accrued salaries, wages, bonuses, payroll
taxes, hospitalization and medical insurance, deferred compensation and vacation
and sick pay;
(e) any liability attributable to personal property tax assessed by any
governmental entity, federal, state, or local, against any of the assets to be
conveyed or leased hereunder, such taxes to remain the responsibility of ADC;
and
(f) any liability for any other tax assessed by any goverrunental.
entity, federal, state, or local, attributable to the business of ADC relating
to the period on or before the Closing Date, including but not limited to, any
income, franchise, excise, sales, or use taxes.
ADC covenants and agrees to satisfy or pay when due, any and all
liabilities of ADC not expressly assumed by POA and that POA shall have a right
of offset as set forth in Section 1.7.
1.5 Service Agreement. At the time of the Closing, ADC and POA shall
have entered into a Service Agreement ("Service Agreement") to be effective the
later date of (a) February 16, 1997 or (b) the first day of the month following
the date of the Initial Public Offering ("IPO") of ProMedCo, in the form
attached as Exhibit 1.5 (the "Effective Date"). This Agreement is different
from, and shall not effect the terms of, that certain Practice Management
Agreement by and between Southwestern Health Development Corporation and Abilene
Diagnostic Clinic Associates, P.A. ("PA"), a Texas professional association,
dated as of October 13, 1993, and that certain Practice Management Agreement by
and between Abilene Medical Management Services, Inc. and PA dated as of the
June 20, 1994, (collectively the "Hospital Agreements").
1.6 Collection of Accounts Receivable. ADC agrees to cooperate with
POA in the collection of the Accounts Receivable transferred pursuant to
Section 1.1.
1.7 Right of Offset. In addition to all other rights and remedies
available to POA at law or in equity, and notwithstanding any other provision of
this Agreement to the contrary, POA may offset against any amounts it owes ADC
under this Agreement, the Services Agreement, or any other agreement any amounts
due POA due to a failure of ADC to perform any indemnity pursuant to Section 10,
or created by POA's payment of any ADC liability. In the event that POA
determines that an amount is to be so offset, as a condition precedent to such
right of offset, POA shall give ADC written notice of the amount of such
proposed offset and the basis therefore within thirty (30) days after the date
on which such amount is finally determined. If POA shall not have received
written notice from ADC contesting such offset within thirty (30) days of their
receipt of such
<PAGE>
written notice from POA, the offset shall be deemed to have been consented to by
ADC and POA shall be entitled to deduct the entire amount claimed as an offset
from the agreements referenced within this Section 1.7. In the event that ADC
shall object to the proposed offset by written notice received by POA during
such thirty (30) day period, the entitlement of POA to the claimed offset shall
be determined by arbitration as described in Section 18.10.
In the event that any offset is determined to be due POA, and POA elects
to offset that amount against any stock due ADC pursuant to this Agreement, then
the basis of value for that stock shall be its fair market value on the date of
offset for purposes of satisfying the amount of the offset.
1.8 Occasional Sale. ADC and Purchaser believe that the transactions
contemplated by this Agreement constitute the sale of an entire operating unit
or a separate division or a separate identifiable segment of a division in
accordance with Section 151.304(b)(2) of the Texas Tax Code and Section 3.316(d)
of Title 34 of the Texas Administrative Code, and, therefore, the sale of any
and all items of tangible personal property to POA pursuant to this Agreement is
exempt from any and all state and local sales and use tax. In the event the
transactions contemplated by this Agreement do not qualify for such exemption or
other applicable exemption, and the State of Texas seeks to collect sales or use
tax under the Texas Tax Code, Purchaser shall be liable and responsible for any
such tax. ADC agrees to cooperate with Purchaser in connection with any audit of
this transaction regarding the application of the sales tax law thereto.
ARTICLE II.
PURCHASE PRICE
2.1 Purchase Price. ProMedCo shall pay ADC a Purchase Price of [*] shall be
determined according to generally accepted accounting principles ("GAAP"),
excluding any Non-recurring Revenues, and excluding revenues unrelated to
clinical operations.
The Purchase Price shall be determined during the period preceding the Closing
Date of this Agreement. The Purchase Price shall be adjusted as set forth in
Section 2.2 below. The Purchase Price shall consist of ProMedCo Common Stock,
the number of shares of which shall be rounded to the nearest whole number,
obtained by dividing the Purchase Price by ${*} (the value per share). The
shares are payable as follows:
a. 70 % of the total shares to be distributed at the Closing Date,
28.57 % of which shall be registered, subject to limitations from underwriters.
Any remaining unregistered stock shall have piggyback registration rights for up
to 20% of the shares extending to any secondary offerings for five (5) years.
The piggyback rights are subject to limitations from underwriters, and any
restrictions would be shared pro rata with others that have similar rights.
Should any limitations from underwriters apply, then the total shares to
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
be distributed at the Closing Date shall be adjusted downward. The rate of
adjustment shall be a reduction of 3.57 Shares (rounded to the nearest whole
number) for every 1 share affecting ADC that is limited by underwriters.
b. The remaining shares and any shares not delivered at the Closing
Date as the result of underwriter-required reductions under Section 21(a) at the
earliest of any secondary offering following the date of ProMedCo's IPO or two
years from the Closing Date.
2.2 Adjustment to Purchase Price. Not later than one hundred and five
(105) days after the Closing, ADC and Purchaser shall prepare a balance sheet of
the Practice as of the Closing Date ("Closing Date Balance Sheet") which balance
sheet shall be prepared in accordance with GAAP, except for the absence of
certain note information. The Purchase Price shall be adjusted as follows:
a. decreased, dollar for dollar for each dollar the amount of accounts
receivable is less than [*] ($[*]) as stated on the Effective Date Balance
Sheet. Attached hereto as Exhibit 2.2 is a summary aging report of ADC's
accounts receivable as of the Execution Date.
2.3 Stockholders Agreement. The Shares shall be issued subject to the
Stockholders Agreement datedas of the Closing Date ("Stockholders Agreement") a
copyofwhich is attachedas Exhibit 2.3 and which shall be executed by ADC and
ProMedCo. ADC understands that ADC only will be allowed to transfer the Shares
in accordance with the Stockholders Agreement. ADC also understands that any
document evidencing the Shares will bear a restrictive legend prohibiting
transfer other than in accordance with the Stockholders Agreement.
2.4 Tax. All transfer and similar taxes, fees and assessments incurred as a
result of the transactions contemplated by this Agreement shall be paid by ADC.
2.5 Allocation of Purchase Price. The Purchase Price shall be allocated
to the Assets and shall be reported for tax purposes by each party, consistent
with a method mutually agreed upon by representatives of ADC, ProMedCo and POA.
If ADC, ProMedCo and POA are unable to agree, a "Big Six" accounting firm shall
be engaged to allocate the Purchase Price equitably.
ARTICLE III.
CLOSING
The purchase of the Practice Assets as contemplated hereby shall close
("Closing") by the later of: (a) February 16, 1997; or (b) the first day of the
month following the date of the Initial Public Offering ("IPO") of ProMedCo (the
"Effective Date"). At Closing, all assignments, bills of sale and other
documents required to be delivered hereunder shall be delivered to Purchaser.
Also at Closing, Purchaser shall issue the consideration described in Section
2.1 hereof. ADC and Purchaser covenant and agree to use their best efforts to
satisfy the conditions to Closing described in Article IV of this Agreement. The
date on which the Closing occurs is referred to as the Closing Date.
ARTICLE IV.
ITEMS TO BE DELIVERED AT OR PRIOR
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
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TO CLOSING/CONDITIONS TO CLOSING
4.1 By ADC. ADC shall deliver to Purchaser, on the Closing Date:
(a) A Bill of Sale for the Practice Assets duly executed by ADC for the
Practice Assets set forth on Exhibit 1.1. Such Bill of Sale shall be in the form
attached as Exhibit 4.1(a).
(b) The Stockholders Agreement duly executed by ADC which shall be in the
form attached as Exhibit 2.3.
(c) All assignments and third-party consents for any contracts or leases
being assigned by ADC to POA and such estoppel certificates that POA may
request.
(d) Member Assurance Agreements duly executed by each of ADC's Members,
in the form attached as Exhibit 4. 1 (d).
(e) Employment Agreements between each of the physician Members and
physician employees of ADC duly executed by the parties thereto, in the form
attached as Exhibit 5. 1.
(f) Such other instruments as may be reasonably requested by
Purchaser in order to give effect to or carry out the intent of this Agreement.
4.2 By Purchaser. Purchaser shall deliver to ADC, on the Closing Date:
(a) Stock certificates representing ownership of the number of Shares set
forth under Section 2.1.
(b) An Assumption Agreement with respect to the contact
obligations assumed as let forth on Exhibit 1.3. Such Assumption Agreement shall
be in the form attached as Exhibit 4.2(b).
(c) Copies of duly filed articles of incorporation, bylaws and
organizational minutes, proMly executed, for ProMedCo of Abilene, Inc.
(d) Such other instruments as may be reasonably requested by
ADC in order to give effect to or carry out the intent of this Agrement.
4.3 Conditions to Purchaser's Obligations. Purchaser's obligation to
acquire the assets of ADC as provided in this Agreement shall be Conditioned
upon the satisfaction of the following conditions at or prior to Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.1 hereof shall have been executed and delivered to Purchaser.
(b) No Material Adverse Change. From and after the Execution Date and prior
to the Closing Date, (i) there shall have been no Material Adverse Change, as
hereinafter defined, in ADC or the assets or liabilities of ADC; (ii) the
<PAGE>
updated information contained in the certificate submitted pursuant to Section
4.3(c) shall not reflect a Material Adverse Change; and (iii)ADC shall have
delivered to Purchaser a certificate, dated as of the Closing Date, to such
effect-
(c) Truth of Representation and Warranties. The representations and
warranties of ADC contained in this Agreement, or in any Exhibit hereto, shall
be in all material respects true and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date, and ADC shall have delivered to Purchaser a certificate,
dated as of the Closing Date, to such effect. ADC shall have the express
obligation to update all infomiation contained in the Exhibits hereto so that
such Exhibits shall be true, correct and complete as of the Closing Date.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or to ADC's knowledge threatened before a court or other government
body or by any public authority to restrain or prohibit any of the transactions
contemplated hereby, and ADC shall have delivered to Purchaser a certificate,
dated as of the Closing Date, to such effect.
(e) Opinions of Counsel. Purchaser shall have received all of the
necessary opinions of its corporate and health care counsel and an opinion from
ADC's counsel in the form attached as Exhihit 4.3(e).
(f) Securities Law Compliance. The issuance of the Shares to ADC will
not violate the securities laws of the State of Texas or of the United States.
(g) Third Party Consents. POA shall have received copies of all
third-party consents for any contracts or leases which POA agrees to assume
pursuant to Section 1.3.
(h) Licenses, Permits, Qualification. POA and ADC shall have obtained
or applied for all licenses and permits necessary to operate their respective
businesses after the Closing Date. As to licenses that have not been obtained,
POA shall have reasonable assurances that the licenses will be issued upon
notice of Closing without any further conditions.
(i) Medical Malpractice Insurance. All physicians, health care
providers, and employees of ADC and POA must be properly covered by medical
malpractice insurance and medical malpractice tail insurance to cover prior
occurrences or continuation of ADC's existing malpractice coverage with the
addition of POA as a named insured.
(j) Due Diligence. Purchaser shall have verified to its reasonable
satisfaction the accuracy of the representations and warranties of ADC.
4.4 Conditions to ADC's Obligations. ADC's obligations to sell its
assets as provided in this Agreement shall be conditioned upon the satisfaction
of the following conditions at or prior to Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.2 hereof shall have been executed and delivered by Purchaser.
(b) Truth of Representations and Warranties. The representations and
warranties of Purchaser contained in this Agreement, or in any Exhibit hereto,
<PAGE>
shall be in all material respects true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had been made
as of such date, and Purchaser shall have delivered to ADC an officer's
certificate, dated as of the Closing Date, to such effect.
(c) No Material Change. From and after the Execution Date and Prior to
the Closing Date, (i) there shall have been no Material Adverse Change in the
assets or liabilities of POA or ProMedCo; (ii) the updated information contained
in the Exhibits submitted pursuant to Section 4.4(b) shall. not reflect a
Material Adverse Change; and (iii) POA or ProMedCo shall have delivered to
Purchaser a certificate, dated as of the Closing Date, to such effect.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby, and Purchaser shall have delivered to ADC an officer's certificate,
dated as of the Closing Date, to such effect.
(e) No Investigation. No action, proceeding or investigation shall have
been instituted by HCFA or any other governmental entity against ProMedCo, and
Purchaser shall have delivered to ADC an officer's certificate, drafted as of
the Closing Date, to such effect.
(f) ProMedCo of Abilene, Inc. ProMedCo shall have caused to be formed
ProMedCo of Abilene, Inc., a 100% owned subsidiary of ProMedCo, as a Texas
for-profit corporation, for the purpose of acquiring the Practice Assets and
assuming the contruct obligations set forth in this Agreement.
(g) Opinions of Counsel. ADC shall have received an opinion from
Purchaser's counsel in the form attached hereto as Exhibit 4.4(g).
(h) Due Diligence. ADC shall have verified to its reasonable
satisfaction the accuracy of the representations and warranties of ProMedCo and
POA.
ARTICLE V.
ITEMS TO BE DELIVERED AT OR PRIOR TO EXECUTION
5.1 Employment Agreements. Employment Agreements between each of the
physician employees of ADC and ADC, duly executed by the parties thereto, in the
form attached as Exhibit 5.1.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF ADC
ADC represents, warrants, covenants and agrees with Purchaser that:
6.1 Organization and Authority to Enter into Agreements. ADC is a
professional limited liability company duly organized, validly existing and in
good standing under the laws of the State of Texas. ADC has the full authority
to own its property, to carry on the Practice as presently conducted, to enter
into this Agreement and to consummate the transactions contemplated hereby. ADC
has no direct or indirect interest in, by way of stock ownership or otherwise,
any corporation, partnership, joint venture, association or business enterprise.
<PAGE>
6.2. Material Contracts. Except as set forth on Exhibit 6.2, or on
another Exhibit to this Agreement, ADC is not bound by (a) any material
agreement, contract, or commitment relating to the employment of any person by
ADC, or any loans, deferred compensation, incentive compensation, pension,
profit sharing, retirement, or other Employee Benefit Plan, (b) any loan or
advance to, or investment in, any other person or entity, or any agreement,
contract, or commitment relating to the making of any such loan, advance, or
investment, (c) any guarantee or other contingent liability in respect of any
indebtedness or obligation of any other person or entity, (d) any agreement,
contract, or commitment materially limiting the freedom of ADC or any associated
entity or individual to provide health care services in any location or to
compete with any other person or entity, or (e) any other agreement, contract,
or commitment which is material to the Practice. Except as set forth in Exhibit
6.2 each contract or agreement set forth in Exhibit 6.2 is in full force and
effect, and there exists no default or event of default or event, occurrence,
condition, or act, which with the giving of notice, the lapse of time, or both,
or the happening of any other event or condition, would become a default or
event of default thereunder.
6.3 Insurance; Malpractice. Exhibit 6.3(a) is a list and brief
description of all policies or binders of fire, liability, product liability,
workers compensation, health and other forms of insurance policies or binders
currently in force insuring against risks which will remain in full force and
effect at least through the Closing Date. Exhibit 6.3(b) contains a description
of all malpractice liability insurance policies of ADC since January 1, 1988.
Except as set forth on Exhibit 6.3(c), (a) ADC has not in the last seven (7)
years filed a written application for any insurance coverage which has been
denied by an insurance agency or carrier, and (b) ADC has been continuously
insured for professional malpractice claims. Exhibit 6.3(c) also sets forth a
list of all claims for any insured loss in excess of Five Thousand Dollars
($5,000.00) per occurrence, filed by ADC during the three (3) year period
immediately preceding the date hereof, including, but not limited to, workers
compensation, general liability, environmental liability and professional
malpractice liability claims. ADC is not in material default with respect to any
provision contained in any such policy and has not failed to give any notice or
present any claim under any such policy in due and timely fashion.
6.4 No Changes Prior to Closing Date. During the period from the
Balance Sheet Date through the date hereof, ADC has not, and from the date
hereof to the Closing Date, ADC shall not have (i) incurred any material
liability or obligation of any nature (whether accrued, absolute, contingent, or
otherwise), except in the ordinary course of business, or except with the prior
written consent of ProMedCo, such consent not to be unreasonably withheld, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is material to ADC, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the ordinary course of business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the ordinary course of business (such as
normal year-end bonuses), (viii) increased compensation except in the ordinary
course,
<PAGE>
(ix) suffered any damage, destruction or loss to any of the Practice Assets, (x)
canceled or failed to continue any insurance, or (xi) agreed, whether or not in
writing, to do any of the foregoing.
6.5 Title; Condition. Exhibit 1.1 contains a complete, true and correct
list of ADC's Practice Assets. ADC has good and marketable title to certain of
the Practice Assets. Except as disclosed on Exhibit 1.3 or Exhibit 6.5 hereto,
none of such assets is subject to a contract or other agreement of sale or
subject to security interests, mortgages, encumbrances, liens (including income,
personal property and other tax liens) or charges of any kind or character. The
Practice Assets shall be conveyed to Purchaser free and clear of all liens and
encumbrances other than those granted in connection with the contract
obligations to be assumed by Purchaser as set forth in Exhibit 1.3.
6.6 Litigation, Court Orders and Decrees. There are no outstanding or to
ADC's knowledge threatened suits, actions, proceedings at law or in equity,
orders, writs, administrative proceedings, injunctions or decrees of any court,
governmental agency or entity or arbitration tribunal against or affecting the
Practice, ADC, the Practice Assets or any other healthcare professional
associated with or employed by ADC. To ADC's knowledge, ADC is in compliance
with all applicable federal, state and local laws, regulations and
administrative orders which are applicable to the operation of ADC, including,
without limitation, matters relating to antitrust and anti-competitive
practices, discrimination, employment, and health and safety, and ADC has not
received any notices of alleged violations thereof. No governmental authorities
are presently conducting proceedings against ADC and to ADC's knowledge no such
investigation or proceeding is pending or being threatened.
6.7 Permits and Licenses. To ADC's knowledge, ADC and all other
healthcare professionals associated with or employed by ADC have all permits and
licenses required by all applicable laws; have made all regulatory filings
necessary for the conduct of ADC's business; and are not in violation of any of
said permitting or licensing requirements. A list of such permits and licenses
is attached as Exhibit 6.7.
6.8 Authority. The execution of this Agreement and the consummation of
the transactions contemplated hereby has been duly authorized by all necessary
action, and this Agreement is a valid and binding Agreement of ADC enforceable
in accordance with its terms, except (a) as such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditor's rights and (b) as the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. Attached as Exhibit 6.8 is a listing of
all third-party consents which must be obtained prior to Closing. To ADC's
knowledge, neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, nor compliance by ADC with
any of the provisions hereof, will:
(a) violate or conflict with, or result in a material breach
of any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of, any lien, security interest, charge or encumbrance upon any of the
assets to be conveyed hereunder of any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, agreement or other
instrument or obligation to which ADC is a party, or by which either ADC or any
of the
<PAGE>
assets to be conveyed hereunder is bound which would cause a Material Adverse
Change to ADC or ADC's assets; or
(b) violate any order, writ, injunction, decree, statute, rule
or regulation applicable either to ADC or any of the assets to be conveyed
hereunder which would cause a Material Adverse Change to ADC or ADC's assets.
6.9 Tax Matters. All taxes, including without limitation income,
property, sales, franchise, employees' withholdings and social security taxes
imposed by the United States or by any state, municipality or subdivision of any
state or by any other taxing authority which are due and payable by ADC and all
interest or penalties thereon have been paid in full and all federal, state and
other tax returns of ADC required by law to be filed have been timely filed, and
ADC has paid or adequately provided for all taxes (including taxes on
properties, income, franchises, licenses, sales and payrolls) which have become
due pursuant to such returns or pursuant to any assessment, except for any taxes
and assessments, the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which ADC has set aside on its books adequate reserves. There are no tax liens
on any of the assets of ADC except those with respect to taxes not yet due and
payable. There are no pending tax examinations of ADC's tax returns nor has ADC
received a revenue agent's report asserting a tax deficiency in the last twelve
(12) months. There are not and will not be at the Closing Date, any claims
pending or asserted against the assets of ADC for unpaid taxes by any federal,
state or other governmental body. Except as set forth in Exhibit 6.9, ADC has
withheld from each payment made to employees of ADC the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
6.10 Employee Benefit Plans.
(a) List of Plans. Set forth on Exhibit 6.10 is an accurate
and complete list of all employee benefit plans ("Employee Benefit Plans")
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), whether or not any Employee Benefit Plans are
otherwise exempt from the provisions of ERISA, established, maintained or
contributed to by ADC, including all employers (whether or not incorporated)
which by reason of common control are treated together with ADC as a single
employer within the meaning of Section 414 of the Code since September 2, 1974.
(b) Status of Plans. ADC has never maintained and does not now
maintain or contribute to any Employee Benefit Plan subject to ERISA which is
not in substantial compliance with ERISA, or which has incurred any accumulated
funding deficiency within the meaning of Section 412 or 418B of ERISA, or which
has applied for or obtained a waiver from the Internal Revenue Service of any
minimum funding requirement under Section 412 of the Code or which is subject to
Title IV of ERISA. ADC has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit Plan
covering any employees of ADC or ceased operations at any facility or withdrawn
from any such Plan in a manner which could subject it to liability under Section
4062(f), 4063 or 4064 of ERISA, and knows of no facts or circumstances which
might give rise to any liability of ADC to the PBGC under Tide IV of ERISA which
could reasonably be anticipated to result in any claim being made against
Purchaser by the PBGC. ADC has not incurred any withdrawal liability (including
<PAGE>
any contingent or secondary withdrawal liability) within the meaning of Sections
4201 and 4202 of ERISA, to any Employee Benefit Plan which is a Multiemployer
Plan (as defined in Section 4001 of ERISA), and no event has occurred, and there
exists no condition or set of circumstances, which represents a material risk of
the occurrence of any withdrawaL-from or the partition, termination,
reorganization or insolvency of any Multiemployer Plan which would result in any
liability to a Multiemployer Plan.
(c) Contributions. Full payment has been made of an amounts
which ADC is required, under applicable law or under any Employee Benefit Plan
or any agreement relating to any Employee Benefit Plan to which ADC is a party,
to have paid as contributions thereto as of the last day of the most recent
fiscal year such Employee Benefit Plan ended prior to the date hereof. ADC has
made adequate provision for reserves to meet contributions that have not been
made because they are not yet due under the terms of any Employee Benefit Plan
or related agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of which
documents have been provided.
(d) Tax Qualification. Each Employee Benefit Plan intended to be
qualified under Section 401 (a) of the Code has been determined to be so
qualified by the Internal Revenue Service and nothing has occurred since the
date of the last such deten-nination which resulted or is likely to result in
the revocation of such determination.
(e) Transactions. ADC has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a tax, penalty
or liability for prohibited transactions under ERISA or the Code. Neither ADC
nor any of its employees, to the extent they or any of them are fiduciaries with
respect to such plans, have breached any of the responsibilities or obligations
imposed upon fiduciaries under Title I of ERISA, nor have they taken any actions
which would result in any claim being made under or by or on behalf of any such
plans by any party with standing to make such claim.
(f) Other Plans. ADC presently does not maintain any employee
benefit plans or any other foreign pension, welfare or retirement benefit
plans other than those listed on Exhibit 6.10.
(g) Documents. ADC has delivered or caused to be delivered to
ProMedCo and its counsel true and complete copies of (i) all Employee Benefit
Plans as in effect, together with all amendments thereto which will become
effective at a later date, as well as the latest Internal Revenue Service
determination letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) Form 5500 for the most
recent completed fiscal year for each Employee Benefit Plan required to file
such form.
6.11 Third Party Relations. ADC is not aware of any material problems or
material disagreements with any third parties with which it does business, and
ADC will use its best efforts from the date of this Agreement until the Closing
Date to operate its business in such a manner so as not to adversely affect the
goodwill of its patients, suppliers, employees, associated physicians and other
such persons or third parties with which the ADC does business.
6.12 Leased Property. Except as set forth on Exhibit 6.12, no material
adverse claim against, or defect in, the interest purportedly leased or given
under or by any such instrument exists, and neither the lessor (to the ADC's
best knowledge) nor
<PAGE>
ADC is in default under any of such leases, and ADC is not aware of any fact
which, with notice and/or the passage of time, would constitute such a default.
6.13 Compliance with Applicable Laws. Except as set forth in Exhibit
6.13, to ADC's knowledge, ADC has operated in compliance with all federal,
state, county and municipal laws, ordinances and regulations applicable thereto.
No item disclosed on Exhibit 6.13 wW cause a Material Adverse Change to ADC's
Assets.
6.14 Employees: Employee Compensation. Exhibit 6.14 is a list of all
current physician employees, physician independent contractors, nonphysician
employees, officers and consultants of ADC. Exhibit 6.14 shall include for all
Affected Employees, as such term is defined in Section 16.1 of this Agreement,
their date of hire, rate of compensation, position and social security number.
ADC has paid or discharged or will pay, discharge or assume all liabilities for
compensation and benefits to which all employees are entitled through the
Closing Date, other than those individuals who are employed by POA, pursuant to
that certain Interim Service Agreement dated January 19, 1996 between ADC and
POA including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, defer-red
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of any of ADC's employees.
6.15 Enviromnental Matters. To the best of ADC's knowledge, ADC is in
compliance in all material respects with all federal, state and local
environmental laws, rules, regulations, standards and requirements, including,
without limitation those respecting chemical, radiographic, or biomedical wastes
or any other hazardous substances or materials, as defined in any applicable
federal or state law or regulation ("Hazardous Wastes"). Any storage, holding,
release, emission, discharge, generation, processing, disposition, handling or
transportation of any Hazardous Wastes from, into or on any portion of the
clinic premises is and has been at all times in full compliance in all material
respects with all federal, state and local environmental laws, rules,
regulations, standards and requirements.
<PAGE>
6.16 Healthcare Compliance. ADC is or will be within two months of the
Execution Date participating in or otherwise authorized to receive reimbursement
from or is a party to Medicare, Medicaid, and other third-party payor programs
(collectively "Third Party Payor Programs"). All necessary certifications and
contracts required for participation in such programs are in full force and
effect and have not been amended or otherwise modified, rescinded, revoked or
assigned as of the date hereof, and to the best of ADC's knowledge no condition
exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such Third Party Payor Program. To the best of
ADC's knowledge, ADC is in full compliance with the requirements of all such
Third Party Payor Programs applicable thereto.
6.17 Fraud and Abuse. ADC and, to ADC's knowledge, each employee of ADC
providing professional services for ADC have not engaged in any activities which
are prohibited under 42 U.S. C. ss. 1320a-7b or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
but not limited to the following: (a) knowingly and willfully making or causing
to be made a false statement or representation of a material fact in any
application for any benefit or payment; (b) knowingly and willfully making or
causing to be made any false statement or representation of a material fact for
use in determining rights to any benefit or payment; (c) failing to disclose
knowledge by a claimant of'the occurrence of any event affecting the initial or
continued right to any benefit or payment on its own behalf or on behalf of
another, with intent to fraudulently secure such benefit or payment; and (d)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay or receive such remuneration (i) in return
for referring an individual to a person for the furnishing or arranging for the
furnishing or any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or Q in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
6.18 Facility Compliance. To ADC's best knowledge, ADC's facility is
duly licensed and is lawfully operated in accordance with the requirements of
all applicable law and has all necessary authorizations for the use and
operation, all of which are in full force and effect. There are no outstanding
notices of deficiencies relating to ADC issued by any governmental authority or
Third Party Payor Program requiring conformity or compliance with any applicable
law or condition for participation of such governmental authority or Third Party
Payor Program, and after reasonable and independent inquiry and due diligence
and investigation, ADC has neither received notice nor has any knowledge or
reason to believe that such necessary authorizations may be revoked or not
renewed in the ordinary course.
6.19 Rates and Reimbursement Policies. To ADC's knowledge, the
jurisdiction in which ADC is located does not currently impose any restrictions
or limitations on rates which may be charged to private-pay patients receiving
services provided by ADC. ADC does not have any rate appeal currently pending
before any govenuriental authority or any administrator of any Third Party Payor
Program. ADC has no knowledge of any applicable law, which has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement or any such legal requirement proposed or currently pending in the
jurisdiction in which ADC is located, which could have a material adverse effect
on ADC or may result in the imposition of additional Medicaid, Medicare,
charity,
<PAGE>
free care, welfare, or other discounted or government assisted patients at ADC
or require ADC to obtain any necessary authorization which ADC does not
currently possess.
6.20 Accounts Receivable. To the best of ADC's knowledge, the amount of
all accounts receivable, unbilled invoices and other debts due or recorded in
the respective records and books of account of ADC, as being due to ADC, as of
the Closing Date, will be due and collectible in full in the ordinary course of
business, except to the extent of reasonable Adjustments thereon. "Adjustments"
shall mean any Adjustments to ADC's gross billings for uncollectible accounts,
discounts, Medicare and Medicaid allowances, worker's compensation discount,
employee/dependent health care benefit programs, professional courtesies, and
other activities that do not generate a collectible fee. Any Adjustments-made
shall be made on a reasonable historical basis, or on a reasonable prospective
basis should a new payor agreement apply.
None of such accounts receivable (except ADC's accounts receivable currently
subject to the Hospital Agreements) or other amounts'are or will at the Closing
Date be subject to any counterclaim or set-off except to the extent of any such
provision or Adjustment. ADC will furnish POA at Closing with a summary aging
report of ADC's accounts receivable as of the Closing Date.
6.21 Trade Relations. To ADC's best knowledge, there exists no actual or
threatened limitation of the business relationship of ADC with any material
customer, supplier or landlord or with any person whose contracts or projected
contracts with ADC would be material to the operations of ADC taken ' as a
whole. There exists no condition or state of facts or circumstances which could
result in the occurrence of a material adverse effect with respect to ADC or
prevent Purchaser from conducting its business after the consummation of the
transactions contemplated by this Agreement as such business is conducted or
proposed to be conducted.
6.22 [Reserved].
6.23 Full Disclosure. When considered in the context of all information
contained herein, no representation or warranty made by ADC in this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit or fail to state a material fact necessary to make the statements
contained herein or therein not materially misleading; provided, 'however, that
this warranty is not intended to obligate ADC to a higher disclosure obligation
than is set out in each of the separate representations and warranties contained
herein.
6.24 Liabilities. Attached as Exhibit 6.24 is a list of ADC's existing
liabilities associated with ADC's Practice. ADC has no other liabilities
(whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, and whether due or to become due).
6.25 Investment Representation and Access.
(a) ADC confirms that ProMedCo has made available to ADC, or to
ADC's representatives), all information requested concerning ProMedCo, the
opportunity to ask questions of its officers and directors and to acquire such
additional information about the Shares and the business and financial condition
of ProMedCo as ADC has requested, which additional information has been
satisfactorily received.
<PAGE>
(b) In deciding to acquire the Shares, ADC has relied upon
consultations with ADC's legal, financial and tax advisers with respect to this
transaction and the nature of the investment together with the additional
information concerning ProMedCo provided under subsection (a) above.
(c) The financial condition of ADC is such that ADC can bear the
risk of this investment indefinitely. ADC, either alone or with ADC's
representatives has such knowledge and experience in financial and business
matters that ADC is capable of evaluating the merits and risks of an investment
in ProMedCo.
(d) ADC wil-I not transfer or otherwise dispose of the Shares or
any interest therein, except in accordance with the Stockholder Agreement and in
such manner as to not violate any registration provision of the Securities Act
of 1933, as amended (the "Securities Act"), or of any applicable state
securities law regulating the disposition thereof. Except for the shares to be
registered under Section 2.1(a) of this Agreement, ADC is aware that the Shares
have not been registered under the Securities Act or any state securities laws
or any other applicable securities legislation and that the Shares must be held
indefinitely unless they are subsequently registered or an exemption from such
registration is available. ProMedCo will permit transfer of the Shares by ADC
only when such securities have been registered under the Securities Act, any
applicable state securities law and any other applicable securities legislation
or when the request is accompanied by an opinion of counsel, acceptable to
ProMedCo, to the effect that the sale or proposed transfer does not require
registration under the Securities Act, any state securities law or any other
applicable securities legislation, or when presented with evidence otherwise
satisfactory to ProMedCo. ADC agrees that the following legend to such effect
and any other legends required by applicable state securities law will be placed
on the unregistered Shares and a stop transfer order shall be placed with
respect thereto, for as long as ProMedCo deems it necessary:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933 as amended, or any state securities laws (Acts). The
shares have been acquired for investment and may not be sold or offered for sale
in the absence of an effective registration statement for the shares under the
Acts or an opinion of counsel or other evidence satisfactory to ProMedCo that
such registration is not required."
(e) ADC acknowledges that ADC has not relied on any
representation by any person, whether such representation was made directly or
indirectly, regarding the amount, percentage or type of profit or loss to be
realized, if any, from an investment in the Shares. ADC further acknowledges
that the prior experience of ProMedCo or any other person is not in any way a
prediction of the results which ADC may obtain as a result of its investment in
the Shares. ADC further acknowledges that ADC is familiar with the business to
be conducted by the ProMedCo and has had full access to the business plan
formulated by the ProMedCo.
(f) The representations, warranties and covenants of ADC
contained herein shall survive the execution and delivery of this Agreement and
the issuance of the Shares.
6.26 Membership Interest. The membership interests of ADC arr, owned in the
manner set forth in Exhibit 6.26 and, except as set forth on such exhibit, there
are no outstanding membership interests of any nature whatsoever in ADC. Except
for the transactions contemplated by this Agreement, insofar as is known
<PAGE>
to ADC, there are not any agreements or understandings by ADC with respect to
ADC or any agreements by ADC relating to the practice or operation of the ADC on
any matter.
6.27 Financial Statements. ADC will furnish ProMedCo with an unaudited
balance sheet dated January 19, 1996, a copy of which is attached hereto as
Exhibit 6.27. Such financial statements, including the notes thereto, eicept as
indicated therein, are accurate and complete, were prepared from ADC's books and
records, were prepared on a basis consistent with past accounting practices of
ADC and accurately reflect the results of operations for the periods noted
therein. The balance sheet of ADC heretofore delivered (or to be delivered) by
ADC to ProMedCo fairly present the financial condition of ADC at the date
thereof, and except as indicated therein, reflect all claims against and all
debts and liabilities of ADC, fixed or contingent, as of the date thereof. Since
January 19, 1996 (the "Balance Sheet Date"), there has been (i) no material
adverse change in the assets or liabilities, or in the business condition,
financial or otherwise, or in the results of operations of ADC, and (ii) no fact
or condition known to ADC which exists or is contemplated or threatened which
might cause such a change in the future.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
ProMedCo represents, warrants, covenants and agrees with ADC as follows:
7.1 Organization. ProMedCo is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. ProMedCo has
the full power to own its property, to carry on its business as presently
conducted, to enter into this Agreement and to consummate the transactions
contemplated hereby. Upon its formation, POA shall be a corporation duly
organized, validly existing and in good standing of the laws of the State of
Texas and shall have the full power to own its property, to carry on its
business as contemplated by this Agreement, to accept the assignment of this
Agreement and to consummate the transactions contemplated hereby.
7.2 Authority. ProMedCo has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, as well as the
consummation of the transactions contemplated hereby, and at Closing, ProMedCo
shall deliver an officer's certificate to such effect. This Agreement is a valid
and binding agreement of the Purchaser, enforceable in accordance with its
terms, except (a) as such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditor's rights and (b) as the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, violate any
provisions of the charter or the bylaws of ProMedCo or POA or any indenture,
mortgage, deed of trust, lien, lease, agreement, arrangement, contract,
instrument, license, order, judgment or decree or result in the acceleration of
any obligation thcrconder to which ProMedCo is a party or by which it is bound.
7.3 Absence of Litigation. No action or proceeding by or before any Court
or other governmental body has been instituted or is, to the best of ProMedCo's
<PAGE>
knowledge, threatened with respect to the transactions contemplated by this
Agreement.
7.4 Shares. Upon delivery of the certificates represenfing ownership of
the Shares, such Shares will be duly authorized, validly issued, fully paid and
nonamessable.
7.5 Financial Statements. Attached hereto as Exhibit 7.5 are: (a) the
unaudited consolidated statements of income and of cash flows of ploMedCo for
the fiscal year ending on September 30, 1995 (the 'Interim Financials'); (b) the
unaudited consolidated balance sheet of the Company as of September 30, 1995 and
the unaudited consolidated statements of income and of cash flows for the
Company for the three months then ended (the 'Unaudited Financials,'
collectively with the Interim Financials, the "Financials'). The Financials; (i)
are complete and correct in all material respects; (ii) have been prepared in
accordance with generally accepted accounting principles, consistently applied;
and (iii) fairly present, in all material respects, the financial position of
ProMedCo as of each such date and the results of operations for each such period
then ended; provided, however, that the Financials may not contain all footnotes
required under generally accepted accounting principles, consisterdy applied.
7.6 Trade Relations. To ProMedCo's and POA's best knowledge, there
exists no actual or threatened termination of the business relationship of
ProMcdCo or POA with any material customer, supplier or landlord or with any
person whose contracts with ProMedCo or POA taken as a whole would be material
to the operations of ProMedCo or POA. There exists no condition or state of
facts or circumstances which could result in the occurrence of a material
adverse effect with respect to ProMedCo or POA taken as a whole, or prevent ADC
from conducting its business after the consummation of the transactions
contemplated by this Agreement as such business is conducted or proposed to be
conducted.
7.7 ProMedCo Stock Options and Warrants. Prior to the Initial Public
Offering(IPO) by ProMcdCo, ProMedCo and each Subsidiary will not issue any
additional stock options or warrants to anyone listed on Exhibit 7.7.
7.8 Fraud and Abuse. Purchaser and, to Purchaser's knowledge, each
employee of Purchaser providing services for Purchaser have not engaged in any
activities that are prohibited under 42 U.S.C. ss. 1320a-7b, 42 U.S.C. ss.
1395an, or the regulations promulgated thereunder pm=t to such statutes, or
related state or local statutes or rcguLations, or that are prohibited by rules
of professional conduct, including but not limited to the following: (a)
knowingly and willMy making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment;
(b) kwwingly and willfully making or causing to be made any falsc statement or
representation of a material fact for use in determining rights to any benefit
or payment, (c) failing to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or payment on
its own behalf or on behalf of another, with intent to fraudulently secure such
benefit or payment; and (d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay or receive such
remuneration (i) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid, or (H) in
return for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any
<PAGE>
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
7.9 Full Disclosure. When considered in the context of all information
contained herein, no representation or warranty made by Purchaser in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit or fail to state a material fact necessary to make the
statements contained herein or therein not materially misleading. Provided,
however, that this warranty is not intended to delegate Purchaser to a higher
disclosure obligation than is set out in each of the separate representations
and warranties contained herein.
ARTICLE VIII.
CONDUCT OF BUSINESS: REVIEW
8.1 Conduct of Business of ADC. During the period from the date of this
Agreement to the Closing Date, ADC shall conduct its business only in the
ordinary and usual course of business, and shall use its best efforts to
preserve intact its business organization, keep available the services of its
employees and maintain satisfactory relationships with patients and others
having business, medical or professional relationships with ADC. ADC shall
immediately notify POA or ProMedCo of any unexpected emergency or other change
in the normal course of its business or in the operation of its properties and
of any governmental complaints, investigations, or hearings (or communications
indicating that the same may be contemplated), adjudicatory proceedings
involving the business or practice of ADC or any other healthcare professional
associated with or employed
<PAGE>
by ADC and shall keep POA or ProMedCo fully informed of such events and permit
its representatives prompt access to all materials prepared in connection
therewith.
8.2 Review of ADC by ProMedCo. ADC has given ProMedCo and shall continue
to give ProMedCo prior to the Closing Date, through its representatives,
reasonable access to the assets, books, and records of ADC, as well as its
financial and legal condition to familiarize itself with such assets and other
matters; such review shall not, however, affect the representations and
warranties made by ADC herein and in the Exhibits attached hereto. ADC shall
permit ProMedCo and its representatives, advisors, lenders, and their advisors,
accountants and counsel to have full access to the premises and to all books and
records of ADC during normal business hours and to cause its employees to
furnish ProMedCo with such financial and operational data and other information
with respect to the business and assets of ADC as ProMedCo shall from time to
time reasonably request.
ARTICLE IX.
TRANSFERS AND FURTHER ASSURANCES
From time to time after the date hereof, at the request of ProMedCo, ADC
shall, without further consideration, execute, acknowledge and deliver such
further instruments of transfer and other assurances and shall take such other
action as ProMedCo reasonably may request in order to assign and/or transfer mom
effectively any of the assets to be transferred under this Agreement. ADC shall
take all action reasonably requested by ProMedCo to enable POA to succeed to the
workers compensation and unemployment insurance ratings, insurance policies,
deposits and other interests of ADC and other ratings for insurance or other
purposes established by ADC. POA shall not be obligated to succeed to any such
rating, insurance policy, deposit or other interest, except as it may elect to
do so. ADC does not warrant that POA will be successful in succeeding to any
such rating, insurance policy, deposit or other interest.
ARTICLE X.
INDEMNIFICATION
10.1 Indemnification. Each party agrees to and shall defend, indemnify
and hold harmless the other party, its employees, officers, directors,
shareholders, subsidiaries, affiliates, agents, successors and assigns
("Indemnified Parties"), against the following:
(a) Any and all direct or indirect damages, losses, settlement
payments, obligations, liabilities, claims, actions or causes of action,
encumbrances and costs and expenses suffered, sustained, incurred or paid by any
Indemnified Parties because of:
<PAGE>
(i) the claims of any broker or finder engaged by ADC or Purchaser;
(ii) the untruth, inaccuracy, nonfulfillment or breach of any
representation, warranty, agreement or covenant of either party contained in or
made in connection with this Agreement;
(iii) in the case of ADC:
(A) Any federal, state or local tax liability of the ADC which
is in excess of the provision for taxes reflected on the Balance Sheet and any
tax liability arising from the transactions contemplated hereby and any
penalties and interest on any of the foregoing,
(B) Purchaser's payment of any of ADC's liabilities not
expressly assumed hereunder,
(C) any liabilities arising as a result of the operation of
ADC's business prior to the Closing, and
(D) the noncompliance by the parties with the Bulk Sales law of
the Uniform Commercial Code as adopted by any applicable state.
(b) All reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees, interest and penalties) incurred by any
Indemnified Parties in connection with any action, proceeding, demand,
assessment or judgment incident to any of the matters for which indemnity is
provided in this Section 10.1.
10.2 Rules Regarding Indemnification. The obligations and
liabilities of Purchaser or ADC, as applicable, to indemnify (the "Indemnifying
Party') the Indemnified Parties shall be subject to the following terms and
conditions:
(a) The Indemnified Parties shall give written notice to the
Indemnifying Party of any claim which gives rise to a claim by the Indemnified
Parties against the Indemnifying Party based on the indemnity agreement
contained in Section 10.1 hereof, stating the nature and basis of said claims
and the amounts thereof, to the extent known.
(b) In the event any claims, action, suit or proceeding is
brought against the Indemnified Parties with respect to which the Indemnifying
Party may have liability under the indemnity contained in Section 10.1 hereof
the Indemnified Parties shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting from such claim, provided
that the Indemnified Parties shall not be required to permit the Indemnifying
Party to assume the defense of any third party claim which if not first paid,
discharged, or otherwise complied with would result in an interruption or
cessation of the conduct of the business of the Indemnified Parties or any part
thereof. Failure by the Indemnifying Party to notify the Indemnified Parties of
the Indemnifying Party's election to defend any such claim or action by a third
party within 30 days after notice thereof shall have been given by the
Indemnified Parties, shall be deemed a waiver of any such election. If the
Indemnifying Party assumes the defense of such claim or litigation resulting
therefrom, the obligations of the Indemnifying Party hereunder as to such claim
shall include taking all steps reasonably necessary in the defense or settlement
of such claim or litigation resulting in the defense or settlement of such claim
or litigation resulting
<PAGE>
therefrom, including the retention of counsel satisfactory to the Indemnified
Parties, and holding the Indemnified Parties han-riless fi-om and against any
and all damage resulting from, arising out of, or incurred with respect to any
settlement approved by the Indemnifying Party or any judgment in connection with
such claim or litigation resulting therefrom. The Indemnifying Party shall not,
in the defense of such claim or litigation, consent to the entry of any judgment
(other than a judgment of dismissal on the merits with costs) except with the
written consent of the Indemnified Parties nor enter into any settlement (except
with the written consent of the Indemnified Parties) which does not include as
an unconditional term thereof the giving by the claimant or the..Plaintiff to
the Indemnified Parties a release from all liability in respect to such claim or
litigation. If the Indemnifying Party shall not assume the defense of any such
claim by a third party or litigation resulting therefrom, the Indemnified
Parties may defend against such claim or litigation in such manner as they deem
appropriate. The Indemnifying Party shall, in accordance with the provisions
hereof, promptly reimburse th6 Indemnified Parties for the amount of any
settlement reasonably entered into by the Indemnified Parties and for all damage
incurred by the Indemnifying Party in connection with the defense against or
settlement of such claim or litigation.
10.3 Survival. The representations and warranties of ADC and Purchaser
contained in this Agreement, the right of offset set forth in this Agreement,
and the indemnifications contained in this Article shall survive Closing. Any
matter to which an indemnification pertains and with respect to which a claim
has been asserted or threatened following the Closing Date shall continue to be
subject to the indemnifications under this Article until finally terminated,
settled, resolved, or adjudicated; and all terms, conditions and stipulations of
this Article shall likewise continue to apply.
10.4 Notice to ADC: Opportunity to Defend. Purchaser agrees to give
prompt notice to ADC of the assertion of any claim, or the commencement of any
suit, action or proceeding, in respect of which indemnity may be sought under
Section 10.1. ADC may participate in and at its election or, at the request of
Purchaser, assume the defense of any such suit, action or proceeding at ADC's
expense. ADC shall not be Eable under Section 10.1 for any settlement effected
without its consent of any claim, litigation or proceeding in respect of which
indemnity may be sought under Section 10.1, which consent shall not be
unreasonably withheld.
10.5 Notice to Purchaser: OppQrtunity to Defend. ADC agrees to give
prompt notice to Purchaser of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 10.1. Purchaser may participate in and at its election or, at the
request of ADC, assume the defense of any such suit, action or proceeding at
Purchaser's expense. Purchaser shall not be liable under Section 10.1 for any
settlement effected without its consent of any claim, litigation or proceeding
in respect of which indemnity may be sought hereunder, which consent shall not
be unreasonably withheld.
10.6 Security for Indemnity. ADC hereby agrees that in the event
Purchaser is entitled to indemnification pursuant to the provisions of this
Article X and ADC does not pay to Purchaser the amount due hereunder, then
Purchaser shall be entitled to offset such amount against monies collected by
Purchaser on behalf of ADC pursuant to the Service Agreement or any other monies
due from Purchaser to ADC. Such right of offset shall be exercised in the manner
set forth in Section 1.7 hereof.
<PAGE>
10.7 Indemnification Deductible. No party hereto shall be required to
indemnify any other party hereto unless the amount of the loss or claim for
which indemnification is sought, when aggregated with all other losses and
claims for which indemnification is sought by such party, exceeds $5,000, at
which time rights to indemnification for losses and claims may be asserted for
any amounts in excess of $5,000.
ARTICLE XI.
EXPENSES
Except as otherwise provided herein, each of the parties shall pay their
own costs and expenses incurred or to be incurred by it in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
ARTICLE XII.
COSTS
Should any legal proceeding arising out of this Agreement be instituted
by any party to this Agreement against another party, the party prevailing in
such suit shall be entitled, in addition to such other darnages and relief as
the court shall award, to reimbursement of reasonable attorneys' fees, costs,
expenses and court costs incurred in the prosecution or defense of such suit.
ARTICLE XIII.
TERMINATION
Notwithstanding any of the foregoing provisions, this Agreement may be
terminated at any time prior to the Closing Date:
(a) By mutual written consent of the parties hereto;
(b) By written notice from ProMedCo to ADC if any of the
representations and warranties made by the ADC in this Agreement or in the
Exhibits annexed hereto are reasonably determined by ProMedCo to be untrue or
inaccurate in any material respect;
(c) By written notice from ADC to ProMedCo if any of the
representations and warranties made by ProMedCo in this Agreement are reasonably
determined by the ADC to be untrue or inaccurate in any material respect;
(d) By written notice from ProMedCo to the ADC, or from ADC to
PrWedCo, if this transaction shall not have closed by January 19, 2002,
provided, however, if a party has intentionally frustrated the Closing, then
that party shall not have the authority to terminate this Agreement pursuant to
this Article; or .
(e) By written notice from ProMedCo to ADC, or from ADC to
ProMedCo upon termination of the Interim Service Agreement, provided the Service
Agreement does not then become effective.
<PAGE>
ARTICLE XIV.
NOTICES
Any notices hereunder shall be in waiting and shall be deemed to have
been given (i) when received if given in person, (ii) on the date of
acknowledgment of receipt if sent by telex, facsimile or other wire
transmission, (iii) one (1) business day after being sent by overnight delivery
service, or (iv) three (3) days after being deposited in the United States mail,
certified or registered mail, postage prepaid, addressed as follows:
If to ProMedCo: ProMedCo, Inc.
801 Cherry Street, Suite 1050
Fort Worth, TX 76102
Attention: Mr. Dale Edwards
with a copy to: James H. Johnson, Esq.
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200 Dallas,
Texas 75202
If to ADC: Abilene Diagnostic Clinic, P.L.L.C.
1665 Antilley Road, Suite 200
Abilene, Texas 79606
Attention: President
with a copy to: David W. Hilgers, Esq.
Hilgers & Watkins
98 San Jacinto Blvd., Suite 1300
San Jacinto Center
Austin, Texas 78701
or to such other address as the party addressed shall have previously designated
by notice to the serving party, given in accordance with this Article.
ARTICLE XV.
AMENDMENT AND WAIVER
The parties hereto may by mutual agreement amend this Agreement in any
respect. Either party hereto may extend the time for the performance of any of
the obligations of the other, waive any inaccuracies in representations by the
other contained in this Agreement or in any document delivered pursuant hereto,
which inaccuracies would constitute a breach of this Agreement, waive compliance
by the other with any of the covenants contained in this Agreement and
performance of any obligations by the other and waive the fulfillment of any
condition that is precedent to the performance by the party so waiving of any of
its obligations under this Agreement. Any agreement on the part of any party for
any such amendment, extension or waiver must be in writing and signed by the
party agreeing to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.
ARTICLE XVI.
EMPLOYEES - EMPLOYEE BENEFITS
<PAGE>
16.1 Affected Employees. "Affected Employees" shall mean nonmedical
employees, a Est of which is included in Exhibit 6.14 of ADC on the Effective
Date of the Interim Services Agreement. Effective at 12:01 a.m. Central time as
of the Effective Date of the Interim Services Agreement, all Affected Employees
shall be terminated by ADC and, if they so desire, shall become employees of POA
on terms comparable to those employed by ADC.
16.2 Responsibilities. ADC agrees to use its best efforts to satisfy, or
cause its insurance carriers to satisfy, all claims for medical, health and
hospital benefits, whether insured or otherwise (including, but not limited to,
workers compensation, life insurance, medical and disability programs), under
ADC's employee benefit plans brought by, or in respect of, Affected Employees
and former employees of ADC prior to the Closing Date, in accordance with the
terms and conditions of such employee benefit plans or applicable workers
compensation statutes without interruption as a result of the employment by POA
of any such employees after the Closing Date.
<PAGE>
16.3 Payroll and Payroll Taxes. ADC agrees to make a clean cut-off of
payroll and payroll tax reporting with respect to the Affected Employees paying
over to the federal, state and city governments those amounts respectively
withheld or required to be withheld for periods ending prior to the Effective
Date of the Interim Service Agreement. ADC also agrees to issue, by the date
prescribed by IRS Regulations, Forms W-2 for wages paid to the Effective Date of
the Interim Service Agreement. POA shall be responsible for all payroll and
payroll tax obligations accruing on and after the Effective Date of the Interim
Service Agreement for Affected Employees.
16.4 Termination Benefits. ADC shall be solely responsible for, and
shall pay or cause to be paid, severance payments and other termination
benefits, if any (not including state unemployment compensation), to Affected
Employees who may become entitled to such benefits by reason of any events. If
any action on the part of ADC prior to the Closing or the purchase by POA of the
Practice Assets of ADC pursuant to this Agreement or the transactions
contemplated hereby, shall result in any liability or claim of liability for
severance payments or termination benefits, or any liability, forfeiture, fine
or other obligation by virtue of any state, federal or local law, such liability
or claim of liability shall be the sole responsibility of ADC, and ADC shall
indemnify and hold harmless Purchaser for any losses resulting directly or
indirectly from such liability or claim. POA shall be solely responsible for and
shall pay or cause to be paid severance payments and other termination benefits,
if any, to Affected Employees who may become entitled to such benefits by reason
of events occurring after Closing. If any action on the part of P0A after
Closing shall result in any liability or claim of liability for severance
payments or termination benefits, or any liability, forfeiture, fine or other
obligation by virtue of any state, federal or local law, such liability or claim
of liability shall be the sole responsibility of POA, and POA shal.1 indemnify
and hold harmless ADC for any losses resulting directly or indirectly from such
liability or claim.
16.5 Employee Benefit Plans. At Closing, Purchaser shall not assume
anyresponsibility under any employee benefit plans maintained by ADC.
ARTICLE XVII.
DEFINITIONS
17.1 Adjustments is as defined in Section 6,20.
17.2 Affected Employees means those employees defined in Section
16.1.
17.3 Effective Date means the later of (a) February 16, 1997 or (b) the
first day of the month following the date of the Initial Public Offering of
ProMedCo.
17.4 Execution Date means the date this Asset Purchase Agreement is signed
by allparties.
17.5 Closing Date means the date all requirements set out in Article II
have been fulfilled.
17.6 Initial Public Offering (IPO) means an underwritten public offering
on a firm commitment basis pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock for the account of ProMed.Co (other than a registration on Form S-8
relating solely to the sale of securities to participants in a ProMedCo stock
<PAGE>
plan or a registration on Forms S-3 or S-4 or any successor form.
17.7 HCFA means the Health Care Financing Agency of the United States
Government.
17.8 Material Adverse Change means, with respect to ADC, ProMedCo or
POA, any change in the business, results of operations, financial condition or
liabilities thereof as a result of an event or occurrence, including but not
limited to any legislative or regulatory change, revocation of license or rights
to do business or revocation of professional licenses or right to practice
medicine of physician partners or employees of ADC, loss of physicians, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God or other public force that is, or may reasonably be
expected to be, material and adverse to POA and ProMedCo, taken as a whole, or
ADC, as the case may be; provided, however, that as regards the ADC, any
prospective change or changes that result directly or indirectly from any
default of POA or ProMedCo in their roles as described in the Interim Services
Agreement shall not constitute a Material Adverse Change.
17.9 Non-recurring Revenues means revenues that are not in the ordinary
course of business, or revenues that occurred during the period preceding
December 31, 1995 that are not expected to occur in the future, and excluding
any income guarantees to physicians or other recruitment incentives.
ARTICLE XVIII.
MISCELLANEOUS
18.1 Press Release. Except as required by law, ADC shall not make any
press releases or other public announcements relating to this Agreement or the
transactions contemplated hereby without the prior written consent of ProMedCo.
18.2 Binding Effect. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto, their successors and assigns.
18.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes any
prior agreements and understandings of the parties in connection therewith.
18.4 Governing Law; Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ANY LITIGATION
BROUGHT WITH RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN A COURT OF COMPETENT
JURISDICTION IN THE STATE OF TEXAS.
18.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
18.6 Headings. The subject headings of the Articles, Sections and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
18.7 Finders. Each party warrants to the other that no finder or broker
has been engaged by it in this transaction and that no finder's or brokerage
fees are due to any person as a result of this Agreement.
<PAGE>
18.8 No Third Party Benefit. Except as otherwise expressly provided,
nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any person other than the parties hereto, any right,
remedy, or claim, legal or equitable, under or by reason of this Agreement or
any provision thereof.
18.9 Materiality. For purposes of this Agreement, any reference to
"material," Of materially," or similar phrase shall mean any material adverse
effect upon the business, financial condition or the results of operations of
the ADC taken as a whole.
18.10 Arbitration. Any controversy or claim arising out-pf or relating
to this Agreement or the breach thereof will be settled by binding arbitration
in accordance with the rules of commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur within the County of Taylor, State of Texas, unless the
parties mutually agree to have such proceedings in sorn6 other locale. The
arbitrator(s) may in any such proceeding award attorneys' fees and costs to the
prevailing party.
18.11 Assigment and Delegation. ProMedCo and POA shall have the right
to assign their riahts hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo or POA and to any lending
institution, for security purposes or as collateral, from which ProMedCo or POA
obtains financing for itself and as agent. Except as set forth above, ProMedCo
and POA shall not have the right to assign its rights and obligations hereunder
without the written consent of ADC. ADC shall not have the right to assign its
rights and obligations hereunder without the written consent of ProMedCo. ADC
may not delegate any of ADC's duties hereunder, except as expressly contemplated
herein; however, ProMedCo may delegate some of all of ProMedCo's duties
hereunder to the extent it concludes, in its sole discretion, that such
delegation is in the mutual interest of the parties hereto.
18.12 Knowledge. Any representation, warranty or covenant qualifiled by
the phrase "to ADC's knowledge," "known" or other similar phrase implying a
limitation on the basis of knowledge is intended to indicate that none of the
present members, officers, or administrators of ADC, or any
<PAGE>
of them has information which would give him or her actual knowledge contrary to
the existence or non-existence of such facts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year hereinabove first set forth.
PURCHASER:
PROMEDCO, INC.
By:_______________________
Name:____________________
Title:_____________________
PROMEDCO OF ABILENE, INC.
By:_______________________
Name:____________________
Title:_____________________
ADC:
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
By:________________________
Name:______________________
Title:_______________________
HLTHHOU:6431.8/29270-1
<PAGE>
LIST OF EXHIBITS
1.1 Practice Assets
1.1.1 Excluded Assets
1.3 Liabilities Assumed
1.5 Form of Service Agreement
2.1 List of Physicians
2.2 Execution Date Summary Aging Report
2.3 Form of Stockholders Agreement
4. 1 (a) Form of Bill of Sale
4. 1 (d) Member Assurance Agreement
4.2(b) Form of Assumption Agreement
4.3(e) Form of Opinion of ADC's Counsel
4.4(g) Form of Opinion of Purchaser's Counsel
5.1 Employment Agreements
6.2 Material Contracts
6.3(a) Insurance - Property, Fire, Liability, Etc.
6.3(b) Insurance - Malpractice Policies
6.3(c) Insurance Coverage Denied and Malpractice Claims
6.5 Contracts of Sale, Security Interests, Etc.
6.7 Permits and Licenses
6.8 Third Party Consent--ADC
6.9 Tax Matters
6.10 List of Employee Benefit Plans
6.12 Property and Adverse Claims
6.13 Compliance with Applicable Laws
6.14 Employees; Employee Compensation
6.24 Liabilities
6.26 Membership Interest
<PAGE>
6.27 Financial Statements
7.5 ProMedCo's Financial Statements
7.7 Stock Option Recipients
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
The First Amendment to Asset Agreement is made and entered into of
the____day of___________, 1996 by and among PROMEDCO, INC., a Texas corporation
("ProMedCo"). PROMEDCO OF ABILENE, INC., a Texas corporation ("POA"), and
ABILENE DIAGNOSTIC CLINIC, PLLC, a Texas professional limited liability company
("ADC").
RECITALS
A. ProMedCo, POA entered into an asset purchase agreement dated as of
the 19th day of January, 1996 (the "Asset Purchase Agreement"), pursuant to
which ProMedCo and POA agreed to purchase certain assets of ADC.
B. The parties desire to amend the Asset Purchase Agreement as set forth
below.
NOW, THEREFORE, for and in consideration of the mutual promises herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Deletion of Conditions to Closing. All of the provisions of Section 4.3
(except for Section 4.3(a) and Section 4.4 (except for Section 4.4(a) are hereby
deleted from the Asset Purchase Agreement.
2. Counterparts. This First Amendment may be executed in counterparts, each
of which, when taken as a whole, shall constitute one and the same document.
3. Reaffirmation. Except as amended hereby, the Asset Purchase Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have set their hands below as of
the date first above writen.
PROMEDCO, INC.
By:
Name:
Title:
PROMEDCO OF ABILENE, INC.
By:
Name:
Title:
1
<PAGE>
ABILENE DIAGNOSTIC CENTER, PLLC
By:
Name:
Title:
2
CONFIDENTIAL TREATMENT REQUESTED
INTERIM SERVICE AGREEMENT
By and Between
PROMEDCO OF ABILENE, INC.
and
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
<PAGE>
Table of Contents
Page No.
INTERIM SERVICE AGREEMENT................................ 1
RECITALS................................................. 1
1 - RESPONSIBILITIES OF THE PARTIES...................... 1
1.1 General Responsibilities of the Parties............. 1
1.2 ADC's Matters....................................... 2
1.3 Patient Referrals................................... 2
2. POLICY COUNCIL........................................ 2
2.1 Formation and Operation of the Policy Council....... 2
2.2 Duties and Responsibilities of the Policy Council... 2
3. OBLIGATIONS OF PROMEDCO............................... 4
3.1 Management and Administration....................... 4
3.2 Administrator....................................... 7
3.3 Expansion of Clinic................................. 8
3.4 Events Excusing Performance......................... 8
3.5 Compliance With Applicable Laws..................... 8
4. OBLIGATIONS OF ADC................................... 8
4.1 Professional Services............................... 8
4.2 Employment Of Physician Employees................... 9
4.3 Non-Clinic Expenses................................. 9
4.4 Medical Practice.................................... 9
4.5 Professional Insurance Eligibility.................. 9
4.6 Employment Of Non-Physician Employees............... 9
4.7 Events Excusing Performance......................... 9
4.8 Compliance With Applicable Laws..................... 9
4.9 Restrictions on Use of Clinic Facility.............. 10
4.10 ADC Employee Benefit Plans.......................... 10
4.11 Physician Powers of Attorney........................ 10
4.12 Spokesperson........................................ 10
4.13 Delegation of ADC Responsibilities.................. 10
5. RECORDS............................................... 10
5.1 Patient Records..................................... 10
5.2 Other Records....................................... 11
5.3 Access to Records................................... 11
6. FACILITIES TO BE PROVIDED BY PROMEDCO................ 11
6.1 Facilities.......................................... 11
6.2 Use of Facilities................................... 11
7. FINANCIAL ARRANGEMENTS................................ 11
7.1 Payments to ProMedCo................................ 11
7.2 Clinic Expenses..................................... 11
7.3 Accounts Receivables................................ 12
<PAGE>
8. INSURANCE AND INDEMNITY.............................. 12
8.1 Insurance to Be Maintained by ProMedCo.............. 12
8.2 Insurance to be Maintained by ADC................... 12
8.3 Taff Insurance Coverage............................. 12
8.4 Additional Insured.................................. 12
8.5 Indemnification..................................... 13
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES.......... 13
9.1 Restrictive Covenants by ADC........................ 13
9.2 Restrictive Covenants By Current Physician Members
and Physician Employees............................ 13
9.3 Restrictive Covenants By Future Physician
Employees.......................................... 14
9.4 Physician Shareholder and Physician Employee
Liquidated Damages................................. 14
9.5 Enforcement......................................... 14
9.6 Temination of Restrictive Covenants................. 15
10. TERM; RENEWAL; TERMINATION.......................... 15
10.1 Effect of Execution................................ 15
10.2 Term and Renewal................................... 15
10.3 Extension Period................................... 15
10.4 Termination by ADC................................. 15
10.5 Termination by ProMedCo............................ 16
10.6 Actions After Termination.......................... 16
I I - DEFINITIONS
11.1 Net Clinic Revenues................................ 17
11.2 Dignbution Funds................................... 17
11.3 ProMedCo Distribution.............................. 17
11.4 Clinic............................................. 17
11.5 Clinic Facility.................................... 17
11.6 Clinic Expenses.................................... 17
11.7 Clinic Expenses shall not include.................. 18
11.8 Risk Pool Surpluses................................ 19
11.9 Risk Pool Cost of Care............................. 19
11-10 Opening Balance Sheet.............................. 19
11-11 Technical Employees................................ 19
11.12 Physician Members.................................. 19
11.13 Physician Employees................................ 19
11.15 ADC Employees...................................... 19
11-16 Adjustments........................................ 19
12. GENERAL PROVISIONS.................................. 20
12.1 Independent Contractor............................. 20
12.2 Other Contractual Arrangement...................... 20
12.3 Proprietary property............................... 20
12.4 Cooperation........................................ 21
<PAGE>
12.5 Licenses, Permits and Certificates................. 21
12.6 Compliance with Rules, Regulations and Laws........ 21
12.7 Generally Accepted Accounting Principles (GAAP).... 21
12.8 Notices............................................ 21
12.9 Attorneys' Fees.................................... 21
12.10 Severability....................................... 22
12.11 Arbitration........................................ 22
12.12 Construction of Agreement.......................... 22
12.13 Assignment and Delegation.......................... 22
12.14 Confidentiality.................................... 22
12.15 Waiver............................................. 22
12.16 Headings........................................... 23
12.17 No Third Party Beneficiaries....................... 23
12.18 Time is of the Essence............................. 23
12.19 Modifications of Agreement for
Prospective Legal Events........................ 23
12.20 Whole Agreement; Modification...................... 23
<PAGE>
INTERIM SERVICE AGREEMENT
This Interim Service Agreement ("Agreement") dated as of January 19,
1996, between ProMedCo of Abilene, Inc., a Texas corporation ("ProMedCo") which
is an affiliate of ProMedCo, Inc., a Texas corporation ("Parent") and Abilene
Diagnostic Clinic, P.L.L.C., a Texas professional limited liability company
("ADC").
RECITALS:
WHEREAS, ADC is a multi-specialty group medical practice in Abilene,
Texas which provides professional medical care to the general public;
WHEREAS, ProMedCo is in the business of owning certain assets of and
managing and administering medical clinics, and providing non-professional
support services to and furnishing medical practices with the necessary
facilities, equipment, personnel, supplies and support staff;
WHEREAS, Abilene Diagnostic Clinic Associates, P.A. ("PA"), a Texas
professional association, has previously entered into that certain Practice
Management Agreement dated as of October 13, 1993, with Southwestern Health
Development Corporation (" SHDC ") and that certain Practice Management
Agreement dated the 20th day of June, 1994, with Abilene Medical Management
Services ("AMMS") (collectively the "Hospital Agreements") whereby SHDC and AMMS
provide certain clerical, medical records, billing and collection, receptionist,
transcription, and switchboard services to PA;
WHEREAS, ADC desires and intends to assume the Hospital Agreements and
to be bound by the terms of the Hospital Agreements and that ProMedCo intends to
enter into this Agreement subject to the Hospital Agreements and not to
interfere with the Hospital Agreements; and
WHEREAS, subject to the terms and conditions hereof, ADC desires to
engage ProMedCo to provide to ADC management services, facilities, personnel,
equipment and supplies necessary to operate the clinic (as defined herein) and
ProMedCo desires to accept such engagement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, ADC and ProMedCo hereby agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide ADC with
offices, facilities, equipment, supplies, non-professional support personnel,
and management and financial advisory services. ADC shall be responsible for the
recruitment and hiring of physicians, Technical Employees and all issues related
to patient care and documentation thereof.
<PAGE>
ProMedCo shall neither exercise control over nor interfere with the
physician-patient relationship, which shall be maintained strictly between the
physicians of ADC and their patients.
1.2 ADC's Matters. ADC shall maintain sole discretion and authority
over the financial matters relative to it's own professional limited liability
company. It shall set compensation levels for ADC Employees. ADC will also be
responsible for all other matters pertaining to the operation of ADC.
1.3 Patient Referrals. The parties agree that the benefits to ADC do
not require, are not payment for, and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by ProMedCo to any of ADC's patients in any facility or
laboratory controlled, managed or operated by ProMedCo.
2. POLICY COUNCIL
2.1 Formation and Operation of the Policy Council. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the clinic (the "Clinic"). The Policy
Council shall consist of eight (8) members. ProMedCo shall designate, at it's
sole discretion, four (4) members of the Policy Council. ADC at it's sole
discretion shall designate four (4) members. Members of the Policy Council shall
be entitled to attend and vote by proxy at any meetings of the Policy Council so
long as at least one such representative from each party is present in person.
Except as may otherwise be provided, the act of a majority of the members of the
Policy Council shall be the act of the Policy Council.
2.2 Duties and Responsibilities of the Policy Council. Subject to the
terms of the Hospital Agreements, the Policy Council shall have the following
duties and responsibilities:
2.2.1 Physician Hiring. The Policy Council, with information and
analysis provided by ProMedCo, shall determine the number and type of physicians
and Physician Extenders required for the efficient operation of the Clinic and
ADC shall determine the individual physicians to be hired to fill such
positions. The approval of the Policy Council shall be required for any
variations to the restrictive covenants in any physician employment contract.
2.2.2 Patient Fees. As a part of the annual operating budget,
in consultation with ADC and ProMedCo, the Policy Council shall review
and adopt the fee schedule for all physician and ancillary services
rendered by the Clinic.
2.2.3 Administrator. The selection, retention, and termination of the
Administrator pursuant to Section 3.1 shall be the responsibility of the Policy
Council. If either party is dissatisfied with the services provided by the
Administrator, it shall refer the matter to the Policy Council. The Policy
Council shall in good faith determine whether the performance of the
Administrator could be brought to acceptable levels through counsel and
assistance, or whether the Administrator should be terminated. The Policy
Council shall be responsible for approving and
<PAGE>
amending the Employment Agreement of the Administrator.
2.2.4 Ancillary Services. The Policy Council shall approve Clinic
provided ancillary services based upon the pricing, access to and quality
of such services.
2.2.5 Provider and Payor Relationships. The Policy Council shall have
responsibility regarding the establishment and maintenance of relationships with
institutional health care providers and payors. The Policy Council shall be
responsible for approving the allocation of capitation risk pools between the
professional and institutional components of these pools to the extent
applicable under a payor agreement. ProMedCo and ADC shall use actuarial data
from a nationally recognized actuarial firm as agreed to by both parties, for
the purposes of allocating capitation funds for those professional services
provided directly by ADC.
2.2.6 Capital Improvements and Expansion. The Policy Council shall
determine the priority for any renovation, expansion plans and major equipment
expenditures with respect to the Clinic based upon economic feasibility,
physician support, productivity and market conditions. Final authorization of
capital expenditures shall require the approval of ADC.
2.2.7 Annual Budgets. All annual capital and operating budgets prepared
by ProMedCo, as set forth in Section 3 and employing ProMedCo's financial
expertise, shall be subject to the review and approval of the Policy Council,
provided, however, ProMedCo shall have final approval of any capital required by
ProMedCo.
2.2.8 Strategic Planning. The Policy Council, with the assistance
of ProMedCo, shall develop long-term strategic planning objectives.
2.2.9 Exceptions to Inclusion in the Net Revenue Calculation. The
exclusion of any revenue from Net Revenue, including any medical director fees,
whether now or in the future, shall be subject to the approval of the Policy
Council.
2.2.10 Advertising. All advertising and marketing of the services
performed at the Clinic shall be subject to the prior review and approval of the
Policy Council, in compliance with applicable laws and regulations governing
professional advertising and in accordance with the standards and medical ethics
of the American Medical Association and the Texas Medical Association.
2.2.11 Grievance Issues. Subject to the provisions of Section 1.2 of
this Agreement, the Policy Council shall consider and make final decisions
regarding grievances pertaining to matters not specifically addressed in this
Agreement as referred to it by ADC or ProMedCo.
2.2.12 Amendment of Hospital Agreements. The Policy Council shall
approve any amendments to either of the Hospital Agreements.
3. OBLIGATIONS OF PROMEDCO
<PAGE>
Subject to the terms of the Hospital Agreements, during the term of
this Agreement, ProMedCo shall provide or arrange for the services set forth in
this Section 3, the cost of all of which shall be included in Clinic Expenses.
ProMedCo is hereby expressly authorized to perform its services in whatever
manner it deems reasonably appropriate, in accordance with policies approved by
the Policy Council, and including without limitation, performance of some
functions at locations other than the Clinic Facility. ADC will not act in a
manner which would prevent ProMedCo from efficiently managing the Clinic
Facility operations in accordance with the terms of this Agreement and the
policies of the Policy Council. ADC, through its ADC Employees, will provide all
medical services. ProMedCo will have no authority, directly or indirectly, to
perform, and will not perform any medical function. ProMedCo may, however,
advise ADC as to the relationship between its performance of medical functions
and the overall administrative and business functioning of the Clinic.
3.1 Management and Administration. Subject to the terms of the Hospital
Agreements, ADC hereby appoints ProMedCo as the sole and exclusive manager and
administrator of all non-medical functions and services related to ADC's
services at the Clinic. ADC shall perform all medical services, and ProMedCo
shall have no authority, directly or indirectly, to perform, and will not
perform any medical function. Without limiting the generality of the foregoing,
ProMedCo shall provide the following administrative, management and marketing
services as may be required in conjunction with ADC's services at the Clinic.
ProMedCo shall hire and supervise an Administrator, subject to the approval of
the Policy Council, to manage and administer all of the day-to-day business
functions of ProMedCo subject to the terms of the Hospital Agreements, including
without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of annual
budgets. Annually and at least thirty (30) days prior to the commencement of
each fiscal year, ProMedCo shall prepare and deliver to ADC capital and
operating budgets reflecting in reasonable detail anticipated revenues and
expenses, sources and uses of capital for growth of ADC's practice and Clinic
services.
3.1.2 Financial Statements. ProMedCo shall prepare monthly and fiscal
year unaudited financial statements containing a balance sheet and a statement
of income for Clinic operations, which shall be delivered to ADC within thirty
(30) days after the close of each calendar month. The fiscal year statement
shall be reviewed by a certified public accountant as selected by ProMedCo in
connection with the audit of the financial statements of Parent. If ADC desires
an audit in addition to the audit provided by ProMedCo, such an audit would be
at ADC's expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Technical Employees. ProMedCo shall determine and cause to be paid the salaries,
fringe benefits and any sums for income taxes, unemployment insurance, social
security taxes or any other withholding amounts required by applicable law or
governmental authority, of all such personnel. Such personnel shall be under the
direction, supervision and control of ProMedCo, with those personnel performing
patient care
<PAGE>
services subject to the professional supervision of ADC. If ADC is dissatisfied
with the services of any person, ADC shall consult with ProMedCo. ProMedCo shall
in good faith determine whether the performance of that employee could be
brought to acceptable levels through counsel and assistance, or whether such
employee should be terminated. All of ProMedCo's obligations regarding staff
shall be governed by the overriding principle and goal of providing high quality
medical care.
3.1.4 Quality and Utilization Management. ProMedCo will assist ADC in
fulfilling its obligation to its patients to maintain high quality and efficient
medical and professional services, including patient satisfaction programs,
employee education, outcomes analysis, utilization programs, clinical protocol
development and to implement a risk management program.
3.1.5 Facilities and Equipment. ProMedCo will ensure the
proper cleanliness of the premises, maintenance and cleanliness of the
equipment, furniture and furnishings located on the premises.
3.1.6 Inventory Control and Purchasing Supplies. ProMedCo shall order
and purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which are reasonably necessary to deliver quality Clinic
services in a cost effective manner.
3.1.7 Managed Care Contracting. ProMedCo will be responsible for
marketing, negotiation, and administering all managed care contracts, subject to
the provisions of Section 2.2.5; provided, however, no contract or arrangement
regarding the provision of Clinical services shall be entered into without ADC's
consent.
3.1.8 Billing and Collections. ProMedCo shall bill patients and collect
all fees for services performed inside or outside the Clinic Facility or arrange
for such billing and collection. ADC hereby appoints ProMedCo, for the term
hereof, to be its true and lawful attorney-in-fact for the following purposes
(i) to bill patients in ADC's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in ADC's name and on its behalf, (iii) to
receive payments from Blue Shield, Medicare, Medicaid, payments from health
plans, and all other third party payors; (iv) to receive the cash proceeds of
any accounts receivable subject to the Hospital Agreements; (v) to take
possession of and endorse in the name of ADC (and/or in the name of an
individual physician, such payment intended for purpose of payment of a
physician's bill) any notes, checks, money orders, insurance payments and other
instruments received in payment of accounts receivable; and (vi) in accordance
with policies adopted by the Policy Council, to initiate legal proceedings in
the name of ADC to collect any accounts and monies owed to the Clinic, to
enforce the rights of ADC as creditors under any contract or in connection with
the rendering of any service, and to contest Adjustments and denials by
governmental agencies (or its fiscal intermediaries) as third-party payors. All
adjustments made for uncollectible accounts, professional courtesies and other
activities that do not generate a collectible fee shall be done in a reasonable
and consistent manner.
3.1.9 Deposit of Net Clinic Revenues. During the term of
this
<PAGE>
Agreement, all Net Clinic Revenues collected resulting from the operations of
the Clinic shall be deposited directly into a bank account of which ADC shall be
the owner ("Account"). ProMedCo and ADC shall maintain their accounting records
in such a way as to clearly segregate Net Clinic Revenues from other funds of
ProMedCo or ADC. ADC hereby appoints ProMedCo as its true and lawful
attorney-in-fact to deposit in the Account all revenues collected. ADC
covenants, and shall cause all ADC Employees to covenant, to forward any
payments received with respect to Net Clinic Revenues for services provided by
ADC and ADC Employees to ProMedCo for deposit. ADC and ProMedCo hereby agree to
execute from time to time such documents and instructions as shall be required
by the bank maintaining the Account and mutually agreed upon to effectuate the
foregoing provisions and to extend or amend such documents and instructions.
3.1.10 Management information Systems/Computer Systems. ProMedCo shall
supervise and provide for information systems that are necessary and appropriate
for the operation of the Clinic as determined by the Policy Council.
3.1.11 Legal and Accounting Services. ProMedCo shall arrange for or
render to ADC such business, legal and financial management consultation and
advice as may be reasonably required or requested by ADC and directly related to
the operations of the Clinic. ProMedCo shall not be responsible for rendering
any legal or tax advice or services or personal financial services to ADC or any
employee or agent of ADC.
3.1.12 Insurance Products. ProMedCo shall negotiate for and cause
premiums to be paid with respect to the insurance which is necessary and
appropriate for the operation of the Clinic as determined by the Policy Council.
Premiums and deductibles with respect to such policies shall be a Clinic
Expense.
3.1.13 Physician Recruiting. ProMedCo shall assist ADC in recruiting
additional physicians, carrying out such administrative functions as may be
appropriate such as advertising for and identifying potential candidates,
checking credentials, and arranging interviews; provided, however, ADC shall
interview and make the ultimate decision as to the suitability of any physician
to become associated with the Clinic. All physicians recruited by ProMedCo and
accepted by ADC shall be the sole employees of ADC to the extent such physicians
are hired as employees. Any expenses incurred in the recruitment of physicians,
including, but not limited to, employment agency fees, relocation and
interviewing expenses shall be Clinic Expenses approved by the Policy Council.
3.1.14 Supervision of Ancillary Services. ProMedCo shall operate
and supervise such ancillary services as approved by the Policy Council.
3.1.15 Strategic Planning Assistance. ProMedCo shall assist with
and implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. ProMedCo shall
implement all advertising and public relations activities which are
approved by the Policy Council.
<PAGE>
3.1.17 Files and Records. ProMedCo shall supervise and maintain custody
of an files and records relating to the operation of the Clinic, including but
not limited to accounting, billing, patient medical records, and collection
records. Patient medical records shall at all times be and remain the property
of ADC and shall be located at Clinic facilities so that they are readily
accessible for patient care. The management of all files and records shall
comply with applicable state and federal statutes. ProMedCo shall use its
reasonable efforts to preserve the confidentiality of patients medical records
and use information contained in such records only for the limited purpose
necessary to perform the services set forth herein, provided, however, in no
event shall a breach of said confidentiality be deemed a default under this
Agreement.
3.1.18 Payments. ProMedCo shall make the payments required under
Section 7 "Financial Arrangements" of this Agreement.
3.2 Administrator. ProMedCo shall hire and employ the Administrator,
pursuant to the instructions of the Policy Council as described in Section
2.2.3.
3.3 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting ADC in adding additional
office based procedures, ancillary services and adding additional satellite
office(s) as determined by the Policy Council to be beneficial to the Clinic.
ProMedCo will also assist in recruiting new physicians and developing
relationships and affiliations with other physicians, hospitals, networks, HMOs,
etc. To assist in the continued growth and development of the Clinic, ProMedCo
may acquire other physician practices for integration into ADC as approved by
the Policy Council. ADC will cooperate with ProMedCo in such efforts and use its
best efforts to assist ProMedCo with respect thereto. Without limiting the
generality of the foregoing, ADC will not enter into any agreements with respect
to any such matter without the prior consent of ProMedCo. ProMedCo shall not
establish, operate, manage, or in any way own or operate any medical facility,
clinic, or other health care facility providing services within a radius of
twenty-five (25) miles of the Taylor County Courthouse in Abilene, Texas, or
within a radius of twenty-five (25) miles of any current or future medical
office, clinic, or other health care facility from which ADC provides medical
services, without the consent of ADC.
3.4 Events Excusing Performance. ProMedCo shall not be liable to ADC
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which ProMedCo has no control for so long as such events
continue, and for a reasonable amount of time thereafter.
3.5 Compliance With Applicable Laws. ProMedCo shall comply with
all applicable federal, state and local laws, regulations and
restrictions in the conduct of its obligations under this Agreement.
4. OBLIGATIONS OF ADC
4.1 Professional Services. ADC shall provide professional
<PAGE>
services to patients in compliance at all times with ethical standards, laws and
regulations applying to the medical profession. ADC shall also ensure that each
physician associated with ADC is licensed by the State of Texas. In the event
that any disciplinary actions or medical malpractice actions are initiated
against any such physician, ADC shall immediately inform the Administrator of
such action and the underlying facts and circumstances. ADC shall carry out a
program to monitor the quality of medical care practiced, with ProMedCo's
assistance. ADC will cooperate with ProMedCo in taking steps to resolve any
utilization or quality management issues which may arise in connection with the
Clinic. The costs of any such utilization or quality management programs shall
be a Clinic Expense.
4.2 Employment Of Physician Employees. ADC shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Members and Physician Employees, although at the
request of ADC, ProMedCo shall consult with ADC regarding such matters. ADC
shall enforce formal employee agreements from each of its Physician Members and
Physician Employees, hired or contracted, substantially in the form attached
hereto as Exhibit "C".
4.3 Non-Clinic Expenses. Non-Clinic Expenses shall include salaries and
benefits; retirement plan contributions; health, disability and life insurance
premiums; and payroll taxes of Physician Members, Physician Employees,'and those
Physician Extenders who are not under the direct supervision of a Physician
Member or Physician Employee.
4.4 Medical Practice. ADC shall use and occupy the Clinic
Facility exclusively for the practice of medicine, and shall comply with
all applicable local rules, ordinances and all standards of medical care.
It is expressly acknowledged by the parties that the medical practice or
practices conducted at the Clinic Facility shall be conducted solely by
physicians associated with ADC, and no other physician or medical
practitioner shall be permitted to use or occupy the Clinic Facility
without the prior written consent of the Policy Council.
4.5 Professional Insurance Eligibility. ADC shall cooperate in
the obtaining and retaining of professional liability insurance by
assuring that its Physician Members and Physician Employees are
insurable, and participating in an ongoing risk management program.
4.6 Employment Of Non-Physician Employees. There will be certain
Technical Employees that perform technical functions for ADC. These Technical
Employees will remain in the employ of ADC. As provided in Section 3.1.3.,
ProMedCo win provide payroll and administrative services for such Technical
Employees.
4.7 Events Excusing Performance. ADC shall not be liable to ProMedCo
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which ADC has no control for so long as such events continue,
and for a reasonable amount of time thereafter.
4.8 Compliance With Applicable Laws. ADC shall comply with all
applicable federal, state and local laws, regulations and restrictions
<PAGE>
in the conduct of its obligations under this Agreement.
4.9 Restrictions on Use of Clinic Facility. ADC shall at all times
during the term of this Agreement comply with the policy of ProMedCo stated in
Section 6 herein.
4.10 ADC Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, ADC has in effect the
employee welfare benefit plans (as such term is defined in Section 3(l) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and the
employee pension benefit plans (as such term is defined in Section 3(2) of
ERISA), as set forth in Exhibit "D" to this Agreement.
(b) ADC shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo. Except as otherwise required by law, ADC shall not materially amend,
freeze, terminate or merge any ADC Plan without the express written consent of
ProMedCo. ADC agrees to make such changes to ADC's Plan, including the freeze,
termination, or merger of such ADC Plan, as may be approved by ProMedCo.
(c) Expenses incurred in connection with any ADC Plan or other employee
benefit plan maintained by ADC, including without limitation the compensation of
counsel, accountants, corporate trustees and other agents shall be included in
Clinic Expenses.
(d) The contribution and administration expenses for Physician Members
and Physician Employees shall be an expense of ADC. ProMedCo shall make
contributions or payments with respect to any ADC Plan, as a Clinic Expense, on
behalf of eligible Technical Employees.
(e) ProMedCo shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its employees.
ProMedCo shall have the sole and exclusive authority to appoint the trustee,
custodian, and administrator of any such plan.
4.11 Physician Powers of Attorney. ADC shall require all ADC Employees
to execute and deliver to ProMedCo powers of attorney, satisfactory in form and
substance to ProMedCo and ADC, appointing ProMedCo as attorney-in-fact for each
for the purposes set forth in Sections 3.1.8 and 3.1.9, which powers of attorney
shall immediately terminate upon termination of this Agreement.
4.12 Spokesperson. ADC shall serve as spokesperson for ProMedCo, Parent
and Clinic regarding sales and development activities. The parties agree that
Drs. Arthur, Bailey, and Headstream, or such other Physician Members as the
Policy Council shall appoint, shall serve in this capacity on behalf of ADC.
4.13 Delegation of ADC Responsibilities. ADC shall delegate to
ProMedCo all duties and responsibilities it may have for the management
and administration of the Hospital Agreements, including, but not limited
to, those duties, powers, and responsibilities vested in ADC pursuant to
<PAGE>
the Hospital Agreements. ADC shall inform the Hospitals of this
delegation of responsibilities to ProMedCo and shall fully cooperate with
ProMedCo in effecting such delegation.
5.RECORDS
5.1 Patient Records. Upon termination of this Agreement, ADC shall
retain all patient medical records maintained by ADC or ProMedCo in the name of
ADC. ADC shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by ADC.
5.2 Other Records. All records relating in any way to the
operation of the Clinic shall at all times be the property of ADC. ProMedCo
shall be authorized to obtain copies of all records, other than patient records,
relating to the operation of ADC at any reasonable time during business hours.
5.3 Access to Records. During the term of this Agreement, and
thereafter, ADC or its accountant or other designee shall upon 24 hours notice
have reasonable access during normal business hours to ADC's and ProMedCo's
financial records, including, but not limited to, records of collections,
expenses and disbursements as kept by ProMedCo in performing ProMedCo's
obligations under this Agreement, and ADC may copy any or all such records.
6. FACILITIES TO BE PROVEDED BY PROMEDCO
6.1 Facilities. ProMedCo hereby agrees to provide or arrange as a
Clinic Expense the offices and facilities for Clinic operations, including but
not limited to, the Clinic Facility and all costs of repairs, maintenance and
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, related real or personal property lease cost payments and
expenses, taxes and insurance, refuse disposal and all other costs and expenses
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and ADC agree that ADC, as an independent contractor,
is a separate organization that retains the authority to direct the medical,
professional, and ethical aspects of its medical practice. If a Physician Member
or a Physician Employee performs abortion procedures in any facility, ProMedCo
shall not receive any ProMedCo Distribution from the revenue generated from such
procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to ProMedCo. ADC and ProMedCo agree that the compensation
set forth herein is being paid to ProMedCo in consideration of a substantial
commitment made by ProMedCo hereunder and that such fees are fair and
reasonable. Upon execution of this Agreement, but in no event not later than the
Effective Date of this Agreement, ADC will pay ProMedCo an estimate of the
monthly amount of all Clinic Expenses paid
<PAGE>
in the first month of this Agreement. As payment for its services rendered to
ADC, each month beginning on the 15th day of the month following the Effective
Date of this Agreement ProMedCo shall be paid the amount of all Clinic Expenses
and the ProMedCo Distribution.
7.2 Clinic Expenses. Commencing on the Effective Date, ProMedCo shall
pay all Clinic Expenses as they fall due, provided, however, that ProMedCo may,
in the name of and on behalf of ADC, contest in good faith any claimed Clinic
Expenses as to which there is any dispute regarding the nature, existence or
validity of such claimed Clinic Expenses. ProMedCo hereby agrees to indemnify
and hold ADC harmless from and against any liability, loss, damages, claims,
causes of action and reasonable expenses of ADC resulting from the contest of
any Clinic Expenses. Any Clinic Expenses incurred and not paid by ADC prior to
the effective date of this Agreement, and not specifically included in the
estimate pursuant to Section 7.1 above and paid by ProMedCo, shall be reimbursed
to ProMedCo by ADC within 30 days of payment by ProMedCo.
7.3 Accounts Receivables. ADC shall pledge its accounts
receivable to ProMedCo as security for payment of the amounts due to
ProMedCo from ADC.
8. INSURANCE AND INDEMNITY
8.1 Insurance to Be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will use reasonable efforts to provide and maintain, as a
Clinic Expense, all necessary insurance, including, but not limited to,
comprehensive professional liability insurance for all professional employees of
ProMedCo and ADC with limits as determined reasonable by ProMedCo in its
national program, comprehensive general liability insurance and property
insurance covering the Clinic Facility and operations.
8.2 Insurance to be Maintained by ADC. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 4.5 and Section 8. 1, ADC shall maintain comprehensive
professional liability insurance with limits of not less than $300,000 per claim
and with aggregate policy limits of not less than $600,000 per physician and a
separate limit for ADC. ADC shall be responsible for all liabilities (including
without limitation deductibles and excess liabilities) not paid within the
limits of such policies. ProMedCo shall have the option, with Policy Council
approval, of providing such professional liability insurance through an
alternative program, provided such program meets the requirements of the
Insurance Commissioner of the State of Texas.
8.3 Tail Insurance Coverage. Unless covered by an "occurrence"
malpractice policy, ADC will cause each individual physician associated with the
Clinic to enter into an agreement with ADC that upon termination of such
physician's relationship with ADC, for any reason, tail insurance coverage will
be purchased by the individual physician. Such provisions may be contained in
employment agreements, restrictive covenant agreements or other agreements
entered into by ADC and the individual physicians, and ADC hereby covenants with
ProMedCo to enforce such provisions relating to the tail insurance coverage or
to provide such
<PAGE>
cover-age at the expense of ADC.
8.4 Additional Insured. ADC and ProMedCo agree to use their best
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at ProMedCo's
expense.
8.5 Indemnification. ADC shall indemnify, hold harmless and defend
ProMedCo, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of (i)
the performance of medical services or any other acts or omissions by ADC and/or
its members, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by an ADC Employee,
which claim arises out of such ADC Employees' employment relationship with ADC
or as a result of services performed by such ADC Employee, and which claim would
typically be covered by worker's compensation and (ii) any claims made by
Hospitals against ProMedCo because of ProMedCo's entering into and its
performance of the terms and conditions of this Agreement, including, but not
limited to, any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees) for alleged breach of or
tortious interference with the Hospital Agreements. ProMedCo shall indemnify,
hold harmless and defend ADC, its officers, directors and employees, from and
against any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees), to the extent not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of any intentional acts, negligent acts or
omissions by ProMedCo and/or its members, agents, employees and/or
subcontractors (other than ADC) during the term of this Agreement, except for
any liability, loss, damage, claim, causes of action, and expenses which might
arise in connection with the Hospital Agreements.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if ADC operates an active medical practice to which the
physicians associated with ADC devote their full time and attention. To that
end:
9.1 Restrictive Covenants by ADC. During the term of this Agreement,
ADC shall not establish, operate or provide physician services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by ADC pursuant to this Agreement anywhere within a
radius of twenty-five (25) miles of the Taylor County Courthouse in Abilene,
Texas, or within a radius of twenty-five (25) miles of any current or future
medical office, clinic or other health care facility from which ADC provides
medical services.
9.2 Restrictive Covenants By Current Physician Members and
Physician Employees. ADC shall enforce the employment agreements with its
current Physician Members and Physician Employees in a form satisfactory
to ProMedCo, pursuant to which the Physician Members and Physician
<PAGE>
Employees agree not to establish, operate or provide physician services at any
medical office, clinic or outpatient and/or ambulatory treatment or diagnostic
facility providing services substantially similar to those provided by ADC
pursuant to this Agreement within a radius of twenty-five (25) miles of the
Taylor County Courthouse in Abilene, Texas, or within a radius of twenty-five
(25) miles of any current or future medical office, clinic or other health care
facility from which ADC provides medical services, and for a period of
thirty-six (36) months after the first date of such Physician Shareholder's or
such Physician Employee's employment with ADC. ProMedCo shall have third-party
rights to enforce such agreements.
9.3 Restrictive Covenants By Future Physician Employees. ADC shall
obtain and enforce formal employment agreements from each of its future
Physician Members and Physician Employees in a form satisfactory to ProMedCo,
pursuant to which such physicians agree not to establish, operate or provide
physician services at any medical office, clinic or outpatient and/or ambulatory
treatment or diagnostic facility providing services substantially similar to
those provided by ADC pursuant to this Agreement within a radius of twenty-five
(25) miles of the Taylor County Courthouse in Abilene, Texas, or within a radius
of twenty-five (25) miles of any current or future medical office, clinic or
other health care facility from which ADC provides medical services during the
term of said Physician Employee's employment with ADC and for a period of
thirty-six (36) months after the date of their first employment with ADC.
ProMedCo shall have third-party rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The restrictive covenants described in Sections 9.2 and 9.3 of this Agreement
shall provide that the Physician Members and Physician Employees (existing or
future) may be released from their restrictive covenants by paying Liquidated
Damages in the amount of Two Hundred Thousand Dollars ($200,000.00) or such
physician's income from the practice of medicine, as reported to the Internal
Revenue Service for the previous twelve (12) months, whichever is less. The
accounting treatment of such funds shall be consistently applied and approved by
ProMedCo's independent certified public accountants and the Policy Council.
9.5 Enforcement. ProMedCo and ADC acknowledge and agree that since a
remedy at law for any breach or attempted breach of the provisions of this
Section 9 shall be inadequate, either party shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such injunctive or other equitable
relief. If any provision of Section 9 relating to territory described therein
shall be declared by a court of competent jurisdiction to exceed the maximum
time period, scope of activity, restricted or geographical area such court deems
reasonable and enforceable under applicable law, the time period, scope of
activity, restricted and/or area of restriction deemed to be reasonable and
enforceable by the court shall thereafter be the time period, scope of activity,
restricted and/or area of restriction applicable to the restrictive covenant
provisions in this Section 9. The invalidity of non-enforceability of this
Section 9 in any respect shall
<PAGE>
not affect the validity of enforceability of the remainder of this Section 9 or
of any other provisions of this Agreement unless the invalid or non-enforceable
provisions materially affect the benefits either party would otherwise be
entitled to receive under this Section 9 or any other provision of this
Agreement.
9.6 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated, the rights of
ProMedCo under these restrictive covenants contained in this Section 9 shall be
null and void and of no force or effect.
10. TERM; RENEWAL; TERMINATION
10.1 Effect of Execution. By executing this Agreement, the parties
agree that the effective date of that certain Service Agreement (the "Service
Agreement") between ProMedCo and ADC executed on January 19, 1996, shall be the
later date of: (a) one year from the first day of the month following January
19, 1996; or (b) the first day of the month following the date of the initial
public offering ("IPO") of ProMedCo.
10.2 Term and Renewal. The term of this Agreement shall commence on
January 19, 1996 (the "Effective Date"), and shall continue until February 1,
1997. ProMedCo shall have the option, in its sole discretion, to extend this
Agreement for five (5) additional one (1) year periods. Upon the effective date
of that certain Service Agreement by and between ProMedCo and ADC, dated January
19, 1996 (the "Service Agreement") this Agreement shall terminate.
10.3 Extension Period. Upon the first extension of this Agreement,
ProMedCo shall be required to pay in cash the amount set forth on Exhibit E
extending this Agreement and the Effective Date of the Service Agreement, as
defined therein, shall be concurrently extended to the earlier of (i) the first
day of the month following the date of the initial public offering of Parent, or
(ii) four (4) years from the second anniversary of this Agreement. ADC shall
have the option to receive stock valued at $7 per share in lieu of the cash
amount set forth on Exhibit E, if any. Upon the second extension of this
Agreement, ProMedCo shall be required to pay in cash the amount set forth in
Exhibit E upon extending this Agreement and the Effective Date of the Service
Agreement, as defined therein, shall be concurrently extended to the earlier of
(i) the first day of the month following the date of the initial public offering
of Parent, or (ii) four (4) years from the second anniversary of this Agreement.
ADC shall have the option to receive stock valued at $7 per share in lieu of the
cash amount set forth on Exhibit E, if any.
10.4 Termination by ADC. ADC may terminate this Agreement as
follows:
10.4.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ProMedCo, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by ProMedCo, except for the filing of a petition in
involuntary bankruptcy against ProMedCo which is dismissed within 30 days
thereafter, ADC may give notice of the
<PAGE>
immediate termination of this Agreement.
10.4.2 In the event ProMedCo shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of 90 days after written notice thereof has
been given to ProMedCo by ADC; or ProMedCo shall fail to remit the payments due
as provided in Section 7 hereof and such failure to remit shall continue for a
period of 15 days after written notice thereof, ADC may terminate this
Agreement. Termination of this Agreement pursuant to this subsection (2) by ADC
shall require the affirmative vote of 75 % of the Physician Members.
10.4.3 In the event any person or persons (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) acquires or
acquires the right to vote, through acquisition, tender offer, proxy
solicitation, merger or consolidation, fifty percent (50%) or more of ProMedCo,
Inc. then issued and outstanding Common Stock, or securities representing fifty
percent (50 %) or more of the combined voting power of ProMedCo, Inc. then
issued and outstanding securities, then ADC shall have the option to terminate
this Agreement, provided however, that ADC must exercise this option within
thirty (30) days following this change in ownership. Termination of this
Agreement pursuant to this Section by ADC shall require the affirmative vote of
75 % of ADC's Physician Members.
10.4.4 In the event ProMedCo shall default on any of its payments due
under any agreement between ADC and ProMedCo, and such failure to remit shall
continue 15 days after notice thereof.
10.5 Termination by ProMedCo. ProMedCo may terminate this
Agreement as follows:
10.5.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ADC, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by ADC, except for the filing of a petition in
involuntary bankruptcy against ADC which is dismissed within 30 days thereafter,
ProMedCo may give notice of the immediate termination of this Agreement.
10.5.2 In the event ADC shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement or in the event a
majority of the Physician Members shall materially default in the performance of
any duty or obligation imposed upon them by this Agreement or by their
employment agreements with ADC, and such default shall continue for a period of
90 days after written notice thereof has been given to ADC and such Physician
Members by ProMedCo, ProMedCo may terminate this Agreement.
10.6 Actions After Termination. In the event that this Agreement shall
be terminated, the ProMedCo Distribution shall be paid through the effective
date of termination. In addition, the various rights and remedies herein granted
to the aggrieved party shall be cumulative and in addition to any others such
party may be entitled to by law. The exercise of one or more rights or remedies
shall not impair the right of
<PAGE>
the aggrieved party to exercise any other right or remedy, at law.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
11.1 Net Clinic Revenues shall mean ADC's gross billings, including
ancillaries and any other revenues that have historically been recorded by ADC,
less Adjustments and less any Risk Pool Surpluses.
11.2 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.3 ProMedCo Distribution shall mean [*]% of Distribution Funds plus a
percentage of Risk Pool Surpluses established by Exhibit A.
11.4 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related health care services
provided by ADC and the ADC Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.5 Clinic Facility shall mean the clinic facilities located at 1665
Antilley Road, Suite 200, Abilene, Texas and 1150 N. 18th, Suite 300, Abilene,
Texas, and any substitute facility or additional facility location, whether
within or without Taylor County, as approved by the
Policy Council.
11.6 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
11.6.1 Salaries, benefits (including contributions under any Parent
benefit plan), and other direct costs of all Technical Employees, Physician
Extenders who are under the direct supervision of Physician Members or Physician
Employees and all employees of ProMedCo and Technical Employees attributable to
ADC;
11.6.2 Direct costs, including benefits, of all employees or
consultants of Parent or affiliate of ProMedCo who, with approval of the Policy
Council, provides services at or in connection with ADC required for improved
performance, such as work management, purchasing, information systems, charge
and coding analysis, managed care sales, negotiating and contracting, financial
analysis, and business office consultation; provided, however, only that portion
of such employee's or consultant's costs without mark-up by Parent that is
allocable to Clinic will be a Clinic Expense;
11.6.3 Obligations of ProMedCo or Parent under leases or subleases
related to Clinic operations;
11.6.4 Interest Expense on indebtedness incurred by ProMedCo or
Parent to finance or refinance any of its obligations hereunder or
services provided hereunder;
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
11.6.5 Personal property and intangible taxes assessed against
ProMedCo's assets used in connection with the operation of Clinic commencing on
the date of this Agreement;
11.6.6 Malpractice insurance expenses for ProMedCo's operations
and for the ADC Employees, as well as any deductibles and non-insured
expenses relating to malpractice claims;
11.6.7 AR management fees paid under the Hospital Agreements;
11.6.8 AU expenses of providing equipment and supplies or performing
all management or other services listed in Section 3 "Obligations of ProMedCo, "
as well as any other expenses which are described as "Clinic Expenses" elsewhere
in this Agreement;
11.6.9 All professional fees, including, but not limited to, legal and
accounting fees attributable to the business of ADC.
11.6.10 Other expenses incurred by ProMedCo in carrying out its
obligations under this Agreement; including all usual and customary business
expenses of ADC, other than those defined in Section 4.3 above.
11.7 Clinic Expenses shall not include:
11.7.1 Corporate overhead charges or any other expenses of Parent or
any corporation affiliated with Parent other than the kind of items listed
above;
11.7.2 Any federal or state income taxes;
11.7.3 Those expenses defined in Section 4.3 of this Agreement;
11.7.4 Any liabilities, judgments, or settlements assessed
against ADC or Physician Members in excess of any insurance policy
limits; and
11.7.5 Expenses incurred specifically for the management of risk
pools.
11.8 Risk Pool Surpluses shall mean all hospital risk funds, specialist
risk funds, and funds from risk pools under any risk bearing or risk sharing
arrangement, after deduction of Risk Pool Cost of Care, and after making any
deductions for capitation or other risk pools that are in a deficit position.
11.9 Risk Pool Cost Of Care shall mean all claims, capitation payments,
and Incurred But Not Reported (IBNR) calculations charged against any risk pool
(defined as any hospital risk fund, specialist risk fund, and funds from risk
pools under any risk bearing or risk sharing arrangement). Risk Pool Cost Of
Care shall also include the expenses incurred specifically for the management of
risk pools.
11.10 Opening Balance Sheet shall mean the balance sheet of ProMedCo as
of the Effective Date prepared in accordance with GAAP
<PAGE>
(except for the absence of certain note information), and substantially in the
form of the attached Exhibit B.
11.11 Technical Employees shall mean technicians who provide services
in the diagnostic areas of ADC's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians.
AU Technical Employees shall be ADC employees.
11.12 Physician Members shall mean any physician who is a member of
ADC, both as of the, date of this Agreement and at any future point in time.
11.13 Physician Employees shall mean any physician employed by ADC and
providing medical services to patients on behalf of ADC, who are not Physician
Members.
11.14 Physician Extenders shall mean all nonphysician professional
employees who provide direct patient care for which a billed charge is
generated.
11.15 ADC Employees shall mean all Physician Members, Physician
Employees and Technical Employees at the relevant date.
11.16 Adjustments "adjustments" shall mean any Adjustments to ADC's
gross billings for uncollectible accounts, discounts, Medicare and Medicaid
disallowances, workers' compensation discount, employee/ dependent health care
benefit programs, professional courtesies, and other activities that do not
generate a collectible fee. Any Adjustments made shall be based on a reasonable
historical basis, or a reasonable prospective basis should a new payor agreement
apply, and shall be periodically modified during the year to reflect the actual
Adjustments. Final Adjustments and any resulting payments owed by one party to
the other shall be made within (30) days after completion of the fiscal year
audit.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that ADC and
ProMedCo are at all times acting and performing hereunder as independent
contractors. ProMedCo shall neither have nor exercise any control or direction
over the methods by which ADC or the ADC Employees practice medicine. The sole
function of ProMedCo hereunder is to provide all management services in a
competent, efficient and satisfactory manner. ProMedCo shall not, by entering
into and performing its obligations under this Agreement, become liable for any
of the existing obligations, liabilities or debts of ADC unless otherwise
specifically provided for under the terms of this Agreement. ADC shall not, by
entering into and performing its obligations under this Agreement, become liable
for any of the existing obligations, liabilities, or debts of ProMedCo unless
otherwise specifically provided for under the terms of this Agreement. ProMedCo
will in its management role have only an obligation to exercise reasonable care
in the performance of the management services. Neither party shall have any
liability whatsoever for damages suffered on account of the willful misconduct
or negligence of any employee, agent or independent contractor of the other
party.
<PAGE>
Each party shall be solely responsible for compliance with all state and federal
laws pertaining to employment taxes, income withholding, unemployment
compensation contributions and other employment related statutes regarding their
respective employees, agents and servants.
12.2 Other Contractual Arrangement. The parties acknowledge and agree
that they have been advised and consent to the fact that ProMedCo, or it's
affiliates (i) may have, prior to the date of this Agreement, discussed
proposals with respect to, or (ii) may, from time to time hereafter, enter into
agreements with one or more ADC Employees to provide consulting, medical
direction, advisory or similar services relating to activities of ProMedCo or
its affiliates in clinical areas. The parties agree that such agreement, if any,
shall be entered into at the sole discretion of the parties thereto and subject
to such terms and conditions to which such parties may agree, and any
compensation payable to or by ProMedCo, on the one hand, and such ADC Employees,
on the other hand, shall not constitute Net Clinic Revenues, or ADC
Compensation, and shall otherwise not be subject to the provisions of this
Agreement.
12.3 Proprietary Property.
12.3.1 Each party agrees that the other party's proprietary property
shall not be possessed, used or disclosed otherwise than may be necessary for
the performance of this Agreement. Each party acknowledges that its violation of
this Agreement would cause the other party irreparable harm, and may (without
limiting the other party's remedies for such breach) be enjoined at the instance
of the other party. Each party agrees that upon termination of this Agreement
for any reason, absent the prior written consent of the other party, it shall
have no right to and shall cease all use of the other party's proprietary
property, and shall return all such proprietary property of the other party in
its possession to the other party.
12.3.2 ProMedCo shall be the sole owner and holder of all right, title
and interest, to all intellectual property furnished by it under this Agreement,
including all computer software, copyright, services mark and trademark right to
any material or documents acquired, prepared, purchased or furnished by ProMedCo
pursuant to this Agreement. ADC shall have no right, title or interest in or to
such material and shall not, in any manner, distribute or use the same without
the prior written authorization of ProMedCo, provided, however, that the
foregoing shall not restrict ADC fi-om distributing managed care information
brochures and materials without the prior written approval of ProMedCo provided
no Proprietary Property of ProMedCo is contained therein.
12.4 Cooperation. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement.
12.5 Licenses, Permits and Certificates. ProMedCo and ADC shall each
obtain and maintain in effect, during the term of this Agreement, all licenses,
permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
12.6 Compliance with Rules, Regulations and Laws. ProMedCo and ADC
<PAGE>
shall comply with all federal and state laws and regulations in performance of
their duties and obligations hereunder. Neither party, nor their employees or
agents, shall take any action that would jeopardize the other party's
participation, if applicable, in any federal or state health program including
Medicare and Medicaid. ProMedCo and ADC shall take particular care to ensure
that no employee or agent of either party takes any action intended to violate
Section 1128B of the Social Security Act with respect to soliciting, receiving,
offering or paying any remuneration (including any kickback, bribe, or rebate)
directly or indirectly, overtly or covertly, in cash or in kind in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part under Title XVIII or XIX of the Social Security Act, or for purchasing,
leasing, ordering, or arranging for or recommending purchasing, leasing, or
ordering any good, facility, service, or item for which payment may be made in
whole or in part under Title XVIII or XIX of the Social Security Act.
12.7 Generally Accepted Accounting Principles (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
12.8 Notices. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this Section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
12.9 Attomeys' Fees. ProMedCo and ADC agree that the prevailing
party in any legal dispute among the parties hereto shall be entitled to
payment of its attorneys' fees by the other party.
12.10 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing regulations to be invalid, void or unenforceable, the remaining
provisions will nevertheless continue in full force and effect.
12.11 Arbitration. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof will be settled by binding arbitration
in accordance with the rules of commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur within the County of Taylor, State of Texas, unless the
parties mutually agree to have such proceedings in some other locale. The
arbitrator(s) may in any such proceeding award attorneys' fees and costs to the
prevailing party.
12.12 Construction of Agreement. This Agreement shall be
<PAGE>
governed by and construed in accordance with the laws of the State of Texas. The
parties agree that the terms and provisions of this Agreement embody their
mutual interest and agreement and that they are not to be construed more
liberally in favor of, nor more strictly against, any party hereto.
12.13 Assignment and Delegation. ProMedCo shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controller by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
ProMedCo shall not have the right to assign its rights and obligations hereunder
without the written consent of ADC. ADC shall have the obligation hereunder to
assign this Agreement to a successor entity, provided ProMedCo shall have given
its prior written consent to such assignment. Except as forth above, ADC shall
not have the right to assign its rights and obligations hereunder without the
written consent of ProMedCo. ADC may not delegate any of ADC's duties hereunder,
except as expressly contemplated herein; however, ProMedCo may delegate some of
all of ProMedCo's duties hereunder to the extent it concludes, in its sole
discretion, that such delegation is in the mutual interest of the parties
hereto.
12.14 Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law.
12.15 Waiver. The waiver of any provision, or of the breach of any
provision of this Agreement must be set forth specifically in writing and signed
by the waiving party. Any such waiver shall not operate or be deemed to be a
waiver of any prior or future breach of such provision or of any other
provision.
12.16 Headings. The subject headings of the articles and sections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
12.17 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and all
of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
12.18 Time is of the Essence. Time is hereby expressly declared to
be of the essence in this Agreement.
12.19 Modifications of Agreement for Prospective Legal Events.
In the event any state or federal laws or regulations, now existing or
enacted or promulgated after the effective date of this Agreement, are
interpreted by judicial decision, a regulatory agency or legal counsel
<PAGE>
for both parties in such a manner as to indicate that the structure of this
Agreement may be in violation of such laws or regulations, or in the event the
Texas State Board of Medical Examiners or other authority with legal
jurisdiction shall, solely by virtue of this Agreement, initiate an action to
revoke, suspend, or restrict the license of any physician retained by ADC to
practice medicine in the State of Texas, ADC and ProMedCo shall amend this
Agreement as necessary. To the maximum extent possible, any such amendment shall
preserve the underlying economic and financial arrangements between ADC and
ProMedCo. In the event it is not possible to amend this Agreement to preserve in
all material respects the underlying economic and financial arrangements between
ADC and ProMedCo, this Agreement may be terminated by written notice by either
party within 90 days from date of such interpretation or action, termination to
be effective no sooner than the earlier of 180 days from the date notice of
termination is given or the latest possible date specified for such termination
in any regulatory order or notice. Termination pursuant to this Section 12.19 by
ADC shall require the affirmative vote of a majority of Physician Members.
12.20 Whole Agreement; Modification. A contract in which the amount
involved exceeds $50,000 in value is not enforceable unless the Agreement is in
writing and signed by the party to be bound or by that part's authorized
representative. The rights and obligations of the parties hereto shall be
determined solely from written agreements. Documents and instruments, and any
prior oral agreements between the parties are superseded by and merged into such
writings. This Agreement (As amended in writing from time to time), the
exhibits, and the schedules delivered pursuant hereto represent the final
agreement between the parties hereto and may not be contradicted by; evidence of
prior, contemporaneous, or subsequent oral agreements by the parties. There are
no unwritten oral agreements between the parties. This paragraph is included
herein pursuant to Section 26.02 of the Texas Business and Commerce Code, as
amended from time to time.
IN WITNESS WBEREOF, the parties hereto have executed this Agreement as of the
date and year first above written,
PROMEEDCO OF ABILENE, INC.,
Address: 801 Cherry Street - Suite 1050 Fort Worth, Texas 76102
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
By:
Name:
Title:
Address:
<PAGE>
1665 Antilley Road - Suite 200
Abilene, Texas 79606
<PAGE>
Allocation of Risk Pool Surpluses
ProMedCo shall receive a percentage of the Risk Pool Surpluses, or
shall be responsible for a percentage of any deficits if the Risk Pool Surpluses
are in a deficit position pursuant to Section 11.9. ProMedCo's percentage shall
be based on the cumulative risk pool savings that have occurred during the
entire term of this Agreement, including any renewals. The percentage shall be
based on the graduated scale as shown below:
Cumulative Risk Pool Surplus ProMedCo %
[*]
The distribution of Risk Pool Surpluses shall be made on an annual
basis no later than 90 days after the conclusion of each contract year of this
Agreement, and after a full analysis of an Incurred But Not Reported (IBNR)
liabilities. Once the final balance of Risk Pool Surpluses has been calculated,
[*]% of that amount shall be distributed, with the final [*]% held for
an additional 6 months to pay for any unanticipated claims. At the end of
that 6 months, any funds remaining from the [*]% reserved shall be distributed.
CERFTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
Qpening Balance Sheet
Current Assets
Cash
Accounts Receivable
Prepaid
Other Current Assets
Total Current Assets
Other Assets
Investments
Deposits
Other Assets
Total Other Assets
Property and Equipment
Land
Buildings
Building Fixed Equipment
Equipment
Capitalized Lease Equipment
Accrued Depreciation
Total Property and Equipment
Intangibles
Organization Cost
Loan Cost
Non-Compete Covenants
Other Intangibles
Total Intangibles
TOTAL ASSETS
Current Liabilities
Accounts Payable
Notes Payable
Payroll & Taxes Payable
Accrued Expenses
Accrued Interest
Current Maturities- Leases
Current Maturities - Notes
Other Current Liabilities
Total Current Liabilities
Other Liabilities
Deficit in Limited Liability Company
Deferred Credits
Total Other Liabilities
<PAGE>
Long Term Payables Mortgages
Notes Payable
Lease Obligations
Total Long Term Payables
Members Capital Account
Contributed Capital
Accumulated Income or Deficit
Total Members Equity
TOTAL LIABILITIES AND CAPITAL ACCOUNT
FIRST AMENDMENT TO SERVICE AGREEMENT
AND INTERIM SERVICE AGREEMENT
This First Amendment to Service Agreement and Interim Service Agreement
is made and entered into as of the____day of____________, 1996 by and between
PROMEDCO OF ABILENE, INC., a Texas Corporation ("POA"), ABILENE DIAGNOSTIC
CLINIC, PLLC, a Texas professional limited liability company ("ADC"), and
PROMEDCO, INC., a Texas Corporation ("ProMedCo").
RECITALS
A. POA and ADC entered into a Service Agreement dated as of January 19,
1996 (the "Service Agreement").
B. POA and ADC entered into an Interim Service Agreement dated as of
January 19, 1996 (the "Interim Service Agreement").
C. POA and ADC desire to amend the terms of the Service Agreement and the
Interim Service Agreement as set forth below.
NOW, THEREFORE, for and consideration of the mutual promises herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledge, the parties hereto agree as follows:
1. Deletion of Provisions Regarding Termination. Sections 10.2.3 of the
Service Agreement and Section 10.4.3 of the Interim Service Agreement and hereby
deleted.
2. Options. ProMedCo shall grant to the physicians whose name appear on
Exhibit A, immediately after the execution of this Agreement by the parties
hereto, the option for each physician to purchase 2,000 shares of ProMedCo
common stock at Fourteen Dollars ($14.00) per share. Such options shall be
evidenced by ProMedCo's standard options agreement which shall provide that the
options granted thereunder shall vest over a three (3) year period (that is,
one-third of the options shall vest at the end of the first year, and additional
one-third shall vest at the end of the second year, and the final one-third
shall vest at the end of the third year).
3. Payment Upon Change of Control. In the event any person or persons
(as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act
of 1934) acquires the right to vote, through acquisition, tender offer, proxy
solicitations, merger or consolidations, fifty percent (50%) or more of the then
issued and outstanding voting securities of ProMedCo or securities representing
fifty percent (50%) or more of the combined voting power of the then issued and
outstanding securities of ProMedCo, then ProMedCo shall pay to each physician
whose name appears on Exhibit A and who at the time of such event is employed by
ADC in accordance with Section 4.2 of the Service Agreement or Section 4.2 of
the Interim Service Agreement the sum of Nine Thousand Dollars ($9,000).
<PAGE>
4. Reaffirmation. Except as amended hereby, the Service Agreement and the
Interim Service Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have set their hands below as of
the date first above witness.
PROMEDCO OF ABILENE, INC.
By:
Name:
Title:
ABILENE DIAGNOSTIC CENTER, PLLC
By:
Name:
Title:
PROMEDCO, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
PHYSICIANS
1. STEVE ARTHUR, M.D.
2. DAVID BAILEY, M.D.
3. TONY BAUMAN, M.D.
4. PAUL BORGFELD, M.D.
5. RAUL CALVO, M.D.
6. ROGER CASS, M.D.
7. CLINTON CAVUOTI, M.D.
8. JODY CRUMBLISS, M.D.
9. RUSSELL DICKERSON, M.D.
10. JOSEPH DIXON, M.D.
11. B.J. ESTES, M.D.
12. JOSEPH FERGUSON, M.D.
13. PEDRO GARZA, M.D.
14. JIM GUERRA, M.D.
15. DAVID HALBERT, M.D.
16. DAVID HARPER, M.D.
17. PAUL HARRIS, M.D.
18. TOM HEADSTREAM, M.D.
19. GARY HEATH, M.D.
20. HENRY HENDRIX, M.D.
21. GARY HOLLAND, M.D.
22. EUGENE LUCKSTEAD, M.D.
23. HARROF MILLER, M.D.
24. DAVID RANDELL, D.O.
25. RANDALL STOCKSTILL, M.D.
26. CHESTER TONG, M.D.
27. ZANE TRAVIS, M.D.
28. CARL TRUSLER, M.D.
29. STEVEN WACHS, M.D.
30. STEPHEN WARD, M.D.
31. ROBERT W. CAMERON, M.D.
32. PAUL B. THAMES, M.D.
33. MARK J. PHELAN, M.D.
CONFIDENTIAL TREATMENT REQUESTED
SERVICE AGREEMENT
By and Between
PROMEDCO OF ABILENE, INC.
and
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
<PAGE>
Table of Contents
Page No.
SERVICE AGREEMENT.................................................. 1
RECITALS........................................................... 1
1. RESPONSIBILITIES OF THE PARTIES................................. 1
1.1 General Responsibilities of the Parties..................... 1
1.2 ADC's Matters............................................... 2
1.3 Patient Referrals........................................... 2
2. POLICY COUNCIL.................................................. 2
2.1 Formation and Operation of the Policy Council............... 2
2.2 Duties and Responsibilities of the Policy Council........... 2
3. OBLIGATIONS OF PROMEDCO......................................... 4
3.1 Management and Administration............................... 4
3.2 Administrator............................................... 4
3.3 Expansion of Clinic......................................... 8
3.4 Events Excusing Performance................................. 8
3.5 Compliance With Applicable Laws............................. 8
4. OBLIGATIONS OF ADC.............................................. 9
4.1 Professional Services....................................... 9
4.2 Employment Of Physician Employees........................... 9
4.3 Non-Clinic Expenses......................................... 9
4.4 Medical Practice............................................ 9
4.5 Professional Insurance Eligibility.......................... 9
4.6 Employment Of Non-Physician Employees....................... 9
4.7 Events Excusing Performance................................. 10
4.8 Compliance With Applicable Laws............................. 10
4.9 Restrictions on Use of Clinic Facility...................... 10
4.10 ADC Employee Benefit Plans.................................. 10
4.11 Physician Powers of Attorney................................ 10
4.12 Spokesperson................................................ 10
4.13 Delegation of ADC Responsibilities.......................... 11
5. RECORDS......................................................... 11
5.1 Patient Records............................................. 11
5.2 Other Records............................................... 11
5.3 Access to Records........................................... 11
6. FACILITIES TO BE PROVIDED BY PROMEDCO........................... 11
6.1 Facilities.................................................. 11
6.2 Use of Facilities........................................... 11
7. FINANCIAL ARRANGEMENTS.......................................... 12
7.1 Payments to ADC and ProMedCo................................ 12
7.2 Calculation of Payments..................................... 12
7.3 Clinic Expenses............................................. 12
7.4 Accounts Receivables........................................ 12
8. INSURANCE AND INDEMNITY......................................... 13
8.1 Insurance to Be Maintained by ProMedCo...................... 13
8.2 Insurance to be Maintained by ADC........................... 13
8.3 Tail Insurance Coverage..................................... 13
8.4 Additional Insured.......................................... 13
8.5 Indemnification............................................. 13
<PAGE>
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES.................... 14
9.1 Restrictive Covenants by ADC................................ 14
9.2 Restrictive Covenants By Current Physician Members and
Physician Employees..................................... 14
9.3 Restrictive Covenants By Future Physician Employees......... 14
9.4 Physician Shareholder and Physician Employee Liquidated
Damages................................................. 15
9.5 Enforcement................................................. 15
9.6 Termination of Restrictive Covenants........................ 15
10. TERM; RENEWAL; TERMINATION..................................... 15
10.1 Term and Renewal............................................ 15
10.2 Termination by ADC or Its Assignees......................... 16
10.3 Termination by ProMedCo..................................... 16
10.4 Actions After Termination................................... 17
11. DEFINITIONS.................................................... 17
11.1 Net Clinic Revenues......................................... 17
11.2 Distribution Funds.......................................... 17
11.3 ProMedCo Distribution....................................... 17
11.4 Clinic...................................................... 17
11.5 Clinic Facility............................................. 17
11.6 Clinic Expenses............................................. 17
11.7 Clinic Expenses shall not include........................... 18
11.8 Risk Pool Surpluses......................................... 19
11.9 Risk Pool Cost Of Care...................................... 19
11.10 Opening Balance Sheet....................................... 19
11.11 Technical Employees......................................... 19
11.12 Physician Members........................................... 19
11.13 Physician Employees......................................... 19
11.14 Physician Extenders......................................... 20
11.15 ADC Employees............................................... 20
11.16 Effective Date.............................................. 20
11.17 Adjustments................................................. 20
12. GENERAL PROVISIONS............................................. 20
12.1 Independent Contractor...................................... 20
12.2 Other Contractual Arrangement............................... 20
12.3 Proprietary Property........................................ 21
12.4 Cooperation................................................. 21
12.5 Licenses, Permits and Certificates.......................... 21
12.6 Compliance with Rules, Regulations and Laws................. 21
12.7 Generally Accepted Accounting Principles (GAAP)............. 22
12.8 Notices..................................................... 22
12.9 Attorneys' Fees............................................. 22
12.10 Severability................................................ 22
12.11 Arbitration................................................. 22
12.12 Construction of Agreement................................... 22
12.13 Assignment and Delegation................................... 22
12.14 Confidentiality............................................. 23
12.15 Waiver...................................................... 23
12.16 Headings.................................................... 23
12.17 No Third Party Beneficiaries................................ 23
12.18 Time is of the Essence...................................... 23
12.19 Modifications of Agreement for Prospective Legal Events..... 23
12.20 Whole Agreement; Modification............................... 24
<PAGE>
SERVICE AGREEMENT
This Service Agreement ("Agreement") dated as of January 19, 1996,
between ProMedCo of Abilene, Inc., a Texas corporation ("ProMedCo") which is an
affiliate of ProMedCo, Inc., a Texas corporation ("Parent") and Abilene'
Diagnostic Clinic, P.L.L.C., a professional limited liability company ("ADC").
RECITALS:
WHEREAS, ADC is a multi-specialty group medical practice in Abilene,
Texas which provides professional medical care to the general public;
WHEREAS, ProMedCo is in the business of owning certain assets of and
managing and administering medical clinics, and providing non-professional
support services to and furnishing medical practices with the necessary
facilities, equipment, personnel, supplies and support staff,
WHEREAS, Abilene Diagnostic Clinic Associates, P.A. ("PA"), a Texas
professional association, has previously entered into that certain Practice
Management Agreement dated as of October 13, 1993, with Southwestern Health
Development Corporation ("SHDC") and that certain Practice Management Agreement
dated the 20th day of June, 1994, with Abilene Medical Management Services
("AMMS") (collectively the "Hospital Agreements") whereby SHDC and AMMS provide
certain clerical, medical records, billing and collection, receptionist,
transcription, and switchboard services to PA;
WHEREAS, ADC desires and intends to assume the Hospital Agreements and
to be bound by the terms of the Hospital Agreements and that ProMedCo intends to
enter into this Agreement subject to the Hospital Agreements and not to
interfere with the Hospital Agreements;
WHEREAS, subject to the terms and conditions hereof, ADC desires to
engage ProMedCo to provide to ADC management services, facilities, personnel,
equipment and supplies necessary to operate the clinic (as defined herein) and
ProMedCo desires to accept such engagement; and
WHEREAS, the basis for the financial considerations provided in this
Agreement are derived from the revenues generated by the medical practice of
ADC, such revenues having been documented by ADC and delivered to ProMedCo prior
to the formulation and agreement of such aforementioned financial
considerations;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, ADC and ProMedCo hereby agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide ADC
with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. ADC shall be
responsible for the recruitment and hiring of physicians, Technical Employees
and all issues related to patient care and documentation thereof. ProMedCo shall
neither exercise control over nor interfere with the physician-patient
relationship, which shall be maintained strictly between the physicians of ADC
and their patients.
1.2 ADC's Matters. ADC shall maintain sole discretion and authority
over the financial matters relative to its own professional limited liability
company. It shall set compensation levels for ADC Employees. ADC will also be
responsible for all other matters pertaining to the operation of ADC.
1.3 Patient Referrals. The parties agree that the benefits to ADC do
not require, are not payment for, and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by ProMedCo to any of ADC's patients in any facility or
<PAGE>
laboratory controlled, managed or operated by ProMedCo.
2. POLICY COUNCIL
2.1 Formation and Operation of the Policy Council. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the Clinic. The Policy Council shall
consist of eight (8) members. ProMedCo shall designate, at its sole discretion,
four (4) members of the Policy Council. ADC, at its sole discretion, shall
designate four (4) members. Members of the Policy Council shall be entitled to
attend and vote by proxy at any meetings of the Policy Council so long as at
least one such representative from each party is present in person. Except as
may otherwise be provided, the act of a majority of the members of the Policy
Council shall be the act of the Policy Council.
2.2 Duties and Responsibilities of the Policy Council. Subject to the
terms of the Hospital Agreements, the Policy Council shall have the following
duties and responsibilities.
2.2.1 Physician Hiring. The Policy Council, with information and
analysis provided by ProMedCo, shall determine the number and type of physicians
and Physician Extenders required for the efficient operation of the Clinic and
ADC shall determine the individual physicians to be hired to fill such
positions. The approval of the Policy Council shall be required for any
variations to the restrictive covenants in any physician employment contract.
2.2.2 Patient Fees. As a part of the annual operating budget, in
consultation with ADC and ProMedCo, the Policy Council shall review and adopt
the fee schedule for all physician and ancillary services rendered by the
Clinic.
2.2.3 Administrator. The selection, retention and termination of the
Administrator pursuant to Section 3.1 shall be the responsibility of the Policy
Council. If either party is dissatisfied with the services provided by the
Administrator, it shall refer the matter to the Policy Council. The Policy
Council shall in good faith determine whether the performance of the
Administrator could be brought to acceptable levels through counsel and
assistance, or whether the Administrator should be terminated. The Policy
Council shall be responsible for approving and amending the Employment Agreement
of the Administrator.
2.2.4 Ancillary Services. The Policy Council shall approve Clinic
provided ancillary services based upon the pricing, access to and quality of
such services.
2.2.5 Provider and Payor Relationships. The Policy Council shall have
responsibility regarding the establishment and maintenance of relationships with
institutional health care providers and payors. The Policy Council shall be
responsible for approving the allocation of capitation risk pools between the
professional and institutional components of these pools to the extent
applicable under a payor agreement. ProMedCo and ADC shall use actuarial data
from a nationally recognized actuarial firm as agreed to by both parties, for
the purposes of allocating capitation funds for those professional services
provided by ADC.
2.2.6 Capital Improvements and Expansion. The Policy Council shall
determine the priority for any renovation, expansion plans and major equipment
expenditures with respect to the Clinic based upon economic feasibility,
physician support, productivity and market conditions. Any capital expenditure
in excess of $10,000 shall require the approval of the Policy Council.
2.2.7 Annual Budgets. All annual capital and operating budgets prepared
by ProMedCo, as set forth in Section 3 and employing ProMedCo's financial
expertise, shall be subject to the review and approval of the Policy Council,
provided, however, ProMedCo shall have final approval of any capital required by
ProMedCo.
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2.2.8 Strategic Planning. The Policy Council, with the assistance of
ProMedCo, shall develop long-term strategic planning objectives.
2.2.9 Exceptions to Inclusion in the Net Revenue Calculation. The
exclusion of any revenue from Net Revenue, including any medical director fees,
whether now or in the future, shall be subject to the approval of the Policy
Council.
2.2.10 Advertising. All advertising and marketing of the services
performed at the Clinic shall be subject to the prior review and approval of the
Policy Council, in compliance with applicable laws and regulations governing
professional advertising and in accordance with the standards and medical ethics
of the American Medical Association and the Texas Medical Association.
2.2.11 Grievance Issues. Subject to the provisions of Section 1.2 of
this Agreement, the Policy Council shall consider and make final decisions
regarding grievances pertaining to matters not specifically addressed in this
Agreement as referred to it by ADC or ProMedCo.
2.2.12 Amendment of Hospital Agreements. The Policy Council shall
approve any amendments to either of the Hospital Agreements.
3. OBLIGATIONS OF PROMEDCO
Subject to the terms of the Hospital Agreements, during the term of
this Agreement, ProMedCo shall provide or arrange for the services set forth in
this Section 3, the cost of all of which shall be included in Clinic Expenses.
ProMedCo is hereby expressly authorized to perform its services in whatever
manner it deems reasonably appropriate, in accordance with policies approved by
the Policy Council, and including without limitation, performance of some
functions at locations other than the Clinic Facility. ADC will not act in a
manner which would prevent ProMedCo from efficiently managing the Clinic
Facility operations in accordance with the terms of this Agreement and the
policies of the Policy Council. ADC, through its ADC Employees, will provide all
medical services. ProMedCo will have no authority, directly or indirectly, to
perform, and will not perform any medical function. ProMedCo may, however,
advise ADC as to the relationship between its performance of medical functions
and the overall administrative and business functioning of the Clinic.
3.1 Management and Administration. Subject to the terms of the Hospital
Agreements, ADC hereby appoints ProMedCo as the sole and exclusive manager and
administrator of all non-medical functions and services related to ADC's
services at the Clinic. ADC shall perform all medical services, and ProMedCo
shall have no authority, directly or indirectly, to perform, and will not
perform any medical function. Without limiting the generality of the foregoing,
ProMedCo shall provide the following administrative, management and marketing
services as may be required in conjunction with ADC's services at the Clinic.
ProMedCo shall hire and supervise an Administrator, subject to the approval of
the Policy Council pursuant to Section 2.2.3, to manage and administer all of
the day-to-day business functions of ProMedCo subject to the terms of the
Hospital Agreements, including without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of annual
budgets. Annually and at least thirty (30) days prior to the commencement of
each fiscal year, ProMedCo shall prepare and deliver to ADC capital and
operating budgets reflecting in reasonable detail anticipated revenues and
expenses, sources and uses of capital for growth of ADC's practice and Clinic
services.
3.1.2 Financial Statements. ProMedCo shall prepare monthly and fiscal
year unaudited financial statements containing a balance sheet and a statement
of income for Clinic operations, which shall be delivered to ADC within thirty
(30) days after the close of each calendar month. The fiscal year statement
shall be reviewed by a certified public accountant as selected by ProMedCo in
connection with the audit of the financial statements of Parent. If ADC desires
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an audit in addition to the audit provided by ProMedCo, such an audit would be
at ADC's expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Technical Employees. ProMedCo shall determine and cause to be paid the salaries,
fringe benefits and any sums for income taxes, unemployment insurance, social
security taxes or any other withholding amounts required by applicable law or
governmental authority, of all such personnel. Such personnel shall be under the
direction, supervision and control of ProMedCo, with those personnel performing
patient care services subject to the professional supervision of ADC. If ADC is
dissatisfied with the services of any person, ADC shall consult with ProMedCo.
ProMedCo shall in good faith determine whether the performance of that employee
could be brought to acceptable levels through counsel and assistance, or whether
such employee should be terminated. All of ProMedCo's obligations regarding
staff shall be governed by the overriding principle and goal of providing high
quality medical care.
3.1.4 Quality and Utilization Management. ProMedCo will assist ADC in
fulfilling its obligation to its patients to maintain high quality medical and
professional services, including patient satisfaction programs, employee
education, outcomes analysis, utilization programs, clinical protocol
development and to implement a risk management program.
3.1.5 Facilities and Equipment. ProMedCo will ensure the proper
cleanliness of the premises, maintenance and cleanliness of the equipment,
furniture and furnishings located on the premises.
3.1.6 Inventory Control and Purchasing Supplies. ProMedCo shall order
and purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which are reasonably necessary to deliver quality Clinic
services in a cost effective manner.
3.1.7 Managed Care Contracting. ProMedCo will be responsible for
marketing, negotiation, and administering all managed care contracts, subject to
the provisions of Section 2.2.5; provided, however, no contract or arrangement
regarding the provision of Clinical services shall be entered into without ADC's
consent.
3.1.8 Billing and Collections. ProMedCo shall bill patients and collect
all fees for services performed inside or outside the Clinic Facility or arrange
for such billing and collection. ADC hereby appoints ProMedCo, for the term
hereof, to be its true and lawful attorney-in-fact for the following purposes
(i) to bill patients in ADC's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in ADC's name and on its behalf, (iii) to
receive payments from Blue Shield, Medicare, Medicaid, payments from health
plans, and all other third party payors; (iv) to receive the cash proceeds of
any accounts receivable subject to the Hospital Agreements; (v) to take
possession of and endorse in the name of ADC (and/or in the name of an
individual physician, such payment intended for purpose of payment of a
physician's bill) any notes, checks, money orders, insurance payments and other
instruments received in payment of accounts receivable; and (vi) in accordance
with policies adopted by the Policy Council, to initiate legal proceedings in
the name of ADC to collect any accounts and monies owed to the Clinic, to
enforce the rights of ADC as creditors under any contract or in connection with
the rendering of any service, and to contest Adjustments and denials by
governmental agencies (or its fiscal intermediaries) as third-party payors. All
Adjustments made for uncollectible accounts, professional courtesies and other
activities that do not generate a collectible fee shall be done in a reasonable
and consistent manner.
3.1.9 Deposit of Net Clinic Revenues. During the term of this
Agreement, all Net Clinic Revenues collected resulting from the operations of
the Clinic shall be deposited directly into a bank account of which ADC shall be
the owner ("Account"). ProMedCo and ADC shall maintain their accounting records
in such a way as to clearly segregate Net Clinic Revenues from other funds of
ProMedCo
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or ADC. ADC hereby appoints ProMedCo as its true and lawful attorney-in-fact to
deposit in the Account all revenues collected. ADC covenants, and shall cause
all ADC Employees to covenant, to forward any payments received with respect to
Net Clinic Revenues for services provided by ADC and ADC Employees to ProMedCo
for deposit. ProMedCo shall have the right to withdraw funds from the Account
and all owners of the Account shall execute a revocable standing transfer order
("Transfer Order") under which the bank maintaining the Account shall
periodically transfer the entire balance of the Account to a separate bank
account owned solely by ProMedCo ("ProMedCo Account"). ADC and ProMedCo hereby
agree to execute from time to time such documents and instructions as shall be
required by the bank maintaining the Account and mutually agreed upon to
effectuate the foregoing provisions and to extend or amend such documents and
instructions. Any action by ADC that interferes with the operation of this
Section, including, but not limited to, any failure to deposit or have ProMedCo
deposit any Net Clinic Revenues into the Account, any withdrawal of any funds
from the Account not authorized by the express terms of this Agreement, or any
revocation of or attempt to revoke the Transfer Order (otherwise than upon
expiration or termination of this Agreement), will constitute a breach of this
Agreement and will entitle ProMedCo, in addition to any other remedies that it
may have at law or in equity, to seek a court ordered assignment of the
following rights:
(a) To collect accounts receivable resulting from the provision of
services to patients of ADC and its ADC Employees;
(b) To receive payments from patients, third party payor plans,
insurance companies, Medicare, Medicaid and all other payors with respect to
services rendered by ADC and its ADC Employees;
(c) To take possession of and endorse any notes, checks, money orders,
insurance payments and any other instruments received as payment of such
accounts receivable; and
(d) To collect all revenues of the Clinic.
3.1.10 Management Information Systems/Computer Systems. ProMedCo shall
supervise and provide information systems that are necessary and appropriate for
the operation of the Clinic.
3.1.11 Legal and Accounting Services. ProMedCo shall arrange for or
render to ADC such business, legal and financial management consultation and
advice as may be reasonably required or requested by ADC and directly related to
the operations of the Clinic. ProMedCo shall not be responsible for rendering
any legal or tax advice or services or personal financial services to ADC or any
employee or agent of ADC.
3.1.12 Negotiation and Payment of Premiums For All Insurance Products
Held By ADC. ProMedCo shall negotiate for and cause premiums to be paid with
respect to the insurance, which is necessary and appropriate for the operation
of the Clinic. Premiums and deductibles with respect to such policies shall be
Clinic Expense.
3.1.13 Physician Recruiting. ProMedCo shall assist ADC in recruiting
additional physicians, carrying out such administrative functions as may be
appropriate such as advertising for and identifying potential candidates,
checking credentials, and arranging interviews; provided, however, ADC shall
interview and make the ultimate decision as to the suitability of any physician
to become associated with the Clinic. All physicians recruited by ProMedCo and
accepted by ADC shall be the sole employees of ADC to the extent such physicians
are hired as employees. Any expenses incurred in the recruitment of physicians,
including, but not limited to, employment agency fees, relocation and
interviewing expenses shall be Clinic Expenses approved by the Policy Council.
3.1.14 Supervision of Ancillary Services. ProMedCo shall operate and
supervise such ancillary services as approved by the Policy Council.
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3.1.15 Strategic Planning Assistance. ProMedCo shall assist with and
implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. ProMedCo shall implement all
advertising and public relations activities that are approved by the Policy
Council.
3.1.17 Files and Records. ProMedCo shall supervise and maintain custody
of all files and records relating to the operation of the Clinic, including but
not limited to accounting, billing, patient medical records, and collection
records. Patient medical records shall at all times be and remain the property
of ADC and shall be located at Clinic facilities so that they are readily
accessible for patient care. The management of all files and records shall
comply with applicable state and federal statutes. ProMedCo, shall use its
reasonable efforts to preserve the confidentiality of patients medical records
and use information contained in such records only for the limited purpose
necessary to perform the services set forth herein, provided, however, in no
event shall a breach of said confidentiality be deemed a default under this
Agreement.
3.1.18 Payments. ProMedCo shall make the payments required under
Section 7 "Financial Arrangements" of this Agreement.
3.2 Administrator. ProMedCo shall hire and employ the Administrator,
pursuant to the instructions of the Policy Council as described in Section
2.2.3.
3.3 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting ADC in adding additional
office based procedures, ancillary services and adding additional satellite
office(s) as determined by the Policy Council to be beneficial to the Clinic.
ProMedCo will also assist in recruiting new physicians and developing
relationships and affiliations with other physicians, hospitals, networks, HMOs,
etc. To assist in the continued growth and development of the Clinic, ProMedCo
may acquire other physician practices for integration into ADC as approved by
the Policy Council. ADC will cooperate with ProMedCo in such efforts and use its
best efforts to assist ProMedCo with respect thereto. Without limiting the
generality of the foregoing, ADC will not enter into any agreements with respect
to any such matter without the prior consent of ProMedCo. ProMedCo shall not
purchase the assets of, establish, operate, manage, or in any way own or operate
any medical facility, clinic, or other health care facility providing services
within a radius of twenty-five (25) miles of the Taylor County Courthouse in
Abilene, Texas, or within a radius of twenty-five (25) miles of any current or
future medical office, clinic, or other health care facility from which ADC
provides medical services, without the consent of ADC.
3.4 Events Excusing Performance. ProMedCo shall not be liable to ADC
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which ProMedCo has no control for so long as such events
continue, and for a reasonable amount of time thereafter.
3.5 Compliance With Applicable Laws. ProMedCo shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4. OBLIGATIONS OF ADC
4.1 Professional Services. ADC shall provide professional services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the medical profession. ADC shall also ensure that each physician
associated with ADC is licensed by the State of Texas. In the event that any
disciplinary actions or medical malpractice actions are initiated against any
such physician, ADC shall immediately inform the Administrator of such action
and the underlying facts and circumstances. ADC shall carry out a program to
monitor the quality of medical care practiced, with ProMedCo's assistance. ADC
will
<PAGE>
cooperate with ProMedCo in taking steps to resolve any utilization review or
quality management issues which may arise in connection with the Clinic. The
costs of any such utilization review or quality management programs shall be a
Clinic Expense.
4.2 Employment Of Physician Employees. ADC shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Members and Physician Employees, although at the
request of ADC, ProMedCo shall consult with ADC regarding such matters. ADC
shall enforce formal employee agreements from each of its Physician Members and
Physician Employees, hired or contracted, substantially in the form attached
hereto as Exhibit "C".
4.3 Non-Clinic Expenses. ADC shall be solely responsible for the
payment of all costs and expenses incurred in connection with ADC's operations
which are not Clinic Expenses, including, but not limited to: accounting and
other professional services fees; salaries and benefits; retirement plan
contributions; health, disability and life insurance premiums; payroll taxes;
membership in professional associations; continuing medical education; and
licensing and board certification fees of Physician Members, Physician Employees
and those Physician Extenders who are not under the direct supervision of a
Physician Member or Physician Employee.
4.4 Medical Practice. ADC shall use and occupy the Clinic Facility
exclusively for the practice of medicine, and shall comply with all applicable
local rules, ordinances and all standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Clinic Facility shall be conducted solely by physicians associated with ADC,
and no other physician or medical practitioner shall be permitted to use or
occupy the Clinic Facility without the prior written consent of the Policy
Council.
4.5 Professional Insurance Eligibility. ADC shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Members and Physician Employees are insurable, and participating in an
ongoing risk management program.
4.6 Employment Of Non-Physician Employees. There will be certain
Technical Employees that perform technical functions for ADC. These Technical
Employees will remain in the employ of ADC. As provided in Section 3.1.3.,
ProMedCo will provide payroll and administrative services for such Technical
Employees.
4.7 Events Excusing Performance. ADC shall not be liable to ProMedCo
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which ADC has no control for so long as such events continue,
and for a reasonable amount of time thereafter.
4.8 Compliance With Applicable Laws. ADC shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4.9 Restrictions on Use of Clinic Facility. ADC shall at all times
during the term of this Agreement comply with the policy of ProMedCo stated in
Section 6 herein.
4.10 ADC Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, ADC has in effect the
employee welfare benefit plans (as such term is defined in Section 3(l) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and the
employee pension benefit plans (as such term is defined in Section 3(2) of
ERISA), as set forth in Exhibit "D" to this Agreement.
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(b) ADC shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo. Except as otherwise required by law, ADC shall not materially amend,
freeze, terminate or merge any ADC Plan without the express written consent of
ProMedCo. ADC agrees to make such changes to ADC's Plan, including the freeze,
termination, or merger of such ADC Plan, as may be approved by ProMedCo.
(c) Expenses incurred in connection with any ADC Plan or other employee
benefit plan maintained by ADC, including without limitation the compensation of
counsel, accountants, corporate trustees and other agents shall be included in
Clinic Expenses.
(d) The contribution and administration expenses for Physician Members
and Physician Employees shall be an expense of ADC. ProMedCo shall make
contributions or payments with respect to any ADC Plan, as a Clinic Expense, on
behalf of eligible Technical Employees.
(e) ProMedCo shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its employees.
ProMedCo shall have the sole and exclusive authority to appoint the trustee,
custodian, and administrator of any such plan.
4.11 Physician Powers of Attorney. ADC shall require all ADC Employees
to execute and deliver to ProMedCo powers of attorney, satisfactory in form and
substance to ProMedCo and ADC, appointing ProMedCo as attorney-in-fact for each
for the purposes set forth in Section 3.1.8 and 3.1.9, which powers of attorney
shall immediately terminate upon termination of this Agreement.
4.12 Spokesperson. ADC shall serve as spokesperson for ProMedCo, Parent
and Clinic regarding sales and development activities. The parties agree that
Drs. Arthur, Bailey, and Headstream, or such other Physician Members as the
Policy Council shall appoint, shall serve in this capacity on behalf of ADC.
4.13 Delegation of ADC Responsibilities. ADC shall delegate to ProMedCo
all duties and responsibilities it may have for the management and
administration of the Hospital Agreements, including, but not limited to, those
duties, powers, and responsibilities vested in ADC pursuant to the Hospital
Agreements. ADC shall inform the Hospitals of the delegation of responsibilities
to ProMedCo and shall fully cooperate with ProMedCo in effecting such
delegation.
5. RECORDS
5.1 Patient Records. Upon termination of this Agreement, ADC shall
retain all patient medical records maintained by ADC or ProMedCo in the name of
ADC. ADC shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by ADC.
5.2 Other Records. All records relating in any way to the operation of
the Clinic which are not the property of ADC under the provisions of Section 5.1
above, shall at all times be the property of ProMedCo. ADC shall be authorized
to obtain copies of all records relating to the operation of the Clinic at any
reasonable time during business hours.
5.3 Access to Records. During the term of this Agreement, and
thereafter, ADC or its accountant or other designee shall upon 24 hours notice
have reasonable access during normal business hours to ADC's and ProMedCo's
financial records, including, but not limited to, records of collections,
expenses and disbursements as kept by ProMedCo in performing ProMedCo's
obligations under this Agreement, and ADC may copy any or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO
6.1 Facilities. ProMedCo hereby agrees to provide or arrange as a
Clinic Expense the offices and facilities for Clinic operations, including but
not limited to, the Clinic Facility and all costs of repairs, maintenance and
<PAGE>
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, related real or personal property lease cost payments and
expenses, taxes and insurance, refuse disposal and all other costs and expenses
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and ADC agree that ADC, as an independent contractor,
is a separate organization that retains the authority to direct the medical,
professional, and ethical aspects of its medical practice. If a Physician Member
or a Physician Employee performs abortion procedures in any facility, ProMedCo
shall not receive any ProMedCo Distribution from the revenue generated from such
procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to ADC and ProMedCo. ADC and ProMedCo agree that the
compensation set forth herein is being paid to ProMedCo in consideration of a
substantial commitment made by ProMedCo hereunder and that such fees are fair
and reasonable. As payment for its services rendered to ADC, each month ProMedCo
shall be paid the amount of all Clinic Expenses and the ProMedCo Distribution.
All Net Clinic Revenues after deduction of Clinic Expenses, and the ProMedCo
Distribution, shall be referred to as the "ADC Distribution. "
7.2 Calculation of Payments. ProMedCo shall pay to ADC in accordance
with the provisions of Section 7.4 the ADC Distribution amounts on or about the
15th day of such following month. Some amounts may need to be estimated, with
Adjustments made as necessary the following month. Any audit Adjustments would
be made after completion of the fiscal year audit.
7.3 Clinic Expenses. Commencing on the Effective Date, ProMedCo shall
pay all Clinic Expenses as they fall due, provided, however, that ProMedCo may,
in the name of and on behalf of ADC, contest in good faith any claimed Clinic
Expenses as to which there is any dispute regarding the nature, existence or
validity of such claimed Clinic Expenses. ProMedCo hereby agrees to indemnify
and hold ADC harmless from and against any liability, loss, damages, claims,
causes of action and reasonable expenses of ADC resulting from the contest of
any Clinic Expenses.
7.4 Accounts Receivables. Except for the first month of this Agreement,
on approximately the 15th day of each month, ProMedCo shall purchase the
accounts receivable of ADC arising during the previous month, by payment of
cash, or other readily available funds into an account of ADC. The consideration
for the purchase shall be an amount equal to actual charges of ADC for the
previous month, less Adjustments. The Purchase Amount shall be further reduced
by the amount due to ProMedCo for the previous month's Clinic Expenses and
ProMedCo Distribution and such reduction shall serve as payment for such month's
Clinic Expenses and ProMedCo Distribution as provided for in Section 7.1 above.
Although it is the intention of the parties that ProMedCo purchase and thereby
become owner of the accounts receivable of ADC, in case such purchase shall be
ineffective for any reason, ADC, as of the Effective Date of this Agreement,
grants and shall cause each ADC Employee to grant to ProMedCo a first priority
lien on and security interest in and to any and all interest of ADC and such ADC
Employees in any accounts receivable generated by the medical practice of ADC
and the ADC Employees or otherwise generated through the operations of the
Clinic, and all proceeds with respect thereto, to secure the payment to ProMedCo
of all such accounts receivable, and this Agreement shall be deemed to be a
security agreement to the extent necessary to give effect to the foregoing. In
addition, ADC shall cooperate with ProMedCo and execute and deliver, and cause
each ADC Employee to execute and deliver, all necessary documents in connection
with the pledge of such accounts receivable to ProMedCo or at ProMedCo's option,
its lenders. All collections in respect of such accounts receivable shall be
deposited in a bank account at a bank designated by ProMedCo. To the extent ADC
<PAGE>
or any ADC Employee comes into possession of any payments in respect of such
accounts receivable, ADC or such ADC Employee shall direct such payments to
ProMedCo for deposit in bank accounts designated by ProMedCo.
8. INSURANCE AND INDEMNITY
8.1 Insurance to Be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will use reasonable efforts to provide and maintain, as a
Clinic Expense, all necessary insurance, including, but not limited to
comprehensive professional liability insurance for all professional employees of
ProMedCo and ADC with limits as determined reasonable by ProMedCo in its
national program, comprehensive general liability insurance and property
insurance covering the Clinic Facility and operations.
8.2 Insurance to be Maintained by ADC. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 4.5 and Section 8. 1, ADC shall maintain comprehensive
professional liability insurance with limits of not less than $300,000 per claim
and with aggregate policy limits of not less than $600,000 per physician and a
separate limit for ADC. ADC shall be responsible for all liabilities (including
without limitation deductibles and excess liabilities) not paid within the
limits of such policies. ProMedCo shall have the option, with Policy Council
approval, of providing such professional liability insurance through an
alternative program, provided such program meets the requirements of the
Insurance Commissioner of the State of Texas.
8.3 Tail Insurance Coverage. Unless covered by an "occurrence"
malpractice policy, ADC will cause each individual physician associated with the
Clinic to enter into an agreement with ADC that upon termination of such
physician's relationship with ADC, for any reason, tail insurance coverage will
be purchased by the individual physician. Such provisions may be contained in
employment agreements, restrictive covenant agreements or other agreements
entered into by ADC and the individual physicians, and ADC hereby covenants with
ProMedCo to enforce such provisions relating to the tail insurance coverage or
to provide such coverage at the expense of ADC.
8.4 Additional Insured. ADC and ProMedCo agree to use their best
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at ProMedCo's expense.
8.5 Indemnification. ADC shall indemnify, hold harmless and defend
ProMedCo, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of (i)
the performance of medical services or any other acts or omissions by ADC and/or
its Members, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by an ADC Employee,
which claim arises out of such ADC Employees' employment relationship with ADC
or as a result of services performed by such ADC Employee, and which claim would
typically be covered by worker's compensation and (ii) any claims made by
Hospitals against ProMedCo because of ProMedCo's entering into and its
performance of the terms and conditions of this Agreement, including, but not
limited to, any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees) for alleged breach of or
tortious interference with the Hospital Agreements. ProMedCo shall indemnify,
hold harmless and defend ADC, its officers, directors and employees, from and
against any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees), to the extent not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of any intentional acts, negligent acts or
omissions by ProMedCo and/or its Members, agents, employees and/or
subcontractors (other than ADC) during the term of this Agreement, except for
any liability, loss, damage, claim, causes of action, and expenses which might
arise in connection with the
<PAGE>
Hospital Agreements.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if ADC operates an active medical practice to which the
physicians associated with ADC devote their full time and attention. To that
end:
9.1 Restrictive Covenants by ADC. During the term of this Agreement,
ADC shall not, outside the Clinic, establish, operate or provide physician
services at any medical office, clinic or other health care facility providing
services substantially similar to those provided by ADC pursuant to this
Agreement anywhere within a radius of twenty-five (25) miles of the Taylor
County Courthouse in Abilene, Texas, or within a radius of twenty-five (25)
miles of any current or future medical office, clinic or other health care
facility from which ADC provides medical services.
9.2 Restrictive Covenants By Current Physician Members and Physician
Employees. ADC shall enforce the employment agreements with its current
Physician Members and Physician Employees in a form satisfactory to ProMedCo,
pursuant to which the Physician Members and Physician Employees agree not to
establish, operate or provide physician services at any medical office, clinic
or outpatient and/or ambulatory treatment or diagnostic facility providing
services substantially similar to those provided by ADC pursuant to this
Agreement within a radius of twenty-five (25) miles of the Taylor County
Courthouse in Abilene, Texas, or within a radius of twenty-five (25) miles of
any current or future medical office, clinic or other health care facility from
which ADC provides medical services, and for a period of thirty-six (36) months
after the first date of such Physician Shareholder's or such Physician
Employee's employment with ADC. ProMedCo shall have third-party rights to
enforce such agreements.
9.3 Restrictive Covenants By Future Physician Employees. ADC shall
obtain and enforce formal employment agreements from each of its future
Physician Members and Physician Employees in a form satisfactory to ProMedCo,
pursuant to which such physicians agree not to establish, operate or provide
physician services at any medical office, clinic or outpatient and/or ambulatory
treatment or diagnostic facility providing services substantially similar to
those provided by ADC pursuant to this Agreement within a radius of twenty-five
(25) miles of the Taylor County Courthouse in Abilene, Texas, or within a radius
of twenty-five (25) miles of any current or future medical office, clinic or
other health care facility from which ADC provides medical services during the
term of said Physician Employee's employment with ADC and for a period of
thirty-six (36) months after the date of their first employment with ADC.
ProMedCo shall have third-party rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The restrictive covenants described in Sections 9.2 and 9.3 of this Agreement
will provide that the Physician Members and Physician Employees (existing or
future) may be released from their restrictive covenants by paying Liquidated
Damages in the amount of Two Hundred Thousand Dollars ($200,000.00) or such
physician's income from the practice of medicine, as reported to the Internal
Revenue Service for the previous twelve (12) months, whichever is less. Such
payment shall be made to ProMedCo by ADC simultaneously with the payment by the
physician to ADC. Such payment shall be first applied to all costs incurred by
ProMedCo in the enforcement of the restrictive covenant for that departing
physician and in recruiting a replacement physician for that departing
physician. The remainder, if any, shall become an additional service fee to be
paid to ProMedCo pursuant to Section 7. The accounting treatment of such funds
shall be consistently applied and approved by ProMedCo's independent certified
public accountants and the Policy Council.
9.5 Enforcement. ProMedCo and ADC acknowledge and agree that since a
remedy at law for any breach or attempted breach of the provisions of this
Section 9 shall be inadequate, either party shall be entitled to specific
<PAGE>
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such injunctive or other equitable
relief. If any provision of Section 9 relating to territory described therein
shall be declared by a court of competent jurisdiction to exceed the maximum
time period, scope of activity, restricted or geographical area such court deems
reasonable and enforceable under applicable law, the time period, scope of
activity, restricted and/or area of restriction deemed to be reasonable and
enforceable by the court shall thereafter be the time period, scope of activity,
restricted and/or area of restriction applicable to the restrictive covenant
provisions in this Section 9. The invalidity of non-enforceability of this
Section 9 in any respect shall not affect the validity of enforceability of the
remainder of this Section 9 or of any other provisions of this Agreement unless
the invalid or non-enforceable provisions materially affect the benefits either
party would otherwise be entitled to receive under this Section 9 or any other
provision of this Agreement.
9.6 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 10.2 herein, the restrictive covenants contained in this Section 9 shall
be null and void and of no force or effect.
10. TERM; RENEWAL; TERMINATION
10.1 Term and Renewal. The term of this Agreement shall commence on the
Effective Date, as hereinafter defined, and shall continue for forty (40) years,
after which it shall automatically renew for 5-year terms unless either party
provides the other party with at least twelve (12) months but not more than
thirteen (13) months written notice prior to any renewal date.
10.2 Termination by ADC or Its Assignees. ADC or its assignees may
terminate this Agreement as follows:
10.2.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ProMedCo, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by ProMedCo, except for the filing of a petition in
involuntary bankruptcy against ProMedCo which is dismissed within 30 days
thereafter, ADC may give notice of the immediate termination of this Agreement.
10.2.2 In the event ProMedCo shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of 90 days after written notice thereof has
been given to ProMedCo by ADC; or ProMedCo shall fail to remit the payments due
as provided in Section 7 hereof and such failure to remit shall continue for a
period of 15 days after written notice thereof, ADC may terminate this
Agreement. Termination of this Agreement pursuant to this subsection (2) by ADC
shall require the affirmative vote of 75 % of the Physician Members.
10.2.3 In the event any person or persons (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) acquires or
acquires the right to vote, through acquisition, tender offer, proxy
solicitation, merger or consolidation, fifty percent (50%) or more of ProMedCo,
Inc. then issued and outstanding Common Stock, or securities representing fifty
percent (50%) or more of the combined voting power of ProMedCo, Inc. then issued
and outstanding securities, then ADC or its assignees shall have the option to
terminate this Agreement, provided however, that ADC must exercise this option
within thirty (30) days following this change in ownership. Termination of this
Agreement pursuant to this Section by ADC or its assignees shall require the
affirmative vote of 75 % of ADC's Physician Members or the Physician Members of
ADC's assignees.
10.2.4 In the event ProMedCo shall default on any of its payments due
under any agreement between ProMedCo and ADC, and such failure to remit shall
<PAGE>
continue for fifteen (15) days after written notice thereof.
10.3 Termination by ProMedCo. ProMedCo may terminate this Agreement
as follows:
10.3.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ADC, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by ADC, except for the filing of a petition in
involuntary bankruptcy against ADC which is dismissed within 30 days thereafter,
ProMedCo may give notice of the immediate termination of this Agreement.
10.3.2 In the event ADC shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement or in the event a
majority of the Physicians Members shall materially default in the performance
of any duty or obligation imposed upon them by this Agreement or by their
employment agreements with ADC, and such default shall continue for a period of
90 days after written notice thereof has been given to ADC and such Physician
Members by ProMedCo, ProMedCo may terminate this Agreement.
10.4 Actions After Termination. In the event that this Agreement shall
be terminated, the ADC Distribution and the ProMedCo Distribution shall be paid
through the effective date of termination. In addition, the various rights and
remedies herein granted to the aggrieved party shall be cumulative and in
addition to any others such party may be entitled to by law. The exercise of one
or more rights or remedies shall not impair the right of the aggrieved party to
exercise any other right or remedy, at law.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
11.1 Net Clinic Revenues shall mean ADC's gross billings, including
ancillaries and any other revenues that have historically been recorded by ADC,
less Adjustments and less any Risk Pool Surpluses.
11.2 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.3 ProMedCo Distribution shall mean [*]% of Distribution Funds plus a
percentage of Risk Pool Surpluses established by Exhibit A.
11.4 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by ADC and the ADC Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.5 Clinic Facility shall mean the clinic facilities located at 1665
Antilley Road, Suite 200, Abilene, Texas, and 1150 North 28th, Suite 300,
Abilene, Texas, and any substitute facility or additional facility location,
whether within or without Taylor County, as approved by the Policy Council.
11.6 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
11.6.1 Salaries, benefits (including contributions under any Parent
benefit plan), and other direct costs of all Technical Employees, Physician
Extenders who are under the direct supervision of Physician Members or Physician
Employees and all employees of ProMedCo attributable to ADC;
11.6.2 Direct costs, including benefits, of all employees or
consultants of Parent or affiliate of ProMedCo who, with approval of the Policy
Council, provides services at or in connection with ADC required for improved
performance, such as work management, purchasing, information systems, charge
and coding
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
analysis, managed care sales, negotiating and contracting, financial analysis,
and business office consultation; provided, however, only that portion of such
employee's or consultant's costs without mark-up by Parent that is allocable to
Clinic will be a Clinic Expense;
11.6.3 Obligations of ProMedCo or Parent under leases or subleases
related to Clinic operations;
11.6.4 Interest Expense on indebtedness incurred by ProMedCo or Parent
to finance or refinance any of its obligations hereunder or services provided
hereunder.
11.6.5 Personal property and intangible taxes assessed against
ProMedCo's assets used in connection with the operation of Clinic commencing on
the date of this Agreement;
11.6.6 Malpractice insurance expenses for ProMedCo's operations and for
the ADC Employees, as well as any deductibles and non-insured expenses relating
to malpractice claims;
11.6.7 All management fees paid under the Hospital Agreements;
11.6.8 All expenses of providing equipment and supplies or performing
all management or other services listed in Section 3, "Obligations of ProMedCo,
" as well as any other expenses that are described as "Clinic Expenses"
elsewhere in this Agreement.
11.6.9 Other expenses incurred by ProMedCo in carrying out its
obligations under this Agreement.
11.7 Clinic Expenses shall not include:
11.7.1 Corporate overhead charges or any other expenses of Parent or
any corporation affiliated with Parent other than the kind of items listed
above;
11.7.2 Any federal or state income taxes;
11.7.3 Any expenses which are expressly designated herein as expenses
or responsibilities of ADC and/or ADC Employees;
11.7.4 Any amortization 'expense resulting from the amortization of
expenses incurred as shown on Parent's financial statements, in connection with
the acquisition pursuant to the Asset Purchase Agreement and the execution of
this Agreement;
11.7.5 Interest expense or indebtedness incurred by ProMedCo or Parent
to finance the consideration paid under the Asset Purchase Agreement;
11.7.6 Any liabilities, judgments or settlements assessed against ADC
or Physician Members in excess of any insurance policy limited; and
11.7.7 Expenses incurred specifically for the management of risk
pools.
11.8 Risk Pool Surpluses shall mean all hospital risk funds, specialist
risk funds, and funds from risk pools under any risk bearing or risk sharing
arrangement, after deduction of Risk Pool Cost Of Care, and after making any
deductions for capitation or other risk pools that are in a deficit position.
11.9 Risk Pool Cost Of Care shall mean all claims, capitation payments,
and Incurred But Not Reported (IBNR) calculations charged against any risk pool
(defined as any hospital risk fund, specialist risk fund, and funds from risk
pools under any risk bearing or risk sharing arrangement). Risk Pool Cost Of
Care shall also include expenses incurred specifically for the management of
risk pools.
<PAGE>
11.10 Opening Balance Sheet shall mean the balance sheet of ProMedCo as
of the Effective Date prepared in accordance with GAAP (except for the absence
of certain note information), and substantially in the form of the attached
Exhibit B subject to Adjustments in the Consideration (as defined in the Asset
Purchase Agreement).
11.11 Technical Employees shall mean technicians who provide services
in the diagnostic areas of ADC's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. AU Technical
Employees shall be ADC employees.
11.12 Physician Members shall mean any physician who is a shareholder
of ADC, both as of the date of this Agreement (which said Physician Members are
parties to this Agreement) and at any future point in time.
11.13 Physician Employees shall mean any physician employed by ADC and
providing medical services to patients on behalf of ADC, who are not Physician
Members.
11.14 Physician Extenders shall mean all nonphysician professional
employees who provide direct patient care for which a billed charged is
generated.
11.15 ADC Employees shall mean all Physician Members, Physician
Employees and Technical Employees at the relevant date.
11.16 Effective Date shall mean the later date of: (a) one year from
the first day of the month following January 19, 1996; or (b) the first day of
the month following the date of the initial public offering ("IPO") of ProMedCo.
11.17 Adjustments "Adjustments" shall mean any Adjustments to ADC's
gross billings for uncollectible accounts, discounts, Medicare and Medicaid
disallowances, workers' compensation discount, employee/dependent health care
benefit programs, professional courtesies, and other activities that do not
generate a collectible fee. Any adjustments made shall be based on a reasonable
historical basis, or a reasonable prospective basis should a new payor agreement
apply, and shall be periodically modified during the year to reflect the actual
Adjustments. Final Adjustments and any resulting payments owed by one party to
the other shall be made within (30) days after completion of the fiscal year
audit.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that ADC and
ProMedCo are at all times acting and performing hereunder as independent
contractors. ProMedCo shall neither have nor exercise any control or direction
over the methods by which ADC or the ADC Employees practice medicine. The sole
function of ProMedCo hereunder is to provide all management services in a
competent, efficient and satisfactory manner. ProMedCo shall not, by entering
into and performing its obligations under this Agreement, become liable for any
of the existing obligations, liabilities or debts of ADC unless otherwise
specifically provided for under the terms of this Agreement. ADC shall not, by
entering into and performing its obligations under this Agreement, become liable
for any of the existing obligations, liabilities, or debts of ProMedCo, unless
otherwise specifically provided for under the terms of this Agreement. ProMedCo
will in its management role have only an obligation to exercise reasonable care
in the performance of the management services. Neither party shall have any
liability whatsoever for damages suffered on account of the willful misconduct
or negligence of any employee, agent or independent contractor of the other
party. Each party shall be solely responsible for compliance with all state and
federal laws pertaining to employment taxes, income withholding, unemployment
compensation contributions and other employment related statutes regarding their
respective employees, agents and servants.
12.2 Other Contractual Arrangement. The parties acknowledge and agree
<PAGE>
that they have been advised and consent to the fact that ProMedCo, or its
affiliates (i) may have, prior to the date of this Agreement, discussed
proposals with respect to, or (ii) may, from time to time hereafter, enter into
agreements with one or more ADC Employees to provide consulting, medical
direction, advisory or similar services relating to activities of ProMedCo or
its affiliates in clinical areas. The parties agree that such agreement, if any,
shall be entered into at the sole discretion of the parties thereto and subject
to such terms and conditions to which such parties may agree, and any
compensation payable to or by ProMedCo, on the one hand, and such ADC Employees,
on the other hand, shall not constitute Net Clinic Revenues, or ADC
Compensation, and shall otherwise not be subject to the provisions of this
Agreement.
12.3 Proprietary Property.
12.3.1 Each party agrees that the other party's proprietary property
shall not be possessed, used or disclosed otherwise than may be necessary for
the performance of this Agreement. Each party acknowledges that its violation of
this Agreement would cause the other party irreparable harm, and may (without
limiting the other party's remedies for such breach) be enjoined at the instance
of the other party. Each party agrees that upon termination of this Agreement
for any reason, absent the prior written consent of the other party, it shall
have no right to and shall cease all use of the other party's proprietary
property, and shall return all such proprietary property of the other party in
its possession to the other party.
12.3.2 ProMedCo shall be the sole owner and holder of all right, title
and interest, to all intellectual property furnished by it under this Agreement,
including, but not limited to the trade name "Abilene Diagnostic Clinic,
P.L.L.C.," all computer software, copyright, services mark and trademark right
to any material or documents acquired, prepared, purchased or furnished by
ProMedCo pursuant to this Agreement. ADC shall have no right, title or interest
in or to such material and shall not, in any manner, distribute or use the same
without the prior written authorization of ProMedCo, provided, however, that the
foregoing shall not restrict ADC from distributing managed care information
brochures and materials without the prior written approval of ProMedCo provided
no Proprietary Property of ProMedCo is contained therein. Notwithstanding the
preceding, however, ProMedCo agrees that ADC shall be entitled to use on a
nonexclusive and nontransferable basis for the term of this Agreement the name
"Abilene Diagnostic Clinic, P.L.L.C.," as may be necessary or appropriate in the
performance of ADC's services and obligations hereunder.
12.4 Cooperation. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement.
12.5 Licenses, Permits and Certificates. ProMedCo and ADC shall each
obtain and maintain in effect, during the term of this Agreement, all licenses,
permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
12.6 Compliance with Rules, Regulations and Laws. ProMedCo and ADC
shall comply with all federal and state laws and regulations in performance of
their duties and obligations hereunder. Neither party, nor their employees or
agents, shall take any action that would jeopardize the other party's
participation, if applicable, in any federal or state health program including
Medicare and Medicaid. ProMedCo and ADC shall take particular care to ensure
that no employee or agent of either party takes any action intended to violate
Section 1128B of the Social Security Act with respect to soliciting, receiving,
offering or paying any remuneration (including any kickback, bribe, or rebate)
directly or indirectly, overtly or covertly, in cash or in kind in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part under Title XVIII or XIX of the Social Security Act, or for purchasing,
leasing, ordering, or arranging for or recommending purchasing, leasing, or
ordering any good, facility, service, or item for which payment may be made in
whole or in part
<PAGE>
under Title XVIII or XIX of the Social Security Act.
12.7 Generally Accepted Accounting Principles (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
12.8 Notices. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this Section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
12.9 Attorneys' Fees. ProMedCo and ADC agree that the prevailing party
in any legal dispute among the parties hereto shall be entitled to payment of
its attorneys' fees by the other party.
12.10 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing regulations to be invalid, void or unenforceable, the remaining
provisions will nevertheless continue in full force and effect.
12.11 Arbitration. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof will be settled by binding arbitration
in accordance with the rules of commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. Such arbitration shall
occur within the County of Taylor, State of Texas, unless the parties mutually
agree to have such proceedings in some other locale. The arbitrator(s) may in
any such proceeding award attorneys' fees and costs to the prevailing party.
12.12 Construction of Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas. The parties
agree that the terms and provisions of this Agreement embody their mutual
interest and agreement and that they are not to be construed more liberally in
favor of, nor more strictly against, any party hereto.
12.13 Assignment and Delegation. ProMedCo shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
ProMedCo shall not have the right to assign its rights and obligations hereunder
without the written consent of ADC. ADC shall have the obligation to assign its
right and obligations hereunder to a successor entity, provided ProMedCo shall
have given its prior written consent to such assignment. Except as set forth
above, ADC shall not have the right to assign its rights and obligations
hereunder without the written consent of ProMedCo. ADC may not delegate any of
ADC's duties hereunder, except as expressly contemplated herein; however,
ProMedCo may delegate some or all of ProMedCo's duties hereunder to the extent
it concludes, in its sole discretion, that such delegation is in the mutual
interest of the parties hereto.
12.14 Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law.
12.15 Waiver. The waiver of any provision, or of the breach of any
provision of this Agreement must be set forth specifically in writing and signed
by the waiving party. Any such waiver shall not operate or be deemed to be a
waiver of any prior or future breach of such provision or of any other
provision.
<PAGE>
1.2.16 Headings. The subject headings of the articles and sections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
12.17 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and all
of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
12.18 Time is of the Essence. Time is hereby expressly declared to
be of the essence in this Agreement.
12.19 Modifications of Agreement for Prospective Legal Events. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel for both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, or in the event the Texas State Board of Medical
Examiners or other authority with legal jurisdiction shall, solely by virtue of
this Agreement, initiate an action to revoke, suspend, or restrict the license
of any physician retained by ADC to practice medicine in the State of Texas, ADC
and ProMedCo shall amend this Agreement as necessary. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between ADC and ProMedCo. In the event it is not possible
to amend this Agreement to preserve in all material respects the underlying
economic and financial arrangements between ADC and ProMedCo, this Agreement may
be terminated by written notice by either party within 90 days from date of such
interpretation or action, termination to be effective no sooner than the earlier
of 180 days from, the date notice of termination is given or the latest possible
date specified for such termination in any regulatory order or notice.
Termination pursuant to this Section 12.19 by ADC shall require the affirmative
vote of a majority of Physician Members.
12.20 Whole Agreement; Modification. A contract in which the amount
involved exceeds $50,000 in value is not enforceable unless the Agreement is in
writing and signed by the party to be bound or by that party's authorized
representative. The rights and obligations of the parties hereto shall be
determined solely from written agreements. Documents and instruments, and any
prior oral agreements between the parties are superseded by and merged into such
writings. This Agreement (As amended in writing from time to time), the
exhibits, and the schedules delivered pursuant hereto represent the final
agreement between the parties hereto and may not be contradicted by; evidence of
prior, contemporaneous, or subsequent oral agreements by the parties. There are
no unwritten oral agreements between the parties. This paragraph is included
herein pursuant to Section 26.02 of the Texas Business and Commerce Code, as
amended from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PROMEDCO OF ABILENE, INC.,
WAYNE POSEY
Address: 801 Cherry Street - Suite 1050 Fort Worth, Texas 76102
------------------------------
ABILENE DIAGNOSTIC CLINIC, P.L.L.C.
Name:
Title:
Address:
<PAGE>
Allocation of Risk Pool SuMiuses
ProMedCo shall receive a percentage of the Risk Pool Surpluses, or
shall be responsible for a percentage of any deficits if the Risk Pool Surpluses
are in a deficit position pursuant to Section 11.9. ProMedCo's percentage shall
be based on the cumulative risk pool savings that have occurred during the
entire term of this Agreement, including any renewals. The percentage shall be
based on the graduated scale as shown below:
Cumulative Risk Pool Sug2ju ProMedCo %
[*]
The distribution of Risk Pool Surpluses shall be made on an annual basis no
later than 90 days after the conclusion of each contract year of this Agreement,
and after a full analysis of an Incurred But Not Reported (IBNR) liabilities.
Once the final balance of Risk Pool Surpluses has been calculated, [*]% of that
amount shall be distributed, with the final [*]% held for an additional 6 months
to pay for any unanticipated claims. At the end of that 6 months, any funds
remaining from the [*]% reserved shall be distributed.
A-1
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
Qpening Balance Sheet
Current Assets
Cash
Accounts Receivable Prepaid
Other Current Assets Total Current Assets
Other Assets
Investments
Deposits
Other Assets
Total Other Assets
Property and Equipment
Land
Buildings
Building Fixed Equipment Equipment
Capitalized Lease Equipment Accrued Depreciation
Total Property and Equipment
Intangibles
Organization Cost
Loan Cost
Non-Compete Covenants
Other Intangibles
Total Intangibles
TOTAL ASSETS
Current Liabilities
Accounts Payable
Notes Payable
Payroll & Taxes Payable
Accrued Expenses
Accrued Interest
Cur-rent Maturities- Leases
Current Maturities - Notes
Other Current Liabilities
Total Current Liabilities
Other Liabilities
Deficit in Limited Liability Company
Deferred Credits
Total Other Liabilities
Long Term Payables Mortgages
Notes Payable Lease Obligations Total Long Term Payables
<PAGE>
Members Capital Account
Contributed Capital
Accumulated Income or Deficit
Total Members Equity
TOTAL LIABILITIES AND CAPITAL ACCOUNT
CONFIDENTIAL TREATMENT REQUESTED
SERVICE AGREEMENT
By and Between
PROMEDCO OF CULLMAN, INC.
and
CULLMAN PRIMARY CARE, P.C.
Effective March 6, 1996
<PAGE>
Table of Contents
Page No.
RECITALS.......................................................... 1
1. RESPONSIBILITIES OF THE PARTIES................................ 2
1.1 General Responsibilities of the Parties..................... 2
1.2 CPC's Matters............................................... 2
1.3 Patient Referrals........................................... 2
2. POLICY COUNCIL................................................. 2
2.1 Formation and Operation of the Policy Council............... 2
2.2 Duties and Responsibilities of the Policy Council........... 2
3. OBLIGATIONS OF PROMEDCO........................................ 4
3.1 Management and Administration............................... 4
3.2 Expansion of Clinic......................................... 6
3.3 Events Excusing Performance................................. 8
3.4 Compliance With Applicable Laws.............................. 8
3.5 Guaranty.................................................... 8
3.6 Minimum Net Worth........................................... 8
4. OBLIGATIONS OF CDC............................................. 9
4.1 Professional Services....................................... 9
4.2 Employment Of Physician Employees........................... 9
4.3 Non-Clinic Expenses......................................... 9
4.4 Medical Practice............................................ 9
4.5 Professional Insurance Eligibility.......................... 9
4.6 Employment Of Non-Physician Employees....................... 9
4.7 Events Excusing Performance................................. 9
4.8 Compliance With Applicable Laws............................. 10
4.9 Restrictions on Use of Clinic Facility...................... 10
4.10 CPC Employee Benefit Plans.................................. 10
4.11 Physician Powers of Attorney................................ 10
4.12 Spokesperson................................................ 10
4.13 Physician Guarantees........................................ 10
5. RECORDS........................................................ 11
5.1 Patient Records............................................. 11
5.2 Other Records............................................... 11
5.3 Access to Records........................................... 11
6. FACILITIES TO BE PROVIDED BY PROMEDCO.......................... 12
6.1 Facilities.................................................. 12
6.2 Use of Facilities........................................... 12
7. FINANCIAL ARRANGEMENTS......................................... 12
7.1 Payments to CPC............................................. 12
7.2 Distribution................................................ 12
7.3 Clinic Expenses............................................. 12
7.4 Accounts Receivable......................................... 12
8. INSURANCE AND INDEMNITY........................................ 13
8.1 Insurance to Be Maintained by ProMedCo...................... 13
8.2 Insurance to Be Maintained by CPC........................... 13
8.3 Tail Insurance Coverage..................................... 13
8.4 Additional Insured.......................................... 14
8.5 Indemnification............................................. 14
<PAGE>
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES................... 14
9.1 Restrictive Covenants by CPC................................ 14
9.2 Restrictive Covenants By Current Physician
Shareholders and Physician Employees.................... 14
9.3 Restrictive Covenants By Future Physician Employees......... 15
9.4 Physician Shareholder and Physician Employee Liquidated
Damages................................................. 16
9.5 Restrictive Covenants of ProMedCo........................... 16
9.6 Enforcement................................................. 16
9.7 Termination of Restrictive Covenants........................ 17
10. TERM; RENEWAL; TERMINATION................................... 17
10.1 Term and Renewal............................................ 17
10.2 Termination by CPC.......................................... 17
10.3 Termination by ProMedCo..................................... 19
10.4 Actions After Termination................................... 19
11. DEFINITIONS
11.1 Net Clinic Revenues......................................... 22
11.2 Distribution Funds.......................................... 22
11.3 ProMedCo Distribution....................................... 22
11.4 Clinic...................................................... 22
11.5 Clinic Facility............................................. 22
11.6 Clinic Expenses............................................. 22
11.7 Clinic Expenses shall not include........................... 23
11.8 Risk Pool Surpluses......................................... 23
11.9 Opening Balance Sheet....................................... 24
11.10 Technical Employees......................................... 24
11.11 Physician Shareholders...................................... 24
11.12 Physician Employees......................................... 24
11.13 CPC Employees............................................... 24
11.14 Effective Date.............................................. 24
11.15 Physician Extenders......................................... 24
11.16 Adjustments................................................. 24
12. GENERAL PROVISIONS............................................ 24
12.1 Independent Contractor...................................... 24
12.2 Proprietary Property........................................ 25
12.3 Cooperation................................................. 25
12.4 Licenses, Permits and Certificates.......................... 25
12.5 Compliance with Rules, Regulations and Laws................. 25
12.6 Generally Accepted Accounting Principles (GAAP)............. 26
12.7 Notices..................................................... 26
12.8 Attorneys' Fees............................................. 26
12.9 Severability................................................ 27
12.10 Arbitration................................................. 27
12.11 Construction of Agreement................................... 27
12.12 Assignment and Delegation................................... 27
12.13 Confidentiality............................................. 27
12.14 Waiver...................................................... 27
12.15 Headings.................................................... 27
12.16 No Third Party Beneficiaries................................ 27
12.17 Time is of the Essence...................................... 27
12.18 Modifications of Agreement for Prospective Legal Events..... 27
12.19 Whole Agreement; Modification............................... 28
<PAGE>
SERVICE AGREEMENT
This Service Agreement ("Agreement") dated March 12, 1996, among
ProMedCo of Cullman, Inc., an Alabama corporation ("ProMedCo") which is an
affiliate of ProMedCo, Inc., a Texas corporation ("Parent"), Parent and Cullman
Primary Care, P.C., an Alabama Professional Corporation (`CPC`).
RECITALS:
WHEREAS, CPC is a primary care group medical practice in Cullman,
Alabama, which provides professional medical care to the general public;
WHEREAS, ProMedCo is in the business of owning certain assets of and
managing and administering medical clinics, and providing non-professional
support services to and furnishing medical practices with the necessary
facilities, equipment, personnel, supplies and support staff;
WHEREAS, pursuant to a Stock Purchase Agreement dated of even date
hereof, to which ProMedCo, Inc. and Cullman Family Practice, P.C. are parties
(the "CFP Stock Purchase Agreement"), ProMedCo agreed to purchase all of the
shares of capital stock of Cullman Family Practice, P.C.("UP");
WHEREAS, pursuant to a Stock Purchase Agreement dated of even date
hereof, to which ProMedCo, Inc. and Family Medical Clinic P.C., an Alabama
corporation, are parties (the `FMC Stock Purchase Agreement"), ProMedCo agreed
to purchase all of the shares of capital stock of Family Medical Clinic, P.C.
("FMC");
WHEREAS, subject to the terms and conditions hereof, CPC desires to
engage ProMedCo to provide to CPC management services, facilities, personnel,
equipment and supplies necessary to operate the clinic (as defined herein) and
ProMedCo desires to accept such engagement;
WHEREAS, the basis for the financial considerations provided in this
Agreement are derived from the revenues generated by the medical practice of
CPC, such revenues having been documented by CPC and delivered to ProMedCo prior
to the formulation and agreement of such aforementioned financial
considerations; and
WHEREAS, Parent desires to enter into this Agreement for purposes of
guaranteeing the obligations of ProMedCo hereunder;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, CPC and ProMedCo hereby agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide CPC
with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. CPC shall be
responsible, with ProMedCo's assistance, for the recruitment and hiring of
physicians, Technical Employees and all issues related to patient care and
documentation thereof. ProMedCo shall neither exercise control over nor
interfere with the physician-patient relationship, which shall be maintained
strictly between the physicians of CPC and their patients.
1.2 CPC's Matters. CPC shall maintain sole discretion and authority
over the financial matters relative to its own professional corporation. It
shall set compensation levels for CPC Employees. CPC will also be responsible
for all other matters pertaining to the operation of CPC, including, but not
limited to, accounting, tax planning, and tax preparation which shall remain the
sole responsibility of CPC and the individual physician shareholders.
1.3 Patient Referrals. The parties agree that the benefits to CPC do
not require, are not payment for, and are not in any way contingent upon the
<PAGE>
admission, referral or any other arrangement for the provision of any item or
service offered by ProMedCo to any of CPC's patients in any facility or
laboratory controlled, managed or operated by ProMedCo.
2. POLICY COUNCIL
2.1 Formation and Operation of the Policy Council. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the Clinic. The Policy Council shall
consist of eight (8) members. ProMedCo shall designate, at its sole discretion,
four (4) members of the Policy Council. Members of the Policy Council designated
by either party shall be entitled to attend and vote by proxy at any meetings of
the Policy Council so long as at least two (2) representatives of such party is
present in person. CPC at its sole discretion shall designate four (4) members.
Except as may otherwise be provided, the act of a majority of the members of the
Policy Council shall be the act of the Policy Council.
2.2 Duties and Responsibilities of the Policy Council. During the term
of this Agreement, the Policy Council shall have the following duties and
responsibilities.
2.2.1 Physician Hiring. The Policy Council, with information and
analysis provided by ProMedCo, shall determine the number and type of physicians
required for the efficient operation of the Clinic; provided, however, that CPC
shall make the final determination as to the individual physicians to be hired
to fill such positions. The approval of ProMedCo shall be required for any
variations to the restrictive covenants in any physician employment contract.
The Policy Council shall approve all physician recruiting.
2.2.2 Patient Fees. in consultation with. CPC and ProMedCo, the
Policy Council shall review and adopt the fee schedule for all physician and
ancillary services rendered by the Clinic.
2.2.3 Administrator. The selection and retention of the Administrator
pursuant to Section 3.1 shall be subject to the reasonable approval of the
Policy Council. If CPC is dissatisfied with the services provided by the
Administrator, CPC shall refer the matter to the Policy Council. ProMedCo and
Policy Council shall in good faith determine whether the performance of the
Administrator could be brought to acceptable levels through counsel and
assistance, or whether the Administrator should be terminated. ProMedCo shall
have the ultimate authority to terminate the Administrator.
2.2.4 Ancillary Services. The Policy Council shall approve Clinic
provided ancillary services based upon the pricing, access to and quality of
such services.
2.2.5 Provider and Payor Relationships. The Policy Council shall make
the decisions regarding the establishment and maintenance of relationships with
institutional health care providers and payors. The Policy Council shall be
responsible for approving the allocation of capitation risk pools between the
professional and institutional components of these pools to the extent
applicable under a payor agreement. ProMedCo and CPC shall use actuarial data
from a nationally recognized actuarial firm as agreed to by both parties, for
the purposes of allocating capitation funds, for those professional services
provided directly by CPC.
2.2.6 Capital Improvements and Expansion. The Policy Council shall
determine the priority for any renovation, expansion plans and major equipment
expenditures with respect to the Clinic based upon economic feasibility,
physician support, productivity and market conditions. Any capital expenditure
in excess of $10,000 shall require the approval of the Policy Council.
<PAGE>
2.2.7 Annual Budgets. AR annual capital and operating budgets prepared
by ProMedCo, as set forth in Section 3, shall be subject to the review and
approval of the Policy Council, provided, however, ProMedCo shall have final
approval of any capital required by ProMedCo.
2.2.8 Strategic Planning. The Policy Council, with the assistance of
ProMedCo, shall develop long-term strategic planning objectives.
2.2.9 Exceptions to Inclusion in the Net Revenue Calculation. The
exclusion of any revenue from Net Revenue, whether now or in the future, shall
be subject to the approval of the Policy Council.
2.2.10 Advertising. AR advertising, marketing, and public relations
shall be subject to the prior review and approval of the Policy Council.
2.2.11 Grievance Issues. Subject to the provisions of Section 1.2 of
this Agreement, the Policy Council shall consider and make final decisions
regarding grievances pertaining to matters not specifically addressed in this
Agreement as referred to it by CPC's board or ProMedCo.
3. OBLIGATIONS OF PROMEDCO
During the term of this Agreement, ProMedCo shall provide or arrange
for the services set forth in this Section 3, the cost of all of which shall be
included in Clinic Expenses. ProMedCo is hereby expressly authorized to perform
its services in whatever manner it deems reasonably appropriate, in accordance
with policies approved by the Policy Council, and including without limitation,
performance of some functions at locations other than the Clinic Facility. CPC
will not act in a manner which would prevent ProMedCo from efficiently managing
the Clinic Facility operations in a business like manner. CPC, through its CPC
Employees, will provide all medical services. ProMedCo will have no authority,
directly or indirectly, to perform, and will not perform any medical function.
ProMedCo may, however, advise CPC as to the relationship between its performance
of medical functions and the overall administrative and business functioning of
the Clinic.
3.1 Management and Administration. During the term of this Agreement,
CPC hereby appoints ProMedCo as the sole and exclusive manager and administrator
of all non-medical functions and services related to CPC's services at the
Clinic. CPC shall perform all medical services, and ProMedCo shall have no
authority, directly or indirectly, to perform, and will not perform any medical
function. ProMedCo may, however, advise CPC as to the relationship between its
performance of medical functions and the overall administrative and business
functioning of its practice. Without limiting the generality of the foregoing,
ProMedCo shall provide the following administrative, management and marketing
services as may be required in conjunction with CPC's services at the Clinic.
ProMedCo shall hire and supervise an Administrator, subject to the reasonable
approval of the Policy Council, to manage and administer all of the day-to-day
business functions of ProMedCo, including without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of annual
budgets. Annually and at least thirty (30) days prior to the commencement of
each fiscal year, ProMedCo shall prepare and deliver to CPC capital and
operating budgets reflecting in reasonable detail anticipated revenues and
expenses, sources and uses of capital for growth of CPC's practice and Clinic
services.
3.1.2 Financial Statements. ProMedCo shall prepare monthly and fiscal
year unaudited financial statements containing a balance sheet and a statement
of income for Clinic operations, which shall include Net Clinic Revenues and
Clinic Expenses, which shall be delivered to CPC within thirty (30) days after
the close of each calendar month. The fiscal year statement shall be reviewed by
a certified public accountant as selected by ProMedCo in connection with the
audit of the financial statements of Parent. If CPC desires an audit in
<PAGE>
addition to the audit provided by ProMedCo, such an audit would be at CPC's
expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Physician Extenders and Technical Employees. ProMedCo shall determine and cause
to be paid the salaries, fringe benefits and any sums for income taxes,
unemployment insurance, social security taxes or any other withholding amounts
required by applicable law or governmental authority, of all such personnel.
Such personnel shall be under the direction, supervision and control of
ProMedCo, with those personnel performing patient care services subject to the
professional supervision of CPC. If CPC is dissatisfied with the services of any
person, CPC shall consult with ProMedCo. If CPC desires that such person be
terminated, then, unless ProMedCo shall in good faith determine that the
performance of that employee is likely to be brought to acceptable levels
through counsel and assistance, such employee shall be terminated. AR of
ProMedCo's obligations regarding staff shall be governed by the overriding
principle and goal of providing high quality medical care.
3.1.4 Quality Assurance. ProMedCo will assist CPC in fulfilling its
obligation to its patients to maintain high quality medical and professional
services, including patient satisfaction programs, employee education, outcomes
analysis, clinical protocol development and to implement a risk management
program.
3.1.5 Facilities and Equipment. ProMedCo will ensure the proper
cleanliness of the premises, maintenance and cleanliness of the equipment,
furniture and furnishings located on the premises.
3.1.6 Inventory Control and Purchasing Supplies. ProMedCo shall order
and purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which ProMedCo shall reasonably deem to be necessary in
the operation of the Clinic, to deliver quality Clinic services in a cost
effective manner.
3.1.7 Managed Care Contracting. ProMedCo will be responsible for
marketing, negotiation, and administering all managed care contracts, as well as
providing necessary actuarial and utilization data for these managed care
contracts, subject to the provisions of Section 2.2.5.
3.1.8 Billing and Collections. ProMedCo shall bill patients and collect
all fees for services performed inside or outside the Clinic Facility or arrange
for such billing and collection. CPC hereby appoints ProMedCo, for the term
hereof, to be its true and lawful attorney-in-fact for the following purposes
(i) to bill patients in CPC's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in CPC's name and on its behalf, (iii) to
receive payments from Blue Cross and Blue Shield, Medicare, Medicaid, payments
from health plans, and all other third party payors; (iv) to receive the cash
proceeds of any accounts receivable; (v) to take possession of and endorse in
the name of CPC (and/or in the name of an individual physician, such payment
intended for purpose of payment of a physician's bill) any notes, checks, money
orders, insurance payments and other instruments received in payment of accounts
receivable; and (v) in accordance with policies adopted by the Policy Council,
to' initiate legal proceedings in the name of CPC to collect any accounts and
monies owed to the Clinic, to enforce the rights of CPC as creditors under any
contract or in connection with the rendering of any service, and to contest
reduced payments and denials by governmental agencies (or its fiscal
intermediaries) as third-party payors. AR Adjustments, as hereinafter defined,
made for uncollectible accounts, professional courtesies and other activities
that do not generate a collectible fee shall be done in a reasonable and
consistent manner acceptable to ProMedCo's independent certified public
accountants.
3.1.9 Deposit of Net Clinic Revenues. During the term of this
Agreement, an Net Clinic Revenues collected resulting from the operations of
<PAGE>
the Clinic shall be deposited directly into a bank account of which CPC shall be
the owner ("Account"). ProMedCo and CPC shall maintain their accounting records
in such a way as to clearly segregate Net Clinic Revenues from other funds of
ProMedCo or CPC. CPC hereby appoints ProMedCo as its true and lawful
attorney-in-fact to deposit in the Account all revenues collected. CPC
covenants, and shall cause all CPC Employees to covenant, to forward any
payments received with respect to Net Clinic Revenues for services provided by
CPC and CPC Employees to ProMedCo for deposit. ProMedCo shall have the right to
withdraw funds from the Account and all owners of the Account shall execute a
revocable standing transfer order ("Transfer Order") under which the bank
maintaining the Account shall periodically transfer the entire balance of the
Account to a separate bank account owned solely by ProMedCo ("ProMedCo
Account"). CPC and ProMedCo hereby agree to execute from time to time such
documents and instructions as shall be required by the bank maintaining the
Account and mutually agreed upon to effectuate the foregoing provisions and to
extend or amend such documents and instructions. Any action by CPC that
interferes with the operation of this Section, including, but not limited to,
any failure to deposit or have ProMedCo deposit any Net Clinic Revenues into the
Account, any withdrawal of any funds from the Account not authorized by the
express terms of this Agreement, or any revocation of or attempt to revoke the
Transfer Order (otherwise than upon expiration or termination of this
Agreement), will constitute a breach of this Agreement and will entitle
ProMedCo, in addition to any other remedies that it may have at law or in
equity, to seek a court ordered assignment of the following rights:
(a) To collect accounts receivable resulting from the provision of
services to patients of CPC and its CPC Employees;
(b) To receive payments from patients, third party payor plans,
insurance companies, Medicare, Medicaid and all other payors, with respect to
services rendered by CPC and its CPC Employees;
(c) To take possession of and endorse any notes, checks, money orders,
insurance payments and any other instruments received as payment of such
accounts receivable; and
(d) To collect all revenues of the Clinic.
3.1.10 Management Information Systems/Computer Systems. ProMedCo
shall supervise and provide information systems that are necessary and
appropriate for the operation of the Clinic.
3.1.11 Legal and Accounting Services. ProMedCo shall arrange for or
render to CPC such business, legal and financial management consultation and
advice as may be reasonably required or requested by CPC and directly related to
the operations of the Clinic. ProMedCo shall not be responsible for rendering
any legal or tax advice or services or personal financial services to CPC or any
employee or agent of CPC.
3.1.12 Negotiation and Payment of Premiums For All Insurance Products
Held By CPC. ProMedCo shall negotiate for and cause premiums to be paid with
respect to the insurance provided for in Section 8. Premiums and deductibles
with respect to such policies shall be a Clinic Expense.
3.1.13 Physician Recruiting. ProMedCo shall assist CPC in recruiting
additional physicians, as approved by the Policy Council, carrying out such
administrative functions as may be appropriate such as advertising for and
identifying potential candidates, checking credentials, and arranging
interviews; provided, however, CPC shall interview and make the ultimate
decision as to the suitability of any physician to become associated with the
Clinic. AU physicians recruited by ProMedCo and accepted by CPC shall be the
sole employees of CPC to the extent such physicians are hired as employees. Any
expenses incurred in the recruitment of physicians, including, but not limited
to, employment agency fees, relocation and interviewing expenses shall be Clinic
Expenses.
<PAGE>
3.1.14 Supervision of Ancillary Services. ProMedCo shall operate and
supervise such ancillary services as approved by the Policy Council.
3.1.15 Strategic Planning Assistance. ProMedCo shall assist with and
implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. As provided in Section 2.2.
10, this would be subject to the review and approval of the Policy Council. The
program shall be conducted in compliance with applicable laws and regulations
governing professional advertising and in accordance with the standards and
medical ethics of the American Medical Association and the Alabama Medical
Association.
3.1.17 Files and Records. ProMedCo shall supervise and maintain custody
of all files and records relating to the operation of the Clinic, including but
not limited to accounting, billing, patient medical records, and collection
records. Patient medical records shall at all times be and remain the property
of CPC. The management of all files and records shall comply with applicable
state and federal statutes. ProMedCo shall use its good faith efforts to
preserve the confidentiality of patients medical records and use information
contained in such records only for the limited purpose necessary to perform the
services set forth herein, provided, however, in no event shall a breach of said
confidentiality be deemed a default under this Agreement.
3.2 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting CPC in adding additional
office based procedures, ancillary services and adding additional satellite
office(s) as determined by the Policy Council to be beneficial to the Clinic.
ProMedCo will also assist in recruiting new physicians and developing
relationships and affiliations with other physicians, hospitals, networks, HMOs,
etc. To assist in the continued growth and development of the Clinic, ProMedCo
may acquire other physician practices. CPC will cooperate with ProMedCo in such
expansion efforts and use its good faith efforts to assist ProMedCo with respect
thereto. Without limiting the generality of the foregoing, CPC will not enter
into any agreements with respect to any such matter without the prior consent of
ProMedCo.
3.3 Events Excusing Performance. ProMedCo shall not be liable to CPC
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which ProMedCo has no control for so long as such events
continue, and for a reasonable amount of time thereafter.
3.4 Compliance With Applicable Laws. ProMedCo shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
3.5 Guaranty. Parent hereby guarantees the performance by ProMedCo of
ProMedCo's obligations under this Agreement.
3.6 Minimum Net Worth. During the Term of the Service Agreement Parent
shall maintain a minimum net worth of Two Million Five Hundred Thousand Dollars
($2,500, 000). The term "Net Worth" shall mean consolidated shareholders equity
of Parent and its subsidiaries, including redeemable preferred stock, less
liabilities determined in accordance with generally accepted accounting
principles. Parent shall notify CPC in writing in the event its Net Worth falls
below this minimum and shall provide CPC semiannually a letter evidencing
compliance with this Section 3.6.
4. OBLIGATIONS OF CPC
4.1 Professional Services. CPC shall provide professional services to
patients in compliance at all times with ethical standards, laws and
regulations applying to the medical profession. CPC shall also ensure that
<PAGE>
each physician associated with CPC is licensed by the State of Alabama. In the
event that any disciplinary actions or medical malpractice actions are initiated
against any such physician, CPC shall immediately inform the Administrator of
such action and the underlying facts and circumstances. CPC shall carry out a
program to monitor the quality of medical care practiced, with ProMedCo's
assistance. CPC will cooperate with ProMedCo in taking steps to resolve any
utilization review or quality assurance issues which may arise in connection
with the Clinic.
4.2 Employment Of Physician Employees. CPC shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Shareholders and Physician Employees, although at
the request of CPC, ProMedCo shall consult with CPC regarding such matters. CPC
shall enforce formal employment agreements from each of its Physician
Shareholders and Physician Employees, hired or contracted, substantially in the
form attached hereto as Exhibit "C".
4.3 Non-Clinic Expenses. CPC shall be solely responsible for the
payment of all costs and expenses incurred in connection with CPC's operations
which are not Clinic Expenses, including, but not limited to, accounting and
other professional services fees, membership in professional associations,
continuing medical education, and licensing and board certification fees, plus
salaries and benefits, retirement plan contributions, health, disability and
life insurance premiums, payroll taxes for its physicians and Physician
Extenders.
4.4 Medical Practice. CPC shall use and occupy the Clinic Facility
exclusively for the practice of medicine, and shall comply with all applicable
local rules, ordinances and all standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Clinic Facility shall be conducted solely by physicians associated with CPC
as employee or independent contractor, and no other physician or medical
practitioner shall be permitted to use or occupy the Clinic Facility without the
prior written consent of ProMedCo.
4.5 Professional Insurance Eligibility. CPC shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Shareholders and Physician Employees are insurable, and participating
in an ongoing risk management program.
4.6 Employment Of Non-Physician Employees. Technical Employees will
remain in the employ of CPC. As provided in Section 3.1.3., ProMedCo will
provide payroll and administrative services for such Technical Employees, and
such Technical Employees, as provided for under Section IL 6. 1, shall be a
Clinic Expense.
4.7 Events Excusing Performance. CPC shall not be liable to ProMedCo
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, death
or Total Disability (as hereinafter defined) of any physician, or other events
over which CPC has no control for so long as such events continue, and for a
reasonable amount of time thereafter.
4.8 Compliance With Applicable Laws. CPC shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4.9 Restrictions on Use of Clinic Facility. CPC shall at all times
during the term of this Agreement comply with the policy of ProMedCo stated in
Section 6.2 herein.
4.10 CPC Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, CPC has in effect the
employee welfare benefit plans (as such term is defined in Section 3(l) of the
<PAGE>
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and the
employee pension benefit plans (as such term is defined in Section 3(2) of
ERISA), as set forth in Exhibit "D" to this Agreement.
(b) CPC shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo. Except as otherwise required by law, CPC shall not materially amend,
freeze, terminate or merge any CPC Plan without the express written consent of
ProMedCo. CPC agrees to make such changes to CPC's Plan, including the freeze,
termination, or merger of such CPC Plan, as may be approved by ProMedCo.
(c) Expenses incurred in connection with any CPC Plan or other employee
benefit plan maintained by CPC, including without limitation the compensation of
counsel, accountants, corporate trustees and other agents shall be included in
Clinic Expenses.
(d) The contribution and administration expenses for Physician
Shareholders and Physician Employees shall be an expense of CPC. ProMedCo shall
make contributions or payments with respect to any CPC Plan, as a Clinic
Expense, on behalf of eligible Technical Employees.
(e) ProMedCo shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its employees.
ProMedCo shall have the sole and exclusive authority to appoint the trustee,
custodian, and administrator of any such plan.
4.11 Physician Powers of Attorney. CPC shall require all CPC Employees
to execute and deliver to ProMedCo powers of attorney, satisfactory in form and
substance to ProMedCo and CPC, appointing ProMedCo as attorney-in-fact for each
for the purposes set forth in Sections 3.1.8 and 3.1.9, which powers of attorney
shall immediately terminate upon termination of this Agreement.
4.12 Spokesperson. CPC shall serve as@ spokesperson for ProMedCo,
Parent and Clinic sales and development activities. The parties agree that Dr.
Gregory L. Meiman and Dr. Rick Gober, or such other Physician Shareholders as
the Policy Council shall appoint, shall serve in this capacity on behalf of CPC.
4.13 Physician Guarantees. AU CPC shareholders(Drs. Meiman, Bostick,
Montgomery, Holowach, Schendel, Gober, Machen, Brumleve, and Johnson) agree to
the terms and conditions of this Agreement as evidenced by their signature on
the Agreement. These physicians agree to personally guarantee the performance of
the obligations of CPC under this Agreement for a period of seven (7) years from
the effective date of this Agreement; provided, however, that in the event any
of the above named physicians employment with CPC is terminated due to death or
Total Disability, then such physician's guarantee shall terminate immediately
and provided further, however, in the event this Agreement is terminated in
accordance with Section 1 0 hereof then such physician's guarantee shall
terminate upon such termination of this Agreement.. For purposes of this
Agreement, "Total Disability" shall mean the physician's inability to perform
the normal duties of his employment by CPC as a physician. If there is any
disagreement between CPC and the physician as to the disability or
non-disability of the physician or as to the effective date of any such
disability, the same shall be determined after an examination of the physician
by an examining physician (the "Examining Physician") to be selected by CPC and
ProMedCo. The physician shall be available for such an examination at any
reasonable time. The determination of such Examining Physician selected by the
Employer shall be conclusive evidence of the disability or the nondisability of
the physician and of the date any such disability began. If the physician should
not cooperate in the examination by such physician selected by CPC and ProMedCo,
then, for purposes hereof, the determination of the physician's disability or
nondisability and the date any such disability began shall be made by CPC and
ProMedCo in their sole
<PAGE>
discretion.
5.RECORDS
5.1 Patient Records. Upon termination of this Agreement, CPC shall
retain all patient medical records maintained by CPC or ProMedCo in the name of
CPC. CPC shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by CPC.
5.2 Other Records. All records relating in any way to the operation
of the Clinic which are not the property of CPC under the provisions of Section
5.1 above, shall at an times be the property of ProMedCo.
5.3 Access to Records. During the term of this Agreement, and
thereafter, CPC or its designee shall have reasonable access upon reasonable
notice during normal business hours ProMedCo's financial records, including, but
not limited to, records of collections, expenses and disbursements as kept by
ProMedCo in performing ProMedCo's obligations under this Agreement, and CPC may
copy any or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO
6.1 Facilities. ProMedCo hereby agrees to provide or arrange as a
Clinic Expense the offices and facilities for Clinic operations, including but
not limited to, the Clinic Facility and all costs of repairs, maintenance and
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, related real or personal property lease cost payments and
expenses, taxes and insurance, refuse disposal and all other costs and expenses
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and CPC agree that CPC, as an independent contractor,
is a separate organization that retains the authority to direct the medical,
professional, and ethical aspects of its medical practice. If a Physician
Shareholder or a Physician Employee performs abortion procedures in any
facility, ProMedCo shall not receive any ProMedCo Distribution from the revenue
generated from such procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to CPC. CPC and ProMedCo agree that the compensation set
fourth herein is being paid to CPC in lieu of charges which CPC or its Physician
Shareholders or CPC Employees would otherwise earn and retain for the provision
of medical services to patients of their medical practice and which CPC or the
Physician Shareholders or CPC Employees would otherwise bill and retain for
their own account. As compensation for its services rendered, each month
ProMedCo shall pay CPC the amount of the CPC Distribution. All Net Clinic
Revenues after deduction of Clinic Expenses, and the ProMedCo Distribution,
shall be referred to as the " CPC Distribution."
7.2 Distribution. ProMedCo shall pay to CPC the CPC Distribution. Some
amounts may need to be estimated, with adjustments made as necessary the
following month. Any audit adjustments would be made after completion of the
fiscal year audit.
7.3 Clinic Expenses. Commencing on the Effective Date, ProMedCo shall
pay an Clinic Expenses as they fall due, provided, however, that ProMedCo may,
in the name of and on behalf of CPC, contest in good faith any claimed Clinic
Expenses as to which there is any dispute regarding the nature, existence or
validity of such claimed Clinic Expenses. ProMedCo hereby agrees to indemnify
and hold CPC harmless from and against any liability, loss, damages, claims,
causes of action and reasonable expenses of CPC (including, without limitation,
reasonable attorney fees) resulting from the contest of any Clinic
<PAGE>
Expenses.
7.4 Accounts Receivable. Except for the first month of this Agreement,
on approximately the 15th day of each month, ProMedCo shall purchase the
accounts receivable of CPC arising during the previous month, by payment of
cash, or other readily available funds into an account of CPC. The consideration
for the purchase shall be an amount equal to the CPC Distribution for such
previous month. Although it is the intention of the parties that ProMedCo
purchase and thereby become owner of the accounts receivable of CPC, in case
such purchase shall be ineffective for any reason, CPC, as of the Effective Date
of this Agreement, grants and shall cause each CPC Employee to grant to ProMedCo
a first priority lien on and security interest in and to any and all interest of
CPC and such CPC Employees in any accounts receivable generated by the medical
practice of CPC and the CPC Employees or otherwise generated through the
operations of the Clinic during the term of this Agreement, and all proceeds
with respect thereto,
<PAGE>
to secure the performance of CPC under the terms of this Agreement including,
but not limited to the transfer of funds in accordance with Section 3.1.9, and
this Agreement shall be deemed to be a security agreement to the extent
necessary to give effect to the foregoing. In addition, CPC shall cooperate with
ProMedCo and execute and deliver, and cause each CPC Employee to execute and
deliver, all reasonably necessary documents in connection with the pledge of
such accounts receivable to ProMedCo or at ProMedCo's option, its lenders. All
collections in respect of such accounts receivable shall be deposited in a bank
account in accordance with Section 3.1.9. To the extent CPC or any CPC Employee
comes into possession of any payments in respect of such accounts receivable,
CPC or such CPC Employee shall direct such payments to be deposited in
accordance with Section 3.1.9.
8. INSURANCE AND INDEMNITY
8.1 Insurance to Be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will purchase and maintain, as a Clinic Expense,
comprehensive professional liability insurance for all professional
non-physician employees of ProMedCo and CPC with limits as determined reasonable
by ProMedCo in its national program, comprehensive general liability insurance
and property insurance covering the Clinic Facility and operations.
8.2 Insurance to Be Maintained by CPC. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 4.5 and Section 8. 1, CPC shall maintain comprehensive
professional liability insurance with limits of not less than $1,000,000 per
claim and with aggregate policy limits of not less than $3,000,000 per physician
and a separate limit for CPC, the cost of which shall be a Clinic Expense. CPC
shall be responsible for all liabilities (including without limitation
deductibles and excess liabilities) not paid within the limits of such policies.
ProMedCo shall have the option, with Policy Council approval, of providing such
professional liability insurance through an alternative program, provided such
program meets the requirements of the Insurance Commissioner of the State of
Alabama.
8.3 Tail Insurance Coverage. Unless covered by an "occurrence"
malpractice policy, CPC will cause each individual physician associated with the
Clinic to enter into an agreement with CPC that upon termination of such
physician's relationship with CPC, for any reason, tail insurance coverage will
be purchased by the individual physician. Such provisions may be contained in
employment agreements, restrictive covenant agreements or other agreements
entered into by CPC and the individual physicians, and CPC hereby covenants with
ProMedCo to enforce such provisions relating to the tail insurance coverage or
to provide such coverage at the expense of CPC.
8.4 Additional Insured. CPC and ProMedCo agree to use their good faith
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at ProMedCo's expense.
8.5 Indemnification. CPC shall indemnify, hold harmless and defend
ProMedCo, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of medical services or any other acts or omissions by CPC and/or its
shareholders, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by an CPC Employee,
which claim arises out of such CPC Employees' employment relationship with CPC
or as a result of services performed by such CPC Employee, and which claim would
typically be covered by worker's compensation and ProMedCo shall indemnify, hold
harmless and defend CPC, its officers, directors and employees, from and against
any and all liability, loss, damage, claim, causes of action, and expenses
(including reasonable attorneys' fees), to the extent not covered by insurance,
caused or asserted to have been caused, directly or indirectly, by or as a
result of the performance of any acts or omissions by ProMedCo and/or its
shareholders, agents, employees and/or subcontractors (other than CPO during the
term of this
<PAGE>
Agreement including, but not limited to, the purchase of accounts receivable of
CPC pursuant to Section 7.4 provided any such liability is not incurred as a
result of any intentional act or failure to act, on the part of CPC or any
director, officer, Shareholder, employee or agent thereof.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if CPC operates an active medical practice to which the
physicians associated with CPC devote their full time and attention. To that
end:
9.1 Restrictive Covenants by CPC. During the term of this Agreement,
CPC shall not establish, operate or provide physician services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by CPC pursuant to this Agreement anywhere within the
Restricted Area as defined within Exhibit C without the consent of ProMedCo.
9.2 Restrictive Covenants By Current Physician Shareholders and
Physician Employees. CPC shall enforce employment agreements, substantially in
the form of Exhibit B and in a form reasonably satisfactory to ProMedCo, with
its current Physician Shareholders and Physician Employees pursuant to which the
Physician Shareholders and Physician Employees agree that (a) during the term of
their employment agreement not to establish, operate or provide physician
services at any medical office, clinic or outpatient and/or ambulatory treatment
or diagnostic facility providing services substantially similar to those
provided by CPC pursuant to this Agreement within the Restricted Area as defined
within Exhibit C and (b) if the termination of the employment agreement occurs
prior to the expiration of the initial seven (7) year term of the employment
agreement that for a period of twenty-four (24) months after the date of
termination of his employment with CPC, the Physician Shareholders and Physician
Employees shall not, either directly as a partner, employer,' agent, independent
contractor, employee or indirectly through a corporation, partnership,
affiliate, subsidiary or otherwise, (i) enter into a provider agreement or other
contract with, nor provide any medical services in connection with or pursuant
to any such provider agreement or other contract, any third party payor having a
provider agreement or other contract with CPC or any other employee of CPC at
any time within 120 days prior to and including the date of Physician
Shareholder's or Physician Employee's termination of employment with CPC or (ii)
solicit, induce or attempt to induce any patient of CPC to become a patient of
such Physician Shareholder or Physician Employee or any partner, employee or
affiliate of such Physician Shareholder or Physician Employee. As used herein, a
third party payor shall include, without limitation, any employer, coalition of
employers, union or similar organization maintaining a health benefit plan for
the benefit of its employees or members, any insurance company, any Blue
Cross/Blue Shield plan, any health maintenance organization, preferred provider
organization, independent physicians association, physicians hospital
organization, or similar entity or arrangement which contracts for physician
services on behalf of its employees or members or other third party payors.
However, as used herein, the term "third party payor" shall not include the
federal Medicare program or the state Medicaid program, although such terms
shall include any health maintenance organization providing Medicare or Medicaid
benefits to plan participants. This provision shall be limited in its
application to the Restricted Area as defined within Exhibit C. The employment
agreements shall have a term of seven (7) years ("employment agreement term" as
used within this Section 9 shall mean a time period of seven (7) years),
commencing on the effective date of the CFP Stock Purchase Agreement and the FMC
Stock Purchase Agreement. ProMedCo shall have third-party rights to enforce such
agreements.
9.3 Restrictive Covenants By Future Physician Employees. CPC shall
obtain and enforce formal employment agreements from each of its future
Physician Shareholders and Physician Employees, pursuant to which such
physicians agree (a) during the term of their employment agreement not to
establish, operate or provide physician services at any medical office, clinic
or outpatient and/or ambulatory treatment or diagnostic facility providing
services substantially
<PAGE>
similar to those provided by CPC pursuant to this Agreement within the
Restricted Area as defined within Exhibit C and (b) that for a period of
twenty-four (24) months after the date of termination of his employment with
CPC, the Physician Shareholders and Physician Employees shall not, either
directly as a partner, employer, agent, independent contractor, employee or
indirectly through a corporation, partnership, affiliate, subsidiary or
otherwise, (i) enter into a provider agreement or other contract with, nor
provide any medical services in connection with or pursuant to any such provider
agreement or other contract, any third party payor having a provider agreement
or other contract with CPC or any other employee of CPC at any time within 120
days prior to and including the date of Physician Shareholder's or Physician
Employee's termination of employment with CPC or (ii) solicit, induce or attempt
to induce any patient of CPC to become a patient of such Physician Shareholder
or Physician Employee or any partner, employee or affiliate of such Physician
Shareholder or Physician Employee. As used herein, a third party payor shall
include, without limitation, any employer, coalition of employers, union or
similar organization maintaining a health benefit plan for the benefit of its
employees or members, any insurance company, any Blue Cross/Blue Shield plan,
any health maintenance organization, preferred provider organization,
independent physicians association, physicians hospital organization, or similar
entity or arrangement which contracts for physician services on behalf of its
employees or members or other third party payors. However, as used herein, the
term 'third party payor" shall not include the federal Medicare program or the
state Medicaid program, although such terms shall include any health maintenance
organization providing Medicare or Medicaid benefits to plan participants. This
provision shall be limited in its application to the Restricted Area as defined
within Exhibit C. The employment agreements shall have a term of five (5) years.
ProMedCo shall have third-party rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The employment agreement terms described in Sections 9.2 and 9.3 of this
Agreement will provide that the Physician Shareholders and Physician Employees
(existing or future) may be released from the restrictive covenants described in
Sections 9.2(b) and (9.3(b) contained in their employment agreement by paying
Liquidated Damages in the amount of the lesser of Two Hundred Thousand Dollars
($200,000) or one (1) times such physician's income, as reported to the Internal
Revenue Service for the previous twelve (12) months. In addition, if a Physician
Shareholder or Physician Employee received any ProMedCo consideration pursuant
to the CFP Stock Purchase Agreement or the FMC Stock Purchase Agreement, and
said Physician Shareholder or Physician Employee terminates their employment
agreement with CPC for any reason (other than death or disability) prior to the
seventh anniversary of the CFP Stock Purchase Agreement and the FMC Stock
Purchase Agreement, or is terminated for cause by CPC prior to the seventh
anniversary of the CFP Stock Purchase Agreement and the FMC Stock Purchase
Agreement, then said Physician Shareholder or Physician Employee will forfeit
any Unredeemed Equity, as hereinafter defined, that was yet to be received
pursuant to the CFP Stock Purchase Agreement or the FMC Stock Purchase
Agreement, as the case may be. Such payments shall be made to ProMedCo by CPC
simultaneously with the payment by the physician to CPC. Such payment shall be
first applied to all costs incurred by ProMedCo in the enforcement of the
employment agreement for that departing physician and in recruiting a
replacement physician for that departing physician. The remainder, if any, shall
become an additional service fee to be paid to ProMedCo pursuant to Section 7.
The accounting treatment of such funds shall be consistently applied and
approved by ProMedCo's independent certified public accountants and the Policy
Council.
9.5 Restrictive Covenants of ProMedCo. During the term of this
Agreement, ProMedCo shall not establish, operate or enter into a service
agreement with, or provide the same services as those provided under this
Agreement to, any medical practice within the Restricted Area set forth in
Exhibit C, without the consent of CPC.
9.6 Enforcement. ProMedCo and CPC acknowledge and agree that since a
remedy at law for any breach or attempted breach of the provisions of this
Section 9 shall be inadequate, either party shall be entitled to specific
<PAGE>
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such injunctive or other equitable
relief. If any provision of Section 9 relating to territory described therein
shall be declared by a court of competent jurisdiction to exceed the maximum
time period, scope of activity, restricted or geographical area such court deems
reasonable and enforceable under applicable law, the time period, scope of
activity, restricted and/or area of most restriction deemed to be reasonable and
enforceable by the court shall thereafter be the time period, scope of activity,
restricted and/or area of restriction applicable to the restrictive covenant
provisions in this Section 9. The invalidity or non-enforceability of this
Section 9 in any respect shall not affect the validity or enforceability of the
remainder of this Section 9 or of any other provisions of this Agreement unless
the invalid or non-enforceable provisions materially affect the benefits either
party would otherwise be entitled to receive under this Section 9 or any other
provision of this Agreement.
9.7 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated, the employment
agreement terms contained in this Section 9 shall be null and void and of no
further force or effect.
10. TERM; RENEWAL; TERMINATION
10.1 Term and Renewal. The term of this Agreement shall commence on the date
hereof and shall continue for forty (40) years, after which it shall
automatically renew for 5-year terms unless either party provides the other
party with at least six (6) months but not more than nine (9) months written
notice prior to any renewal date.
10.2 Termination by CPC. CPC may terminate this Agreement as follows:
10.2.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by ProMedCo or Parent, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by ProMedCo, except for the filing of a
petition in involuntary bankruptcy against ProMedCo which is dismissed within 30
days thereafter, CPC may give notice of the immediate termination of this
Agreement.
10.2.2 In the event ProMedCo or Parent shall materially default in the
performance of any duty or obligation imposed upon it by this Agreement and such
default shall continue for a period of 90 days after written notice thereof has
been given to ProMedCo by CPC; or ProMedCo shall fail to remit the payments due
as provided in Section 7 hereof and such failure to remit shall continue for a
period of ten (10) days after written notice thereof, CPC may terminate this
Agreement. Termination of this Agreement pursuant to this Section 10.2.2 by CPC
shall require the affirmative vote of 75% of the Physician Shareholders.
10.2.3 In the event ProMedCo or Parent shall default on any of its
payments due under the Subordinated Convertible Notes pursuant to the CFP Stock
Purchase Agreement or the FMC Stock Purchase Agreement between the parties, and
such failure to remit shall continue for ten (10) business days after written
notice thereof.
10.2.4 During the first five (5) business days following the fifth
anniversary of the Agreement, if CPC and or CPC's Shareholders have not realized
Two Million, Two Hundred Twelve Thousand, Eight Hundred Sixty-Six Dollars
($2,212,866) or such amount as adjusted in accordance with the CFP Stock
Purchase or the FMC Stock Purchase Agreement, as applicable in Value (as defined
below), it may elect to receive Two Million, Two Hundred Twelve Thousand, Eight
Hundred Sixty-Six Dollars ($2,212,866) or such amount as adjusted in accordance
with the CFP Stock Purchase or the FMC Stock Purchase Agreement, as applicable
less any Value received prior to such election.
<PAGE>
1. Value received shall equal the sum of:
Four Hundred Fifty-Six Thousand, Five Hundred Twenty-Two Dollars ($456,522) plus
Value of Stock Received.
Value of Stock Received is defined as the sum of:
The amount received by CPC and/or CPC Shareholders upon the sale of ProMedCo
stock, plus
The Market Value of any shares possessed by CPC and/or CPC Shareholders that is
either: (1) registered or (2) that is eligible to be sold pursuant to Rule 144
2. Within 30 days from the receipt of written notice by CPC of this
election, ProMedCo shall be required to pay to CPC in cash, the amount
calculated above. Simultaneously with such payment, CPC shall deliver the
Subordinated Convertible Notes to ProMedCo, as well as Certificates representing
shares of Stock not included in the calculation of Value Of Stock Received. In
addition, the Agreement shall continue for the remainder of its 40 year term.
3. Should ProMedCo not make this payment, then CPC may terminate the
Agreement.
10.2.5 On the second, fourth and sixth anniversaries of this Agreement
in the event the average annual Distribution Funds for the previous two year
period immediately preceding each such anniversary for CPC is less than
seventy-five percent (75 %) of the Distribution Funds of CFP and FMC, in the
aggregate, for the twelve (12) month period ended December 31, 1995.
10.2.6 Within ten (10) days of receipt of notice from Parent that. it
does not in . meet the requirements of Section 3.6. In the event CPC fails to
terminate this Agreement pursuant to this Section 10.2.6, CPC's right to
terminate this Agreement under this Section 10.2.6 shall be waived and of no
further force or effect.
10.3 Termination by ProMedCo. ProMedCo may terminate this Agreement
as follows:
10.3.1 In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by CPC, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by CPC, except for the filing of a petition in
involuntary bankruptcy against CPC which is dismissed within 30 days thereafter,
ProMedCo may give notice of the immediate termination of this Agreement.
10.3.2 In the event CPC shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement or in the event a
majority of the Physicians Shareholders shall materially default in the
performance of any duty or obligation imposed upon them by this Agreement or by
their employment agreements with CPC, and such default shall continue for a
period of 90 days after written notice thereof has been given to CPC and such
Physician Shareholders by ProMedCo, ProMedCo may terminate this Agreement.
10.3.3 ProMedCo may terminate the Agreement if three (3) or more of the
original physician shareholders (Drs Meiman, Bostick, Montgomery, Holowach,
Schendel, Gober, Machen, Johnson and Brunileve) terminate their Employment
Agreements with CPC during the first seven (7) years of the term of this
Agreement, for reasons other than death or Total Disability, as such term is
defined within Section 4.13.
10.3.4 On the second, fourth and sixth anniversaries of this Agreement
in the event the average annual Distribution Funds for the previous two year
period immediately preceding each such anniversary is less than seventy-five
percent (75
<PAGE>
%) of the Distribution Funds of CFP and FMC, in the aggregate, for the twelve
(12) month period immediately preceding the date of this Agreement.
10.4 Actions After Termination. In the event that this Agreement shall
be terminated, the CPC Distribution and the ProMedCo Distribution shall be paid
through the effective date of termination. In addition, the various rights and
remedies herein granted to the aggrieved party shall be cumulative and in
addition to any others such party may be entitled to by law. The exercise of one
or more rights or remedies shall not impair the right of the aggrieved party to
exercise any other right or remedy, at law. Upon termination of this Agreement,
CPC and the CPC Shareholders shall:
10.4.1 Intangible Assets. Purchase from ProMedCo at book value the
Restrictive Covenants provided for in Section 9 and any other intangible Assets
set forth on the Opening Balance Sheet, as adjusted through the last day of the
month most recently ended prior to the date of such termination in accordance
with GAAP to reflect amortization or depreciation of the Restrictive Covenants
and intangibles, which amortization shall be for a period not in excess of 40
years. For purposes of this Section 10.4.1 "Intangible Assets" shall mean those
Assets other than those Assets described in Sections 10.4.2 - 10.4.5 hereof.
10.4.2 Real Estate. Purchase from ProMedCo all real estate, if any,
associated with the Clinic at the then book value thereof.
10.4.3 Improvements. Purchase all improvements, additions or leasehold
improvements which have been made by ProMedCo and which relate solely to the
performance of its obligations under this Agreement or the properties subleased
by ProMedCo, if any, at book value.
10.4.4 Debts. Assume all ordinary and necessary debt, contracts,
payables and leases which are obligations of ProMedCo and which relate
principally to the performance of its obligations under this Agreement or the
properties subleased by ProMedCo.
10.4.5 Other Tangible Assets. Purchase from ProMedCo at book value all
of the equipment listed as set forth in the CFP Stock Purchase Agreement and the
FMC Stock Purchase Agreement, including all replacements and additions thereto
made by ProMedCo with the approval of the Policy Council pursuant to the
performance of its obligations under this Agreement, and all other tangible
Assets, including, but not limited to inventory, supplies, accounts receivable
less Adjustments and other tangible Assets set forth on the Opening Balance
Sheet, as adjusted through the last day of the month most recently ended prior
to the date of such termination in accordance with GAAP to reflect operations of
the Clinic, depreciation, amortization and other adjustments of Assets shown on
the Opening Balance Sheet.
10.4.6 Stock. Purchase from ProMedCo all shares of capital stock of CFP
and FMC for an amount equal to net book value of CFP and FMC in the aggregate
less the aggregate book value paid in accordance with Section 10.4.1 - 10.4.5
hereof.
10.4.7 Closing of Repurchase Upon Termination by ProMedCo or by CPC
Pursuant to Section 10.2.5 or 10.2.6. CPC and the CPC Shareholders shall pay
cash or may use the Subordinated Convertible Notes issued pursuant to the CFP
Stock Purchase Agreement or the FMC Stock Purchase Agreement as currency for the
repurchase described herein. The value of the Subordinated Convertible Notes for
purposes of repurchase shall be @@, @, less the value of stock received as
defined in Section 10.2.4, but in nicase less than $0. The amount of the
purchase price shall be reduced by the amount of debt and liabilities of
ProMedCo assumed by CPC and shall be reduced by any payment ProMedCo has failed
to make under this Agreement. CPC and any physician associated with CPC shall
execute such documents as may be required to assume the liabilities set forth in
Section 10.4.4. and to remove ProMedCo from any liability with respect to such
repurchased Assets and with respect to any property leased or subleased by
ProMedCo. The closing date for the repurchase shall be determined by CPC, but
<PAGE>
shall in no event occur later than 180 days from the date of the notice of
termination. The termination of this Agreement as provided for in this Section
10 shall become effective upon the closing of the sale of the Assets and CPC
shall be released from the Restrictive Covenants provided for in Section 9 on
the closing date. From and after any termination, each party shall provide the
other party with reasonable access to books and records then owned by it to
permit such requesting party to satisfy reporting and contractual obligations
which may be required of it.
10.4.8 Closing of Repurchase Upon Termination by CPC under Sections
10.2.1 - 10.2.4.
(a) CPC and the CPC Shareholders shall deliver to ProMedCo any
'Unredeemed Equity" received in connection with the CFP Stock Purchase Agreement
or the FMC Stock Purchase Agreement. Unredeemed Equity shall mean any shares of
ProMedCo common stock which remain unsold on the date of termination and the
fair market value of any ProMedCo common stock within ninety (90) days prior to
termination and any principal amount of the Subordinated Convertible Notes which
has not been converted into ProMedCo common stock as of the date of termination.
The delivery of the Unredeemed Equity to ProMedCo shall be deemed to be payment
in full for the repurchase obligations under this Section 10.
(b) For a period of one (1) year after termination of this Agreement by
CPC under Sections 10.2.1 - 10.2.4, ProMedCo and Parent will not provide
services to any medical group substantially similar to those provided under this
Agreement anywhere within the Restricted Area as defined in Exhibit C without
the consent of CPC.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall apply:
11.1 Net Clinic Revenues shall mean all of CPC's gross fees or revenues
recorded each month for services rendered in connection with the Clinic,
including (a) professional medical services furnished to patients by physicians
and Physician Extenders and other fees or income generated in their capacity as
professionals, whether in an inpatient or outpatient setting plus (b)
ancillaries, including medical director fees, global and technical fees from
ancillary services; fees for medical, utilization and quality assurance
management; interest on malpractice reserve funds; and fees for depositions and
expert testimony. The gross fees or revenues shall be reduced by any
Adjustments. Net Clinic Revenues specifically excludes Risk Pool Surpluses and
revenues or compensation not to exceed two nights per month per physician
received by CPC Physician shareholders as a result of the provision of services
at urgent care centers which such physician shareholders are providing at nights
as of the date of this Agreement.
11.2 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenues.
11.3 ProMedCo Distribution shall mean [*]% of Distribution Funds plus a
percentage of Risk Pool Surpluses established by Exhibit A.
11.4 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by CPC and the CPC Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.5 Clinic Facility shall mean the clinic facilities located at 408
Clark Street Northeast, Cullman, Alabama, 35055 and 1948 Alabama Highway 157,
Suite 380, Cullman, Alabama 35055, and any substitute facility or additional
facility location, within the Restricted Area as defined within Exhibit C.
11.6 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
11.6.1 Salaries, benefits (including contributions under any Parent
benefit plan), and other direct costs of all employees of ProMedCo and Technical
Employees attributable to CPC;
11.6.2 Direct costs, including benefits, of all employees or
consultants of Parent or affiliate of ProMedCo who, with approval of the Policy
Council, provides services at or in connection with CPC; provided, however, only
that portion of such employee's or consultant's costs without mark-up by Parent
that is allocable to Clinic will be a Clinic Expense;
11.6.3 Obligations of ProMedCo or Parent under leases or subleases
related to Clinic operations;
11.6.4 Interest Expense on indebtedness reasonably incurred by ProMedCo
or Parent to finance or refinance any of its obligations or services provided
under this Agreement and directly attributable to the Clinic. Interest will be
charged for loans or operating cash advances from Parent; in such event, charges
will be computed at a floating rate that is equal to the current blended
borrowing rate in effect for outside borrowing sources of Parent.
11.6.5 Personal property and intangible taxes assessed against
ProMedCo's assets used in connection with the operation of Clinic commencing on
the date of this Agreement;
11.6.6 Malpractice insurance expenses to the extend extent provided in
Section 8.
11.6.7 Other expenses reasonably incurred by ProMedCo in carrying out
its obligations under this Agreement.
11.6.8 In the event an opportunity arises for additional physicians in
the service area of CPC to become employed by or merge with CPC, and is approved
by the Policy Council, amortization of intangible asset value as a result of
each such transaction shall be a Clinic Expense.
11.7 Clinic Expenses shall not include:
11.7.1 Corporate overhead charges or any other expenses of Parent or
any corporation affiliated with Parent other than the kind of items listed
above;
11.7.2 Any federal or state income taxes;
11.7.3 Any expenses which are expressly designated herein as expenses
or responsibilities of CPC and/or CPC Employees;
11.7.4 Any amortization expense resulting from the amortization of
expenses incurred in connection with the acquisition and execution of the CFP
Stock Purchase Agreement or the FMC Stock Purchase Agreement and this Agreement;
and
11.7.5 Interest expense on indebtedness incurred by ProMedCo or Parent
to finance the consideration paid under the CFP Stock Purchase Agreement or the
FMC Stock Purchase Agreement.
11.7.6 Any liabilities, judgements or settlements assessed against CPC
or Physician Shareholders in excess of any insurance policy limits.
11.8 Risk Pool Surpluses shall mean all hospital incentive funds,
specialists incentive funds, and funds from shared risk pools under any
risk-sharing arrangements. Risk Pool Surpluses shall be calculated by
aggregating all risk pools applicable, including making any deductions for pools
that are in a deficit position, and after the direct expenses of risk pool
management have been deducted.
11.9 Opening Balance Sheet shall mean the balance sheet of ProMedCo
as of
<PAGE>
the Effective Date (as defined in the CFP Stock Purchase Agreement or the FMC
Stock Purchase Agreement as applicable), prepared in accordance with GAAP
(except for the absence of certain note information), and substantially in the
form of the attached Exhibit B subject to adjustments in the Consideration (as
defined in the CFP Stock Purchase Agreement and the FMC Stock Purchase
Agreement).
11.10 Technical Employees shall mean technicians who provide services
in the diagnostic areas of CPC's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. AU Technical
Employees shall be CPC employees.
11.11 Physician Shareholders shall mean any physician who is a
shareholder of CPC, both as of the date of this Agreement (which said Physician
Shareholders are parties to this Agreement) and at any future point in time.
11.12 Physician Employees shall mean any physician employed by CPC and
providing medical services to patients on behalf of CPC, who are not Physician
Shareholders.
11.13 CPC Employees shall mean all Physician Shareholders, Physician
Employees and Technical Employees at the relevant date.
11.14 Effective Date shall mean 12:01 a.m. March 6, 1996.
11.15 Physician Extenders shall mean Nurse Anesthetists, Physician
Assistants, Nurse Practitioners, Psychologists, Podiatrists and other such
positions, and any position that generates a professional charge, but excluding
Technical Employees.
11.16 Adjustments "Adjustments" shall mean any Adjustments to CPC's
gross billings for uncollectible accounts, discounts, Medicare and Medicaid
disallowances, workers' compensation discount, employee/dependent health care
benefit programs, professional courtesies, and other activities that do not
generate a collectible fee. Any adjustments made shall be based on a reasonable
historical basis, or a reasonable prospective basis should a new payor agreement
apply, and shall be periodically modified during the year to reflect the actual
Adjustments. Final Adjustments and any resulting payments owed by one party to
the other shall be made within (30) days after completion of the fiscal year
audit.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that CPC and
ProMedCo are at all times acting and performing hereunder as independent
contractors. Notwithstanding the authority granted to ProMedCo herein, ProMedCo
shall neither have nor exercise any control or direction over the methods by
which CPC or the CPC Employees practice medicine. The sole function of ProMedCo
hereunder is to provide all management services in a competent, efficient and
satisfactory manner. ProMedCo shall not, by entering into and performing its
obligations under this Agreement, become liable for any of the existing
obligations, liabilities or debts of CPC unless otherwise specifically provided
for under the terms of this Agreement. ProMedCo will in its management role have
only an obligation to exercise reasonable care in the performance of the
management services. Neither party shall have any liability whatsoever for
damages suffered on account of the willful misconduct or negligence of any
employee, agent or independent contractor of the other party. Each party shall
be solely responsible for compliance with all state and federal laws pertaining
to employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes regarding their respective employees,
agents and servants.
12.2 Proprietary Property.
12.2. Each party agrees that the other party's proprietary property
shall not be possessed, used or disclosed otherwise than may be necessary for
the
<PAGE>
performance of this Agreement or except as may be required by law. Each party
acknowledges that its violation of this Agreement would cause the other party
irreparable harm, and may (without limiting the other party's remedies for such
breach) be enjoined at the instance of the other party. Each party agrees that
upon termination of this Agreement for any reason, absent the prior written
consent of the other party, it shall have no right to and shall cease all use of
the other party's proprietary property, and shall return all such proprietary
property of the other party in its possession to the other party.
12.2.2 ProMedCo shall be the sole owner and holder of all fight, title
and interest, to all intellectual property ftimished by it under this Agreement,
including, but not limited to the trade name "CPC, " all computer software,
copyright, services mark and trademark right to any material or documents
acquired, prepared, purchased or furnished by ProMedCo pursuant to this
Agreement. CPC shall have no right, title or interest in or to such material and
shall not, in any manner, distribute or use the same without the prior written
authorization of ProMedCo, provided, however, that the foregoing shall not
restrict CPC from distributing managed care information brochures and materials
without the prior written approval of ProMedCo provided no Proprietary Property
of ProMedCo is contained therein. Notwithstanding the preceding, however,
ProMedCo agrees that CPC shall be entitled to use on a nonexclusive and
nontransferable basis for the term of this Agreement the name "CPC" as may be
necessary or appropriate in the performance of CPC's services and obligations
hereunder.
12.3 Cooperation. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement.
12.4 Licenses, Permits and Certificates. ProMedCo and CPC shall each
obtain and maintain in effect, during the term of this Agreement, all licenses,
permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
12.5 Compliance with Rules, Regulations and Laws. ProMedCo and CPC
shall comply with all federal and state laws and regulations in performance of
their duties and obligations hereunder. Neither party, nor their employees or
agents, shall take any action that would jeopardize the other party's
participation, if applicable, in any federal or state health program including
Medicare and Medicaid. ProMedCo and CPC shall take particular care to ensure
that no employee or agent of either party takes any action intended to violate
Section 1128B of the Social Security Act with respect to soliciting, receiving,
offering or paying any remuneration (including any kickback, bribe, or rebate)
directly or indirectly, overtly or covertly, in cash or in kind in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part under Title XVIII or XIIX of the Social Security Act, or for purchasing,
leasing, ordering, or arranging for or recommending purchasing, leasing, or
ordering any good, facility, service, or item for which payment may be made in
whole or in part under Title XVIII or XIIX of the Social Security Act.
12.6 Generally Accepted Accounting Principles (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
12.7 Notices. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this Section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
<PAGE>
12.8 Attorneys' Fees. ProMedCo and CPC agree that the prevailing party
in any legal dispute among the parties hereto shall be entitled to payment of
its attorneys' fees by the other party.
12.9 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing regulations to be invalid, void or unenforceable the remaining
provisions will nevertheless continue in full force and effect.
12.10 Arbitration. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof will be settled by binding arbitration
in accordance with the rules of commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur in Birmingham, Alabama, unless the parties mutually
agree to have such proceedings in some other locale. The arbitrator(s) may in
any such proceeding award attorneys' fees and costs to the prevailing party.
12.11 Construction of Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of Alabama. The parties
agree that the terms and provisions of this Agreement embody their mutual
interest and agreement and that they are not to be construed more liberally in
favor of, nor more strictly against, any party hereto.
12.12 Assignment and Delegation. ProMedCo shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
neither ProMedCo nor CPC shall have the right to assign their respective rights
and obligations hereunder without the written consent of the other party. CPC
may not delegate any of CPC's duties hereunder. CPC may not delegate any of
CPC's duties hereunder, except as expressly contemplated herein; however,
ProMedCo may delegate some or all of ProMedCo' s duties hereunder to the extent
it concludes, in its sole discretion, that such delegation is in the mutual
interest of the parties hereto, provided however, ProMedCo shall remain
responsible for the performance of such duties.
12.13 Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law.
12.14 Waiver. The waiver of any provision, or of the breach of any
provision of this Agreement must be set forth specifically in writing and signed
by the waiving party. Any such waiver shall not operate or be deemed to be a
waiver of any prior or future breach of such provision or of any other
provision.
12.15 Headings. The subject headings of the articles and sections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
12.16 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and all
of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
12.17 Time is of the Essence. Time is hereby expressly declared to be
of the essence in this Agreement.
12.18 Modifications of Agreement for Prospective Legal Events. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
<PAGE>
judicial decision, a regulatory agency or legal counsel for both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, or in the event the Alabama State Board of Medical
Examiners or other authority with legal jurisdiction shall, solely by virtue of
this Agreement, initiate an action to revoke, suspend, or restrict the license
of any physician retained by CPC to practice medicine in the State of Alabama,
CPC and ProMedCo shall amend this Agreement as necessary. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between CPC and ProMedCo. In the event it is not possible
to amend this Agreement to preserve in all material respects the underlying
economic and financial arrangements between CPC and ProMedCo, this Agreement may
be terminated by written notice by either party within 90 days from date of such
interpretation or action, termination to be effective no sooner than the earlier
of 180 days from the date notice of termination is given or the latest possible
date specified for such termination in any regulatory order or notice.
Termination pursuant to this Section 12.19 by CPC shall require the affirmative
vote of a majority of Physician Shareholders.
12.19 Whole Agreement; Modification. A contract in which the amount
involved exceeds $50,000 in value is not enforceable unless the Agreement is in
writing and signed by the party to be bound or by that party's authorized
representative. The rights and obligations of the parties hereto shall be
determined solely from written agreements. Documents and instruments, and any
prior oral agreements between the parties are superseded by and merged into such
writings. This Agreement (As amended in writing from time to time), the
exhibits, and the schedules delivered pursuant hereto represent the final
agreement between the parties hereto and may not be contradicted by; evidence of
prior, contemporaneous, or subsequent oral agreements by the parties. There are
no unwritten oral agreements between the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PROMEDCO, INC.,
By:
Name
Title
Address
PROMEDCO OF CULLMAN, INC.,
By:
Name:
Title:
Address:
CULLMAN PRIMARY CARE, P.C.
By:
Name:
Address:
<PAGE>
Allocation of Risk Pool Surpluses
ProMedCo shall receive a percentage of the Risk Pool Surpluses.
ProMedCo's percentage shall be based on the cumulative Risk Pool Surpluses that
have occurred during the entire term of this Agreement, including any renewals.
The percentage shall be based on the graduated scale as shown below:
Cumulative Risk Pool Savings ProMedCo %
[*]
The distribution of Risk Pool Surpluses shall be made on an annual
basis no later than 90 days after the conclusion of each contract year of this
Agreement, and after a full analysis of an Incurred But Not Reported (IBNR)
liabilities. Once the final balance of Risk Pool Surpluses has been calculated,
[*]% of that amount shall be distributed, with the final [*]% held for an
additional 6 months to pay for any unanticipated claims. At the end of that 6
months, any funds remaining from the [*]% reserved shall be distributed.
A-1
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
AGREEMENT OF EMPLOYMENT
AGREEMENT, made as of the day of , 1996, by and between CULLMAN PRIMARY CARE,
P.C., an Alabama professional corporation (the "Employer, " "CPC" or the
"Corporation") , and , M.D., a resident of the State of Alabama duly licensed to
practice the profession of medicine under the laws of the State of Alabama (the
"Employee").
W I T N E S S E T H:
WHEREAS, pursuant to the Provisions of a Stock Purchase Agreement
of even date (the "Stock Purchase Agreement"), by and among Cullman
Family Practice, Inc. ("CFP, Inc."), Gregory L. Meiman, M.D.,
Thomas W. Montgomery, M.D., B. Gregory Bostick, M.D., James R.
liolowach, M.D. and Michael L. Schendel, M.D., ProMedCo, Inc. and
ProMedCo of Cullman, Inc. ("ProMedCo"), ProMedCo acquired
substantially all of the stock of CFP, Inc. , including the stock
of CFP, Inc. owned by the Employee;
WHEREAS, the Stock Purchase Agreement provides for the contemporaneous execution
and delivery of that certain Service Agreement (the "Service Agreement"), which
outlines and determines the amount of compensation the Employer is to receive
for providing services under said Service Agreement;
WHEREAS, the Employer and the Employee desire to enter into a agreement relating
to the employment of the Employee by the Employer to provide for compensation
consistent with the relevant provisions of the Service Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. EMPLOYMENT. The Employer hereby employs Employee, and the
Employee hereby accepts such Employment from the Employer, upon the
terms and conditions hereinafter set forth.
2. EFFECTIVE DATE OF AGREEMENT. This Agreement shall be effective as of the date
hereof (the "Effective Date") and shall continue for a period of seven (7) years
(the "Initial Term"), unless otherwise terminated pursuant to the terms hereof.
Thereafter, the term of Employee's employment hereunder shall renew
automatically for three (3) year terms thereafter, unless otherwise terminated
as provided below.
3. DUTIES. The Employee shall devote his full time and attention to the practice
of medicine in which the Employer is and will be engaged, as an employee of the
Employer, and the Employee shall not, without the written consent of the Board
of Directors (the "Board"), either directly or indirectly, engage in any other
professional or business activity, whether or not such professional or business
activity is pursued for gain, profit or other pecuniary advantage; provided,
however, that the Employee may engage in personal non-financial pursuits that do
not substantially interfere
<PAGE>
with the performance of his duties under this Agreement and nothing contained
herein shall be construed as preventing the Employee from investing his assets
in such form or manner as will not require his services in the operation of the
affairs of the company or companies in which such investment or investments are
made. Any consent granted to the Employee to engage in other professional or
business activities shall be revocable by the Employer at any time upon ten (10)
days' notice, and the Employee agrees to cease and desist upon receipt of such
notice. The Employee shall use his best efforts to promote the interest and
welfare of the Employer and, during the term of this Agreement, the Employee
shall not engage in the practice of medicine except as an employee of the
Employer.
The Employee shall abide by all of the rules, regulations and policies
established or promulgated by the Employer. The Employee shall devote such time
to the administration and operation of the medical practice of the Employer as
the Employer shall determine. The Employee shall provide such evening and
weekend coverage for the Employer's medical practice as shall be assigned to
him, from time to time, by the Employer. His duties shall include, but not be
limited to, the following:
(a) Keeping and maintaining (or causing to be kept and maintained)
appropriate records relating to all professional services rendered
by him during the term of his employment with the Employer;
(b) Preparing and attending to, in connection with such services, all reports,
claims and correspondence necessary or appropriate in the circumstances, all of
which records, reports, claims and correspondence shall belong to the Employer;
(c) Working with the staff of the Employer in a cooperative, constructive manner
consistent with a policy of providing quality professional services to patients
while maintaining excellent morale among the members of the staff of the
Employer; and
(d) Carrying out all other duties assigned to him by the Board or
the President.
4. DIRECTION OF SERVICES. The Employer shall direct, control and supervise the
duties and work of the Employee; provided, however, that the Employer shall not
impose employment duties or constraints of any kind which would require the
Employee to infringe the ethics of his profession or violate any ordinance or
law. The Employer shall have the exclusive right to allocate the patients among
its employees with due regard to the source of the patient, the specialty and
skill of the employees, and the work load of the employees. The Employer shall
have the right to determine the days and hours when the Employee shall perform
his duties; provided, however, that the Employee shall not be required to work
longer than a physician's normal work week.
<PAGE>
5. RELATIONSHIP WITH PATIENTS. The Employee agrees that in dealing with patients
or prospective patients of the Employer, he will give no assurance in any form
to such persons that he or any particular employee of the Employer will treat
such patient, it being expressly understood that the Board, or its designee,
shall have sole authority to determine which employees of the Employer shall
perform professional services for any particular patient of the Employer. The
Employer shall have authority to determine who shall assume the Employee's
duties during periods of illness and vacation.
6. FEES FOR SERVICE. Except as otherwise provided herein or in the Service
Agreement, all income generated by the Employee for his services as a physician
including, without limitation: (i) treatment of patients; (ii) reading or
interpreting tests, films or other data; (iii) consulting or testifying with
regard to the medical aspects of any controversy, litigation, or safety program;
(iv) consulting, advising, managing or directing with regard to any medical
program or facility; or (v) any other compensation paid with respect to any
employment or engagement of the Employee on account of his being a medical
doctor shall belong to ProMedCo in accordance with the terms of the Service
Agreement. The Employee agrees, upon request by the Employer, to render an
accounting of all transactions relating to his practice as a physician during
the course of his employment. Employee shall be entitled to retain any
compensation paid for Employee's participation in educational programs for
teaching, instruction, or supervising persons in connection with residency
programs in any local hospital.
7 . RELATIONSHIP OF PARTIES. The relationship between the Employee and the
Employer is that of employee and employer. The Employee, by virtue of this
relationship, shall not have any interest in the Employer's tangible or
intangible assets. The relationship between the Employee and the Employer shall
not modify or affect in any way the physician-patient privilege or relationship.
8. COMPENSATION. As his entire compensation for all services rendered to the
Employer during the term of this Agreement, in whatever capacity rendered, the
Employee shall have and receive the compensation which shall be determined from
time to time by the Board. Such compensation shall be subject to withholding and
other applicable employment taxes.
9. WORKING FACILITIES.
(a) Office. The Employee shall be provided with an office, stenographic and
technical help, equipment and such other facilities and services suitable to his
position and adequate for the performance of his duties.
(b) Professional Organizations. The Employer shall pay the
reasonable expenses of the Employee's membership and participation
in such professional organizations as shall be approved by the
Board. The Employee is expected, from time to time, to incur
<PAGE>
reasonable expenses for additional social, professional, and civic club
memberships and participation, entertainment, travel and similar items. The cost
of such activities shall be at the sole expense of the Employee except as the
Board shall authorize the payment or reimbursement of such expenses as an
expense of the Employer.
10. RECORDS. All records, documents and personal or professional files
pertaining to patients of the Employer or patients consulted, interviewed,
served or treated by the Employee shall belong to and remain the property of the
Employer; provided, however, the Employee, upon termination of his employment,
shall have the privilege of reproducing at his own expense any of such records
of patients treated or served by him during his employment with the Employer.
11. MEETING AND POST-GRADUATE COURSES. The Employee is encouraged and is
expected to attend such meetings, professional conventions and post-graduate
courses in the field of medicine as approved from time to time by the Board. The
cost of tuition and registration for attending such meetings and other costs
incurred by the Employee in connection therewith shall be an expense of the
Employer.
12. VACATION AND SICK LEAVE. The Employee shall be entitled to (_) weeks of
vacation with pay (or such greater length of time as may be approved from time
to time by the Board) during each calendar year, such (_) week period to include
such time taken by the Employee during the year to attend professional seminars.
In addition, Employee shall be entitled to - (-) days per month sick leave
during each calendar year. For purposes of this Paragraph 12, a "week" shall
mean five business days and one weekend. Such vacation shall be taken by the
Employee at such time or times as shall be approved by the Board. In addition,
the Employee shall be entitled to such holidays (unless Employee is on call) as
the Board may approve. Unused days of vacation, sick leave or holidays may not
be carried over from one calendar year to another. No payment for any such
unused days of vacation, sick days or holidays shall be made upon the
termination of Employee' employment hereunder.
13. HEALTH, WELFARE AND INSURANCE PLANS. In accordance with their terms, the
Employee may be entitled to participate in any plans, insurance contracts, or
agreements maintained by the Employer relating to retirement, health, disability
and other related benefits. The Employee's rights and entitlement with respect
to any such benefits will be subject to the provisions of the relevant
contracts, policies or plans providing such benefits. Nothing contained herein
shall be deemed to impose any obligation on the Employer to initiate or maintain
any such plans, policies, contracts or agreements.
14. TERMINATION OF EMPLOYMENT - The employee's employment under the Agreement,
shall be terminated immediately upon the happening of any of the following
events:
<PAGE>
(a) The termination by the Employer of the Employee's employment without cause
upon at least ninety (90) days written notice to the Employee; provided,
however, that the Employer shall not be entitled to terminate the Employee's
employment under the terms of this Paragraph 14(a) during any period of total
disability of the Employee as defined in Paragraph 17(c) hereof;
(b) The termination by the Employee of his employment with the
Employer without cause upon at least ninety (90) days written
notice to the Employer;
(c) The permanent disqualification of the Employee to practice
medicine in the State of Alabama;
(d) The death of the Employee;
(e) The Employee's expulsion from membership in the Medical
Association of the State of Alabama;
(f) Abusive use or abuse of drugs or alcohol;
(g) The total disability of the Employee as set forth in Paragraph
17 hereof;
(h) The suspension, revocation, termination or cancellation of the Employee's
membership on the medical staff of, or his privileges at, any hospital for
non-disciplinary reasons, including, without limitation, failure to admit
patients or failure to maintain patient records on a timely basis;
(i) The termination of Employee's ability to participate in or
receive reimbursements from Medicare or Medicaid; and
(j) Immediate termination by the Employer with "good cause" upon the giving of
written notice. For the purpose of this Agreement, "good cause" shall include,
neglect of duty or professional standards, proven dishonesty, theft, fraud,
embezzlement, repeated failure to be available for work or call when scheduled,
disloyalty to the Employer, conviction of a felony or a crime involving moral
turpitude, willful inattention to the economic or ethical welfare of the
Employer, and conduct constituting a breach of this or any other agreement
between the Employer and the Employee.
In the event the Employee's employment under the Agreement is terminated without
cause pursuant to Paragraph 14(a) or 14(b), the Employer, at its option, may
require the Employee to cease providing services to the Employer immediately;
provided, however, that the Employee shall receive his compensation and other
benefits, if any, hereunder until the effective date of such termination.
15. PAYMENTS BY EMPLOYER UPON TERMINATION. Within fifty (50) days
following the effective date of the Employee's termination of
<PAGE>
employment (the "Termination Date"), the Employer shall pay the Employee (or his
legal representative, as the case may be) his compensation due under Paragraph 8
above prorated through the Termination Date. Except as provided in this
Paragraph, the Employee shall not be entitled to receive any severance pay or
other compensation. The Employee shall not have nor acquire any interest in the
Employer's accounts receivable, shall not be entitled to receive any payment
from or on account of such accounts receivable and shall have no interest in or
claim to the nonvested portion of his benefits in any qualified retirement plan
maintained by the Employer.
16. PAYMENTS BY EMPLOYEE UPON TERMINATION. Upon the termination
of the Employee's employment, the Employee (or his legal
representative, as the case may be) shall pay the Employer an
amount equal to the sum of:
(a) all amounts owed by the Employee to the Employer as of the
Termination Date; and
(b) the value of all prepaid and unearned items and expenses paid by the
Employer for the benefit of the Employee including, without limitation, all
prepaid and unearned premiums for health insurance prorated through the
Termination Date but only to the extent the Employee continues to derive
benefits from such coverage after the Termination Date.
The amount payable to the Employer pursuant to this Paragraph shall be
determined by the accountant retained by the Employer and such determination,
when made and delivered to the Employer and the Employee (or his legal
representative, as the case may be), shall be conclusive and binding on the
Employer and the Employee (or his legal representative, as the case may be) -
The Employer may offset any amounts payable to it pursuant to this Paragraph
against any amounts payable by the Employer to the Employee (or his legal
representative, as the case may be) under this Agreement.
17. DISABILITY.
(a) Amount. Notwithstanding anything to the contrary herein, in the event the
Employee becomes totally disabled, as defined below, and is unable to perform
his normal duties as an employee of the Employer, then the Employee, in lieu of
any compensation due under Paragraph 8 above, shall pay Employee only such
compensation as the Board may approve. The parties acknowledge that Employee's
compensation and disability benefits hereunder shall be based on Employee's
productivity and that Employee's disability will likely result in a reduction
and possible elimination of Employee's compensation hereunder.
(b) Termination of Employment. In the event such total disability continues for
a period of (_) months in a month period, such disability shall be deemed to be
permanent total disability, and the Employee's employment hereunder shall, at
the end of such (_)
<PAGE>
month period, be automatically terminated. If, however, prior to the end of such
(_) month period of total disability, the Employee's total disability shall have
ceased and he shall have resumed the performance of his normal duties hereunder,
the Employee shall thereafter receive his full compensation as set forth in
Paragraph 8 hereof.
(c) Definition and Determination of Total Disability. For purposes of this
Agreement, the term "total disability" shall mean the Employee's inability to
perform the normal duties of his employment by the Employer as a physician. If
there is any disagreement between the Employer and the Employee as to the
disability or non-disability of the Employee or as to the effective date of any
such disability, the same shall be determined after an examination of the
Employee by a physician to be selected by the Board and ProMedCo. The Employee
shall be available for such an examination at any reasonable time. The
determination of such physician selected by the Employer shall be conclusive
evidence of the disability or the nondisability of the Employee and of the date
any such disability began. If the Employee should not cooperate in the
examination by such physician selected by the Employer, then, for purposes
hereof, the determination of the Employee's disability or nondisability and the
date any such disability began shall be made by the Employer and ProMedCo in
their sole discretion.
18. PROFESSIONAL LIABILITY INSURANCE. The Employer, at its expense shall carry
professional liability (malpractice) insurance for the Employee in the same
manner, with the same limitations and to the same extent and amount, if any, as
is provided by the Employer for its other professional employees. Upon the
termination of his employment, the Employee shall pay the "tail premium," "final
endorsement premium" or any other premium or charge for extending the coverage
of the professional liability insurance then carried by the Employer for the
nine (9) year period beginning on the date of such termination or otherwise
cause such insurance to remain in effect for such nine (9) year period. if the
Employee fails to pay such tail premium or cause such insurance to remain in
effect for such nine (9) year period, the Employer may pay such tail premium and
the Employee shall reimburse the Employer for any and all costs incurred by the
Employer in connection with the Employer's payment of such tail premium
including interest on such amount at a rate of 15% per annum. Any premium refund
or similar reimbursement which may be payable by any malpractice insurance
company upon the cancellation of the Employee's coverage on account of the
termination of his employment with the Employer shall be the exclusive property
of the Employer and the Employee shall cooperate in good faith with the
Employer's efforts to collect any such amounts.
19. PROMEDCO CONSIDERATION. In the event that, during the Initial
Term of this Agreement, the Employee is terminated by Employer
pursuant to Paragraphs 14(c), (e), (f), (h), (i) or (j), or by the
Employee pursuant to Paragraph 14(b), the Employee shall forfeit
any Unredeemed Equity (as defined in the Service Agreement) that
<PAGE>
was yet to be received by him pursuant to the Stock Purchase Agreement (this
would include any future interest or principal payments under the Convertible
Subordinated Note, and any future Converted Shares) attributable to the sale of
his shares in CFP, Inc. Said future consideration will be transferred to
ProMedCo (the "Transfer"). The Employee acknowledges that in the event that,
during the Initial Term, Employee is terminated by Employer pursuant to
Paragraph 14(c), (e), (f), (h), (i) or (j) or the Employee's termination of his
or her employment pursuant to Paragraph 14(b), it would be difficult to
calculate the precise amount of damages and for that reason the parties have
determined that the Transfer will be appropriate liquidated damages for such
actions during the Initial Term hereof. The Transfer shall be effective as of
the date of the event giving rise to the termination of Employee's employment
hereunder by Employer or Employee as aforesaid. The Employee hereby appoints
ProMedCo as its attorney in fact to cause such Transfer. The Employer and
ProMedCo shall be entitled to specific performance and other equitable relief to
enforce the Transfer. This provision is in addition to the rights of Employer
pursuant to Paragraph 14 of this Agreement.
20. NON-COMPETITION AND NON-SOLICITATION.
(a) Noncompetition. During the term of his employment hereunder (including any
extensions thereof), the Employee shall not, either directly as a partner,
employer, agent, independent contractor, employee or indirectly through a
corporation, partnership, affiliate, subsidiary or otherwise:
(1) establish, operate or provide professional medical services at any medical
office, clinic or outpatient and/or ambulatory treatment or diagnostic facility
within the geographic area described in Exhibit A attached hereto (the "Area")
other than such offices, clinics or facilities owned, operated, managed, staffed
or leased by ProMedCo, or any affiliate thereof;
(2) solicit, induce or attempt to induce, in connection with any business
competitive with that of the Employer, patients of any physician associated with
the Employer to leave the care of physicians associated with the Employer; or
(3) solicit, induce or attempt to induce any employee, consultant or other
persons associated with the Employer or ProMedco to leave the employment of, or
to discontinue their association with the Employer or ProMedCo, or any affiliate
thereof.
(b) Employee agrees and covenants that for a period of twenty-four (24) months
after the date of termination of his employment with CPC during the Initial
Term, the Employee shall not, either directly as a partner, employer, agent,
independent contractor, employee or indirectly through a corporation,
partnership, affiliate, subsidiary or otherwise, (a) enter into a provider
agreement or other contract with, nor provide any medical services
<PAGE>
in connection with or pursuant to any such provider agreement or other contract,
any third party payor having a provider agreement or other contract with CPC or
any other employee of CPC at any time within 120 days prior to and including the
date of Employee's termination of employment with CPC or (b) solicit, induce or
attempt to induce any patient of CPC to become a patient of Employee or any
partner, employee or affiliate of Employee. As used herein, a third party payor
shall include, without limitation, any employer, coalition of employers, union
or similar organization maintaining a health benefit plan for the benefit of its
employees or members, any insurance company, any Blue Cross/Blue Shield plan,
any health maintenance organization, preferred provider organization,
independent physicians association, physicians hospital organization, or similar
entity or arrangement which contracts for physician services on behalf of its
employees or members or other third party payors. However, as used herein, the
term "third party payor" shall not include the federal Medicare program or the
state Medicaid program, although such terms shall include any health maintenance
organization providing Medicare or Medicaid benefits to plan participants. This
provision shall be limited in its application to the Area.
(c) Covenants Necessary. The covenants contained in Paragraphs 20 and 22 herein
are necessary to protect the business and goodwill of the Employer and ProMedCo
and a breach of these covenants will result in the irreparable harm and
continuing damage to the Employer and ProMedCo. In the event the Employee
breaches such covenants during the Initial Term, the Employer and ProMedCo shall
be entitled to specific performance and/or injunctive or other equitable relief
in order to prevent the continuation of such harm, as well as money damages. The
Employee waives any requirement for the securing or posting of any bond in
connection with the obtaining of any such equitable relief. The Employee
acknowledges that if the Employee breaches the covenants contained in Paragraph
20(b) and the Employer or ProMedCo is unable for any reason to obtain a
restraining order from a court of competent jurisdiction within thirty (30) days
after application enjoining the breach by the Employee, it will be difficult to
calculate the precise amount of the Employer's damages. As a result, the parties
have determined that, in the event of such a breach, the Employer's damages
shall be equal to Liquidated Damages in the amount of the physician's total
compensation for the most recent 12 month period, but not in excess of $200,000.
(d) Limitations. The parties have attempted to limit the provisions of this
Paragraph 20 only to the extent necessary to protect each parties' interest. In
the event that any provision, section or subsection of this Paragraph 20 is
adjudged by any court of competent jurisdiction to be void or unenforceable, in
whole or part, such court shall modify and enforce any such provision, section,
or subsection to the extent and geographic area that it believes to be
reasonable under the circumstances.
<PAGE>
21. ACKNOWLEDGMENTS. The Employee hereby represents and
acknowledges as follows:
(a) All documents, knowledge and information regarding the methods of operation
of Employer and ProMedCo, and any affiliate thereof, are highly confidential and
constitute trade secrets, including, but not limited to information regarding
patient lists, patient solicitation, patient treatment and charging, financial
statements and reports, memorandum or correspondence regarding the Employer's
and ProMedCo's, and any affiliate thereof, methods of operation (collectively,
"Confidential Information,,);
(b) The Employee is fully capable of earning a livelihood and
practicing in the Employee's professional medical field without
violating any of the provisions of this Agreement;
(c) The Employee's ability to earn a livelihood and practice in his or her
professional medical field without violating any of the provisions of this
Agreement was a material condition to the execution of this Agreement;
(d) Under current circumstances, the Employee has no reason to believe that the
medical needs of the communities served by the Employer for the professional
medical services which the Employer provides cannot be adequately met without
the Employee violating any of the provisions of this Agreement; and
(e) The ability to adequately meet the medical needs of the communities served
by the Employer for the professional medical services which the Employee will
provide without violating any of the provisions of this Agreement was a material
condition to the execution of this Agreement.
22. TRADE SECRETS AND CONFIDENTIAL INFORMATION. The Employee shall not disclose,
communicate or misuse, to the detriment or injury of the Employer or ProMedCo
and any affiliate thereof, any Confidential Information to any person or entity
not associated with the Employer or ProMedCo and any affiliate thereof, other
than his or her attorneys or accountants who shall also agree not to disclose
such information without the written consent of the Employer or ProMedCo, and
any affiliate thereof, as the case may be, unless required to disclose it by law
or, unless such information is generally known or available in the industry or
by the person to whom it is communicated. Immediately after the earlier of the
termination of Employee's employment under this Agreement or such time as the
Employee shall cease to be associated with the Employer, the Employee shall
return any and all Confidential Information to the possession of the Employer
and/or ProMedCo, and any affiliate thereof.
23. ARBITRATION. Any dispute arising out of this Agreement shall
be settled by a single arbitrator sitting in the City of Cullman,
who is mutually agreeable to both parties, and applying the rules
and regulations of the American Arbitration Association. The
<PAGE>
parties hereto agree to be bound by the arbitrator's decision.
Judgment may be entered in any state or federal court having
jurisdiction.
24. GENERAL ASSETS OF THE EMPLOYER. Nothing contained in this Agreement nor any
action taken pursuant to the provisions of this Agreement shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the
Employer and the Employee, his designated beneficiary or any other person. Any
funds which may be used to discharge the Employer's obligations under the
provisions of this Agreement shall be paid from the general funds of the
Employer, and no person other than the Employer shall, by virtue of the
provisions of this Agreement, have any interest in such funds or assets. To the
extent that any person acquires a right to receive payments from the Employer
under this Agreement, such right shall be no greater than the right of any
unsecured general creditor of the Employer.
25. MISCELLANEOUS.
(a) Standards. The Employee shall perform his duties under this Agreement in
accordance with such standards of professional ethics and practice as may from
time to time be applicable during the term of his employment hereunder.
(b) Nature and Survival of Representations. All representations, warranties and
agreements made herein by any of the parties hereto shall survive consummation
of the transactions contemplated hereby.
(c) Construction. This Agreement shall be interpreted, construed and enforced in
accordance with the laws of the State of Alabama, applied without giving effect
to conflict-of-laws principles.
(d) Notices. Any and all notices required or permitted to be given under this
Agreement shall be sufficient if furnished in writing and sent by certified
mail, return receipt requested, in the case of the Employee, to the Employee's
last known residence address or, in the case of the Employer, to its principal
office in Cullman, Alabama.
(e) Severability. The provisions of this Agreement shall be severable and if any
provision shall be invalid, void or unenforceable in whole or in part for any
reason, the remaining provisions shall remain in full force and effect.
(f) Binding Agreement. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and
permitted assigns.
(g) Amendment. Neither this Agreement nor any term or provision
hereof may be changed, modified, waived, discharged or terminated
orally or in any manner other than by instrument in writing, signed
<PAGE>
by the party against whom the enforcement of such change, modification, waiver,
discharge or termination is sought.
(h) Waiver of Breach or Violation Not Deemed Continuing. The
waiver by either party of a breach or violation of any provision of
this Agreement shall not operate as, or be construed to be, a
waiver of any subsequent breach hereof.
(i) Necessary Action. Each party shall perform any further acts
and execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
(j) Interpretation. The terms "herein" or "hereunder" or like terms shall be
deemed to refer to this Agreement as a whole and not to a particular section.
Whenever terms such as "include" or"including" are used in this Agreement, they
shall mean "include" or "including", as the case may be, without limiting the
generality of any description or word preceding such term. The captions or
headings in this Agreement are made for convenience and general reference only
and shall not be construed to describe, define or limit the scope or intent of
the provisions of this Agreement. As used herein, all masculine pronouns shall
include the feminine or neuter, and all singular terms the plural forms thereof,
and vice versa. All references to sections hereunder shall be deemed to refer to
sections of this Agreement, unless otherwise expressly provided, whether or not
"hereof", "above", "below" or like words are used.
(k) Litigation. In the event that it becomes necessary for any party to initiate
litigation for the purpose of enforcing any of any rights hereunder or for the
purpose of seeking damages for any violation hereof, then, in addition to all
other judicial remedies that may be granted, the prevailing party or parties
shall be entitled to recover reasonable attorneys, fees and all other cost that
may be sustained by such prevailing party or parties in connection with such
litigation. For purposes of any action or proceeding involving this Agreement,
each party hereby expressly submits to the jurisdiction of all federal and state
courts located in the State of Alabama and consent to be served with any process
on paper by registered mail or by personal service within or without the State
of Alabama in accordance with applicable law, provided a reasonable time for
appearance is allowed. All parties hereby waive, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
any such action or proceeding.
(1) Assignment. Employee shall not assign any of his rights or delegate any of
his duties under this Agreement without the express prior written consent of the
Employer. Employer shall have the absolute right, in its sole discretion, to
assign all or any of its rights or obligations hereunder or to delegate all or
any of its duties hereunder to any affiliate of Employer or in connection with
the sale of substantially all of the operating assets of the Employer's
business.
<PAGE>
(m) Authority. The provisions of this Agreement required to be
approved by the Board have been so approved and authorized.
(n) Fiscal Year Defined. Whenever the term "fiscal year" is used
herein, it shall, unless otherwise specified, be deemed to refer to
the fiscal year of the Employer.
(o) Counterparts. This Agreement may be executed in any number of
counterparts, which together shall constitute a single fully
executed agreement.
(p) Defined Terms. Except as otherwise defined herein, terms in
the Stock Purchase Agreement and the Service Agreement shall have
the same meaning in this Agreement.
(q) Entire Agreement. This Agreement and the written documents referred to or
described herein contains the entire agreement of the parties hereto regarding
the transactions contemplated hereby and thereby and supersede all prior
negotiations or agreements among such parties regarding such transactions.
IN WITNESS WHEREOF, the Employer has hereunto caused this Agreement to be
executed by its duly authorized officers and the Employee has hereunto set his
hand, all being done in duplicate originals with one (1) original being
delivered to each party on the day and year first above written.
EMPLOYER:
By:
President
EMPLOYEE:
CONFIDENTIAL TREATMENT REQUESTED
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SERVICE AGREEMENT
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PROMEDCO OF MAYFIELD, INC.
AND
MORGAN-HAUGH, P.S.C.
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- -------------------------------------------------------------------------------
Effective April 1, 1996
- -------------------------------------------------------------------------------
<PAGE>
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Table of Contents
1. RESPONSIBILITIES OF THE PARTIES...........................................1
1.1 General Responsibilities of the Parties.........................1
1.2 MH's Matters....................................................1
1.3 Patient Referrals...............................................1
2. POLICY COUNCIL............................................................2
2.1 Formation and Operation of the Policy Council...................2
2.2 Duties and Responsibilities of the Policy Council...............2
3. OBLIGATIONS OF PROMEDCO...................................................3
3.1 Management and Administration...................................4
3.3 Expansion of Clinic.............................................8
3.4 Events Excusing Performance.....................................8
3.5 Compliance With Applicable Laws.................................8
4. OBLIGATIONS OF MH.........................................................8
Professional Services................................................8
4.2 Employment Of Physician Employees...............................8
4.3 Non-Clinic Expenses.............................................9
4.4 Medical Practice................................................9
4.5 Professional Insurance Eligibility..............................9
4.6 Employment Of Non-Physician Employees...........................9
4.7 Events Excusing Performance.....................................9
4.8 Compliance With Applicable Laws.................................9
4.9 Restrictions on Use of Clinic Facility..........................9
4.10 MH Employee Benefit Plans......................................9
4.11 Physician Powers of Attorney...................................10
4.12 Spokesperson...................................................10
5. RECORDS...................................................................10
5.1 Patient Records.................................................11
5.2 Other Records...................................................11
5.3 Access to Records...............................................11
6. FACILITIES TO BE PROVIDED BY PROMEDCO.....................................11
6.1 Facilities......................................................11
6.2 Use of Facilities...............................................11
7. FINANCIAL ARRANGEMENTS....................................................11
7.1 Payments to MH and ProMedCo..............................................11
7.2 Distribution....................................................12
<PAGE>
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7.3 Clinic Expenses.................................................12
7.4 Accounts Receivables............................................12
8. INSURANCE AND INDEMNITY...................................................12
8.1 Insurance to Be Maintained by ProMedCo..........................12
8.2 Insurance to be Maintained by MH................................13
8.3 Tail Insurance Coverage.........................................13
8.4 Additional Insured..............................................13
8.5 Indemnification.................................................13
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES.............................14
9.1 Restrictive Covenants by MH.....................................14
9.2 Restrictive Covenants By Current Physician Shareholders
and Physician Employees ....................................14
9.3 Restrictive Covenants By Future Physician Employees.............14
9.4 Physician Shareholder and Physician Employee Liquidated Damages.14
9.5 Enforcement.....................................................15
9.6 Termination of Restrictive Covenants............................15
10. TERM.....................................................................16
10.1 Term and Renewal...............................................16
10.2 Termination by MH..............................................16
10.3 Termination by ProMedCo.......................................16
10.4 Actions After Termination......................................17
11. DEFINITIONS..............................................................18
11.1 Net Clinic Revenues ...........................................18
11.2 Distribution Funds ............................................18
11.3 ProMedCo Distribution .........................................18
11.4 Clinic ........................................................18
11.5 Clinic Facility ...............................................19
11.6 Clinic Expenses ...............................................19
11.7 Clinic Expenses shall not include..............................20
11.8 Risk Pool Surpluses ...........................................20
11.9 Opening Balance Sheet .........................................20
11.10 Technical Employees ..........................................20
11.11 Physician Shareholders .......................................20
11.12 Physician Employees ..........................................21
11.13 MH Employees .................................................21
11.14 Effective Date ...............................................21
11.15 Physician Extenders ..........................................21
12. GENERAL PROVISIONS.......................................................21
<PAGE>
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12.1 Independent Contractor.........................................21
12.2 Other Contractual Arrangement..................................21
12.3 Proprietary Property...........................................22
12.4 Cooperation....................................................23
12.5 Licenses, Permits and Certificates.............................23
12.6 Compliance with Rules, Regulations and Laws....................23
12.7 Generally Accepted Accounting Principles (GAAP)................23
12.8 Notices........................................................23
12.9 Attorneys' Fees................................................23
12.10 Severability..................................................23
12.11 Arbitration...................................................24
12.12 Construction of Agreement.....................................24
12.13 Assignment and Delegation.....................................24
12.14 Confidentiality...............................................24
12.15 Waiver........................................................24
12.16 Headings......................................................24
12.17 No Third Party Beneficiaries..................................24
12.18 Time is of the Essence........................................25
12.19 Modifications of Agreement for Prospective Legal Events.......25
12.20 Whole Agreement...............................................25
<PAGE>
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SERVICE AGREEMENT
Service Agreement ("Agreement") dated April 1, 1996, between ProMedCo
of Mayfield, Inc., a Kentucky corporation ("ProMedCo") which is an affiliate of
ProMedCo, Inc., a Texas corporation ("Parent") and Morgan-Haugh, P.S.C., a
Kentucky professional corporation ("MH").
RECITALS:
MH is a multi-specialty medical practice in Mayfield, Kentucky, which
provides professional medical care to the general public. ProMedCo is in the
business of owning certain assets of and managing and administering medical
clinics, and providing non-professional support services to and furnishing
medical practices with the necessary facilities, equipment, personnel, supplies
and support staff. Pursuant to an Asset Purchase Agreement dated as of April 25,
1996, between ProMedCo, Inc. and MH ("Asset Purchase Agreement") ProMedCo agreed
to assume certain liabilities and purchase certain assets used in the operation
of the medical practice to be conducted by MH.
Subject to the terms and conditions hereof, MH desires to engage
ProMedCo to provide to MH management services, facilities, personnel, equipment
and supplies necessary to operate the Clinic (as defined herein) and ProMedCo
desires to accept such engagement.
The parties agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide MH
with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. MH shall be
responsible for the recruitment and hiring of physicians, Technical Employees
and all issues related to patient care and documentation thereof. ProMedCo shall
neither exercise control over nor interfere with the physician-patient
relationship, which shall be maintained strictly between the physicians of MH
and their patients.
1.2 MH's Matters. MH shall maintain sole discretion and authority over
the financial matters relative to its corporate existence. It shall set
compensation levels for MH Employees. MH will also be responsible for all other
matters pertaining to the operation of MH.
1.3 Patient Referrals. The parties agree that the benefits to MH do not
require, are not payment for, and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by ProMedCo to any of MH's patients in any facility or
laboratory controlled, managed or operated by ProMedCo.
2. POLICY COUNCIL
2.1 Formation and Operation of the Policy Council. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the Clinic. The Policy Council shall
consist of four members. ProMedCo shall designate, at its sole
<PAGE>
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discretion, two members of the Policy Council. Members of the Policy Council
designated by ProMedCo shall be entitled to attend and vote by proxy at any
meetings of the Policy Council so long as at least one such representative is
present in person. MH at its sole discretion shall designate two members. Except
as may otherwise be provided, the act of a majority of the members of the Policy
Council shall be the act of the Policy Council.
2.2 Duties and Responsibilities of the Policy Council. During the term
of this Agreement, the Policy Council shall have the following duties and
responsibilities.
(a) Annual Budgets. All annual capital and operating budgets prepared by
ProMedCo, as set forth in Section 3 and employing ProMedCo's financial
expertise, shall be subject to the review and approval of the Policy Council,
provided; however, ProMedCo shall have final approval of any capital expenditure
required by ProMedCo.
(b) Administrator. The selection and retention of the Administrator
pursuant to Section 3.1 shall be subject to the reasonable approval of the
Policy Council. If MH is dissatisfied with the services provided by the
Administrator, MH shall refer the matter to the Policy Council. ProMedCo and
Policy Council shall in good faith determine whether the performance of the
Administrator could be brought to acceptable levels through counsel and
assistance, or whether the Administrator should be terminated. ProMedCo shall
have the ultimate authority to terminate the Administrator.
(c) Physician Hiring. The Policy Council, with information and analysis
provided by ProMedCo, shall determine the number and type of physicians required
for the efficient operation of the Clinic and MH shall determine the individual
physicians to be hired to fill such positions. The approval of ProMedCo shall be
required for any variations to the restrictive covenants in any physician
employment contract.
(d) Patient Fees. In consultation with MH and ProMedCo, the Policy Council
shall review and adopt the fee schedule for all physician and ancillary services
rendered by the Clinic.
(e) Ancillary Services. The Policy Council shall approve Clinic provided
ancillary services based upon the pricing, access to and quality of such
services.
(f) Provider and Payor Relationships. The Policy Council shall make the
decisions regarding the establishment and maintenance of relationships with
institutional health care providers and payors. The Policy Council shall be
responsible for approving the allocation of capitation risk pools between the
professional and institutional components of these pools to the extent
applicable under a payor agreement. ProMedCo and MH shall use actuarial data
from a nationally recognized actuarial firm as agreed to by both parties, for
the purposes of allocating capitation funds, for those professional services
provided directly by MH.
<PAGE>
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(g) Capital Improvements and Expansion. The Policy Council shall determine
the priority for any renovation, expansion plans and major equipment
expenditures with respect to the Clinic based upon economic feasibility,
physician support, productivity and market conditions. Any capital expenditure
in excess of $10,000 shall require the approval of the Policy Council.
(h) Strategic Planning. The Policy Council, with the assistance of
ProMedCo, shall develop long-term strategic planning objectives.
(i) Advertising. All advertising, marketing, and public relations shall be
subject to the prior review and approval of the Policy Council, in compliance
with applicable laws and regulations governing professional advertising and in
accordance with the standards and medical ethics of the American Medical
Association and the Kentucky Medical Association.
(j) Grievance Issues. Subject to the provisions of Section 1.2 of this
Agreement, the Policy Council shall consider and make final decisions regarding
grievances pertaining to matters not specifically addressed in this Agreement as
referred to it by MH's board or ProMedCo.
(k) Exceptions to Inclusion in the Net Revenue Calculation. The exclusion
of any revenue from Net Revenue, whether now or in the future, shall be subject
to the approval of the Policy Council.
3. OBLIGATIONS OF PROMEDCO
During the term of this Agreement, ProMedCo shall provide or arrange
for the services set forth in this Section 3, the cost of all of which shall be
included in Clinic Expenses. ProMedCo is hereby expressly authorized to perform
its services in whatever manner it deems reasonably appropriate, in accordance
with policies approved by the Policy Council, and including without limitation,
performance of some functions at locations other than the Clinic Facility. MH
will not act in a manner which would prevent ProMedCo from efficiently managing
the Clinic Facility operations in a business like manner. MH, through MH
Employees, will provide all medical services. ProMedCo will have no authority,
directly or indirectly, to perform, and will not perform any medical function.
ProMedCo may, however, advise MH as to the relationship between its performance
of medical functions and the overall administrative and business functioning of
the Clinic.
3.1 Management and Administration. During the term of this Agreement,
MH hereby appoints ProMedCo as the sole and exclusive manager and administrator
of all non-medical functions and services related to MH's services at the
Clinic. MH shall perform all medical services, and ProMedCo shall have no
authority, directly or indirectly, to perform, and will not perform any medical
function. Without limiting the generality of the foregoing, ProMedCo shall
provide the following administrative, management and marketing services as may
be required in conjunction with MH's services at the Clinic. ProMedCo shall hire
and supervise an Administrator, subject to the
<PAGE>
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reasonable approval of the Policy Council, to manage and administer all of the
day-to-day business functions of ProMedCo, including without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of
annual budgets. Annually and at least 30 days prior to the commencement
of each fiscal year, ProMedCo shall prepare and deliver to MH capital
and operating budgets reflecting in reasonable detail anticipated
revenues and expenses, sources and uses of capital for to maintain and
enhance MH's medical practice and Clinic services.
3.1.2 Financial Statements. ProMedCo shall prepare monthly and
fiscal year unaudited financial statements containing a balance sheet
and a statement of income for Clinic operations, which shall be
delivered to MH within thirty (30) days after the close of each
calendar month. The fiscal year statement shall be reviewed by a
certified public accountant as selected by ProMedCo in connection with
the audit of the financial statements of Parent. If MH desires an audit
in addition to the audit provided by ProMedCo, such an audit would be
at MH's expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all
personnel reasonably necessary for the conduct of Clinic operations
with the exception of Physician Extenders and Technical Employees.
ProMedCo shall determine and cause to be paid the salaries, fringe
benefits and any sums for income taxes, unemployment insurance, social
security taxes or any other withholding amounts required by applicable
law or governmental authority, of all such personnel. Such personnel
shall be under the direction, supervision and control of ProMedCo, with
those personnel performing patient care services subject to the
professional supervision of MH. If MH is dissatisfied with the services
of any person, MH shall consult with ProMedCo. ProMedCo shall in good
faith determine whether the performance of that employee could be
brought to acceptable levels through counsel and assistance, or whether
such employee should be terminated. All of ProMedCo's obligations
regarding staff shall be governed by the overriding principle and goal
of providing high quality medical care. At ProMedCo's option some or
all of the non-physician personnel may be carried on the books of MH as
MH's employees.
3.1.4 Quality Assurance. ProMedCo will assist MH in fulfilling
its obligation to its patients to maintain high quality medical and
professional services, including patient satisfaction programs,
employee education, outcomes analysis, clinical protocol development
and to implement a risk management program.
3.1.5 Facilities and Equipment. ProMedCo will ensure the
proper cleanliness of the premises, maintenance and cleanliness of the
equipment, furniture and furnishings located on the premises.
3.1.6 Inventory Control and Purchasing Supplies. ProMedCo shall order and
purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which ProMedCo shall deem to be necessary in the operation
of the Clinic, to deliver quality
<PAGE>
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Clinic services in a cost effective manner.
3.1.7 Managed Care Contracting. ProMedCo will be responsible
for marketing, negotiation, and administering all managed care
contracts, subject to the provisions of Section 2.2.5; provided,
however, no contract or arrangement regarding the provision of Clinical
services shall be entered into without MH's consent.
3.1.8 Billing and Collections. ProMedCo shall bill patients
and collect all fees for services performed inside or outside the
Clinic Facility or arrange for such billing and collection. MH hereby
appoints ProMedCo, for the term hereof, to be its true and lawful
attorney-in-fact for the following purposes (i) to bill patients in
MH's name and on its behalf, (ii) to collect accounts receivable
resulting from such billing in MH's name and on its behalf, (iii) to
receive payments from Blue Cross and Blue Shield, Medicare, Medicaid,
payments from health plans, and all other third party payors; (iv) to
receive the cash proceeds of any accounts receivable; (v) to take
possession of and endorse in the name of MH (and/or in the name of an
individual physician, such payment intended for purpose of payment of a
physician's bill) any notes, checks, money orders, insurance payments
and other instruments received in payment of accounts receivable; and
(vi) in accordance with policies adopted by the Policy Council, to
initiate legal proceedings in the name of MH to collect any accounts
and monies owed to the Clinic, to enforce the rights of MH as creditors
under any contract or in connection with the rendering of any service,
and to contest adjustments and denials by governmental agencies (or its
fiscal intermediaries) as third-party payors. All adjustments made for
uncollectible accounts, professional courtesies and other activities
that do not generate a collectible fee shall be done in a reasonable
and consistent manner acceptable to ProMedCo's independent certified
public accountants.
3.1.9 Deposit of Net Clinic Revenues. During the term of this
Agreement, all Net Clinic Revenues collected resulting from the
operations of the Clinic shall be deposited directly into a bank
account of which MH shall be the owner ("Account"). ProMedCo and MH
shall maintain their accounting records in such a way as to clearly
segregate Net Clinic Revenues from other funds of ProMedCo or MH. MH
hereby appoints ProMedCo as its true and lawful attorney-in-fact to
deposit in the Account all revenues collected. MH covenants, and shall
cause all MH Employees to covenant, to forward any payments received
with respect to Net Clinic Revenues for services provided by MH and MH
Employees to ProMedCo for deposit. ProMedCo shall have the right to
withdraw funds from the Account and all owners of the Account shall
execute a revocable standing transfer order ("Transfer Order") under
which the bank maintaining the Account shall periodically transfer the
entire balance of the Account to a separate bank account owned solely
by ProMedCo ("ProMedCo Account"). MH and ProMedCo hereby agree to
execute from time to time such documents and instructions as shall be
required by the bank maintaining the Account and mutually agreed upon
to effectuate the foregoing provisions and to extend or amend such
documents and instructions. Any action by MH that interferes with the
operation of this Section, including, but not limited to, any failure
to deposit or have ProMedCo deposit any Net Clinic Revenues into the
Account, any withdrawal of any funds from the Account not authorized by
the
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express terms of this Agreement, or any revocation of or attempt to
revoke the Transfer Order (otherwise than upon expiration or
termination of this Agreement), will constitute a breach of this
Agreement and will entitle ProMedCo, in addition to any other remedies
that it may have at law or in equity, to seek a court ordered
assignment of the following rights:
(a) To collect accounts receivable resulting from the provision of services
to patients of MH and its MH Employees;
(b) To receive payments from patients, third party payor
plans, insurance companies, Medicare, Medicaid and
all other payors with respect to services rendered by
MH and its MH Employees;
(c) To take possession of and endorse any notes, checks,
money orders, insurance payments and any other
instruments received as payment of such accounts
receivable; and
(d) To collect all revenues of the Clinic.
3.1.10 Management Information Systems/Computer Systems. ProMedCo shall
supervise and provide information systems that are necessary and appropriate for
the operation of the Clinic.
3.1.11 Legal and Accounting Services. ProMedCo shall arrange
for or render to MH such business, legal and financial management
consultation and advice as may be reasonably required or requested by
MH and directly related to the operations of the Clinic. ProMedCo shall
not be responsible for rendering any legal or tax advice or services or
personal financial services to MH or any employee or agent of MH.
3.1.12 Negotiation and Payment of Premiums For All Insurance
Products Held By MH. ProMedCo shall negotiate for and cause premiums to
be paid with respect to the insurance provided for in Section 8.
Premiums and deductibles with respect to such policies shall be a
Clinic Expense.
3.1.13 Physician Recruiting. ProMedCo shall assist MH in
recruiting additional physicians, carrying out such administrative
functions as may be appropriate such as advertising for and identifying
potential candidates, checking credentials, and arranging interviews;
provided, however, MH shall interview and make the ultimate decision as
to the suitability of any physician to become associated with the
Clinic. All physicians recruited by ProMedCo and accepted by MH shall
be the sole employees of MH to the extent such physicians are hired as
employees. Any expenses incurred in the recruitment of physicians,
including, but not limited to, employment agency fees, relocation and
interviewing expenses shall be Clinic Expenses approved by the Policy
Council.
3.1.14 Supervision of Ancillary Services. ProMedCo shall operate and
supervise
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such ancillary services as approved by the Policy Council.
3.1.15 Strategic Planning Assistance. ProMedCo shall assist with and
implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. This would be subject to the
review and approval of the Policy Council.
3.1.17 Files and Records. ProMedCo shall supervise and
maintain custody of all files and records relating to the operation of
the Clinic, including but not limited to accounting, billing, patient
medical records, and collection records. Patient medical records shall
at all times be and remain the property of MH and shall be located at
Clinic facilities so that they are readily accessible for patient care.
The management of all files and records shall comply with applicable
state and federal statutes. ProMedCo shall use its reasonable efforts
to preserve the confidentiality of patients' medical records and use
information contained in such records only for the limited purpose
necessary to perform the services set forth herein, provided, however,
in no event shall a breach of said confidentiality be deemed a default
under this Agreement.
3.2 Administrator. The selection and retention of the Administrator,
subject to the provisions of Section 2.2(c).
3.3 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting MH in adding additional
office based procedures, ancillary services and adding additional satellite
office(s) as determined by the Policy Council to be beneficial to the Clinic.
ProMedCo will also assist in recruiting new physicians and developing
relationships and affiliations with other physicians, hospitals, networks, HMOs,
etc. To assist in the continued growth and development of the Clinic, ProMedCo
may acquire other physician practices. MH will cooperate with ProMedCo in such
expansion efforts and use its best efforts to assist ProMedCo with respect
thereto. Without limiting the generality of the foregoing, MH will not enter
into any agreements with respect to any such matter without the prior consent of
ProMedCo.
3.4 Events Excusing Performance. ProMedCo shall not be liable to MH for
failure to perform any of the services required herein in the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies, or other events
over which ProMedCo has no control for so long as such events continue, and for
a reasonable amount of time thereafter.
3.5 Compliance With Applicable Laws. ProMedCo shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4. OBLIGATIONS OF MH
4.1 Professional Services. MH shall provide professional services to
patients in compliance
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at all times with ethical standards, laws and regulations applying to the
medical profession. MH shall also ensure that each physician associated with MH
is licensed by the State of Kentucky. In the event that any disciplinary actions
or medical malpractice actions are initiated against any such physician, MH
shall immediately inform the Administrator of such action and the underlying
facts and circumstances. MH shall carry out a program to monitor the quality of
medical care practiced, with ProMedCo's assistance. MH will cooperate with
ProMedCo in taking steps to resolve any utilization review or quality assurance
issues which may arise in connection with the Clinic.
4.2 Employment Of Physician Employees. MH shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Shareholders and Physician Employees, although at
the request of MH, ProMedCo shall consult with MH regarding such matters. MH
shall enforce formal employee agreements from each of its Physician Shareholders
and Physician Employees, hired or contracted, substantially in the form attached
hereto as Exhibit "C".
4.3 Non-Clinic Expenses. MH shall be solely responsible for the payment
of all costs and expenses incurred in connection with MH operations which are
not Clinic Expenses, including, but not limited to, accounting and other
professional services fees, salaries and benefits, retirement plan
contributions, health, disability and life insurance premiums, payroll taxes,
membership in professional associations, continuing medical education, and
licensing and board certification fees for its Physicians Employees and
Physician Extenders.
4.4 Medical Practice. MH shall use and occupy the Clinic Facility
exclusively for the practice of medicine, and shall comply with all applicable
local rules, ordinances and all standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Clinic Facility shall be conducted solely by physicians associated with MH,
and no other physician or medical practitioner shall be permitted to use or
occupy the Clinic Facility except pursuant to the Excluded Leases, as defined in
the Lease dated as of April __, 1996 between MH, as Landlord, and ProMedCo, as
Tenant, without the prior written consent of the Policy Council.
4.5 Professional Insurance Eligibility. MH shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Shareholders and Physician Employees are insurable, and participating
in an ongoing risk management program.
4.6 Employment Of Non-Physician Employees. There will be certain
Technical Employees that perform technical functions for MH. These Technical
Employees will remain in the employ of MH. As provided in Section 3.1.3.,
ProMedCo will provide payroll and administrative services for such Technical
Employees.
4.7 Events Excusing Performance. MH shall not be liable to ProMedCo for
failure to perform any of the services required herein in the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies, or other events
over which MH has no control for so long as such events continue, and for a
reasonable amount of time thereafter.
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4.8 Compliance With Applicable Laws. MH shall comply with all applicable
federal, state and local laws, regulations and restrictions in the conduct of
its obligations under this Agreement.
4.9 Restrictions on Use of Clinic Facility. MH shall at all times
during the term of this Agreement comply with the policy of ProMedCo stated in
Section 6.2 herein.
4.10 MH Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, MH has in
effect the employee welfare benefit plans (as such
term is defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA")) and the employee pension benefit plans (as
such term is defined in Section 3(2) of ERISA), as
set forth in Exhibit "D" to this Agreement.
(b) MH shall not enter into any new "employee benefit plan" (as defined in
Section 3(3) of ERISA) without the express written consent of ProMedCo. Except
as otherwise required by law, MH shall not materially amend, freeze, terminate
or merge any MH Plan without the express written consent of ProMedCo unless such
action is contemplated by the Asset Purchase Agreement. MH agrees to make such
changes to MH Plan, including the freeze, termination, or merger of such MH
Plan, as may be approved by ProMedCo.
(c) Expenses incurred in connection with any MH Plan or
other employee benefit plan maintained by MH,
including without limitation the compensation of
counsel, accountants, corporate trustees and other
agents shall not be included in Clinic Expenses.
(d) The contribution and administration expenses for
Physician Shareholders and Physician Employees shall
be an expense of MH. ProMedCo shall make
contributions or payments with respect to any MH
Plan, as a Clinic Expense, on behalf of eligible
Technical Employees.
(e) ProMedCo shall have the sole and exclusive authority
to adopt, amend, or terminate any employee benefit
plan for the benefit of its employees. ProMedCo shall
have the sole and exclusive authority to appoint the
trustee, custodian, and administrator of any such
plan.
4.11 Physician Powers of Attorney. MH shall require all MH Employees to
execute and deliver to ProMedCo powers of attorney, satisfactory in form and
substance to ProMedCo and MH, appointing ProMedCo as attorney-in-fact for each
for the purposes set forth in Sections 3.1.8 and 3.1.9, which powers of attorney
shall immediately terminate upon termination of this Agreement.
4.12 Spokesperson. MH shall serve as spokesperson for ProMedCo and Parent
in Clinic
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sales and ProMedCo and Parent development activities. The parties agree that Dr.
Michael H. McBee or such other Physician Shareholder as the Policy Council shall
appoint to shall serve in this capacity on behalf of MH.
5. RECORDS
5.1 Patient Records. Upon termination of this Agreement, MH shall
retain all patient medical records maintained by MH or ProMedCo in the name of
MH. MH shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by MH.
5.2 Other Records. All records relating in any way to the operation of the
Clinic which are not the property of MH under the provisions of Section 5.1
above, shall at all times be the property of ProMedCo.
5.3 Access to Records. During the term of this Agreement, and
thereafter, MH or its designee shall upon 24 hours notice have reasonable access
during normal business hours to MH's and ProMedCo's financial records,
including, but not limited to, records of collections, expenses and
disbursements as kept by ProMedCo in performing ProMedCo's obligations under
this Agreement, and MH may copy any or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO
6.1 Facilities. ProMedCo hereby agrees to provide or arrange as a
Clinic Expense the offices and facilities for Clinic operations, including but
not limited to, the Clinic Facility and all costs of repairs, maintenance and
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, related real or personal property lease cost payments and
expenses, taxes and insurance, refuse disposal and all other costs and expenses
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and MH agree that MH, as an independent contractor,
is a separate organization that retains the authority to direct the medical,
professional, and ethical aspects of its medical practice. If a Physician
Shareholder or a Physician Employee performs abortion procedures in any
facility, ProMedCo shall not receive any ProMedCo Distribution from the revenue
generated from such procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to MH and ProMedCo. MH and ProMedCo agree that the
compensation set forth herein is being paid to ProMedCo in consideration of a
substantial commitment made by ProMedCo hereunder and that such fees are fair
and reasonable. As payment for its services rendered to MH, each month ProMedCo
shall be paid the amount of all Clinic Expenses and the ProMedCo Distribution.
All Net Clinic Revenues after deduction of Clinic Expenses, and the ProMedCo
Distribution, shall be referred to as the "MH Distribution."
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7.2 Distribution. The amounts to be paid to ProMedCo under this Section
7 shall be payable monthly. ProMedCo shall pay to MH in accordance with the
provisions of Section 7.4 the MH Distribution amounts on or about the 15th day
of such following month. Some amounts may need to be estimated, with adjustments
made as necessary the following month. Any audit adjustments would be made after
completion of the fiscal year audit.
7.3 Clinic Expenses. Commencing on the Effective Date, ProMedCo shall
pay all Clinic Expenses as they fall due (including without limitation any
Non-Physician Personnel carried on the books of MH at the requirement of
ProMedCo), provided, however, that ProMedCo may, in the name of and on behalf of
MH, contest in good faith any claimed Clinic Expenses as to which there is any
dispute regarding the nature, existence or validity of such claimed Clinic
Expenses. ProMedCo hereby agrees to indemnify and hold MH harmless from and
against any liability, loss, damages, claims, causes of action and reasonable
expenses of MH resulting from the contest of any Clinic Expenses.
7.4 Accounts Receivables. Except for the first month of this Agreement,
on approximately the 15th day of each month, ProMedCo shall purchase the
accounts receivable of MH arising during the previous month, by payment of cash,
or other readily available funds into an account of MH. The consideration for
the purchase shall be an amount equal to the MH Distribution for such previous
month. Although it is the intention of the parties that ProMedCo purchase and
thereby become owner of the accounts receivable of MH, in case such purchase
shall be ineffective for any reason, MH, as of the Effective Date of this
Agreement, grants and shall cause each MH Employee to grant to ProMedCo a first
priority lien on and security interest in and to any and all interest of MH and
such MH Employees in any accounts receivable generated by the medical practice
of MH and the MH Employees or otherwise generated through the operations of the
Clinic, and all proceeds with respect thereto, to secure the payment to ProMedCo
of all such accounts receivable, and this Agreement shall be deemed to be a
security agreement to the extent necessary to give effect to the foregoing. In
addition, MH shall cooperate with ProMedCo and execute and deliver, and cause
each MH Employee to execute and deliver, all necessary documents in connection
with the pledge of such accounts receivable to ProMedCo or at ProMedCo's option,
its lenders. All collections in respect of such accounts receivable shall be
deposited in a bank account at a bank designated by ProMedCo. To the extent MH
or any MH Employee comes into possession of any payments in respect of such
accounts receivable, MH or such MH Employee shall direct such payments to
ProMedCo for deposit in bank accounts designated by ProMedCo.
8. INSURANCE AND INDEMNITY
8.1 Insurance to Be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will use reasonable efforts to provide and maintain, as a
Clinic Expense, comprehensive professional liability insurance for all
professional employees of ProMedCo and MH with limits as determined reasonable
by ProMedCo in its national program, comprehensive general liability insurance
and property insurance covering the Clinic Facility and operations.
8.2 Insurance to be Maintained by MH. Unless otherwise determined by the
Policy
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Council, throughout the term of this Agreement, subject to the provisions of
Section 4.5 and Section 8.1, MH shall maintain comprehensive professional
liability insurance with limits of not less than $1,000,000 per claim and with
aggregate policy limits of not less than $3,000,000 per physician and a separate
limit for MH. MH shall be responsible for all liabilities (including without
limitation deductibles and excess liabilities) not paid within the limits of
such policies. ProMedCo shall have the option of providing such professional
liability insurance through an alternative program, provided such program meets
the requirements of the Insurance Commissioner of the State of Kentucky and is
approved by the Policy Council.
8.3 Tail Insurance Coverage. MH will cause each individual physician
associated with the Clinic to enter into an agreement with MH that upon
termination of such physician's relationship with MH, for any reason, tail
insurance coverage will be purchased by the individual physician. Such
provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by MH and the individual physicians,
and MH hereby covenants with ProMedCo to enforce such provisions relating to the
tail insurance coverage or to provide such coverage at the expense of MH.
8.4 Additional Insured. MH and ProMedCo agree to use their best efforts
to have each other named as an additional insured on the other's respective
professional liability insurance programs at ProMedCo's expense.
8.5 Indemnification. MH shall indemnify, hold harmless and defend
ProMedCo, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of (i)
the performance of medical services or any other acts or omissions by MH and/or
its shareholders, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by a MH Employee,
which claim arises out of such MH Employees' employment relationship with MH or
as a result of services performed by such MH Employee, and which claim would
typically be covered by worker's compensation and (ii) ProMedCo's entering into
and its performance of the terms and conditions of this Agreement. ProMedCo
shall indemnify, hold harmless and defend MH, its officers, directors and
employees, from and against any and all liability, loss, damage, claim, causes
of action, and expenses (including reasonable attorneys' fees), to the extent
not covered by insurance, caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by ProMedCo and/or its shareholders, agents,
employees and/or subcontractors (other than MH) during the term of this
Agreement.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if MH operates an active medical practice to which the
physicians associated with MH devote their full time and attention. To that end:
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9.1 Restrictive Covenants by MH. During the term of this Agreement, MH
shall not establish, operate or provide physician services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by MH pursuant to this Agreement anywhere within a
radius of 30 miles of Mayfield, Kentucky, or within a radius of 30 miles of any
current or future medical office, clinic or other health care facility from
which MH provides medical services.
9.2 Restrictive Covenants By Current Physician Shareholders and
Physician Employees. MH shall enforce employment agreements, in a form
satisfactory to ProMedCo, with its current Physician Shareholders and Physician
Employees pursuant to which the Physician Shareholders and Physician Employees
agree not to establish, operate or provide physician services at any medical
office, clinic or outpatient and/or ambulatory treatment or diagnostic facility
providing services substantially similar to those provided by MH pursuant to
this Agreement within a radius of 30 miles of Mayfield, Kentucky, or within a
radius of 30 miles of any current or future medical office, clinic or other
health care facility from which MH provides medical services, during the term of
said Physician Shareholder or Physician Employee's employment agreement, and for
a period equal to the lesser of (i) one year or (ii) the maximum period
permitted by Kentucky law after any termination of employment with MH. ProMedCo
shall have third-party rights to enforce such agreements.
9.3 Restrictive Covenants By Future Physician Employees. MH shall
obtain and enforce formal employment agreements from each of its future
Physician Shareholders and Physician Employees, pursuant to which such
physicians agree not to establish, operate or provide physician services at any
medical office, clinic or outpatient and/or ambulatory treatment or diagnostic
facility providing services substantially similar to those provided by MH
pursuant to this Agreement within a radius of 30 miles of Mayfield, Kentucky, or
within a radius of 30 miles of any current or future medical office, clinic or
other health care facility from which MH provides medical services, during the
term of said Physician Employee's employment agreement, and for a period equal
to the lesser of (i) one year or (ii) the maximum period permitted by Kentucky
law after any termination of employment with MH. ProMedCo shall have third-party
rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The restrictive covenants described in Sections 9.2 and 9.3 of this Agreement
will provide that the Physician Shareholders and Physician Employees (existing
or future) may be released from their employment agreement by paying Liquidated
Damages in the amount of one times such physician's income, as reported to the
Internal Revenue Service for the previous 12 months. In addition, if a Physician
Shareholder or Physician Employee received any ProMedCo consideration pursuant
to the Asset Purchase Agreement, and said Physician Shareholder or Physician
Employee terminates their employment agreement with MH for any reason (other
than death or disability) prior to the fifth anniversary of the Closing under
the Asset Purchase Agreement, or is terminated for cause by MH prior to the
fifth anniversary of the Closing under the Asset Purchase Agreement, then said
Physician Shareholder or Physician Employee shall be required to reimburse back
to ProMedCo some or all of the consideration received by that physician pursuant
to the Asset Purchase Agreement as follows: (i) if such termination occurs prior
to the third such anniversary, 100% of such consideration; (ii) if such
termination occurs thereafter and prior to the fourth such anniversary, 67% of
such
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consideration.; and (iii) if such termination occurs thereafter and prior to the
fifth such anniversary, 33% of such consideration. Such payments shall be passed
on to ProMedCo by MH simultaneously with the payment thereof by the physician to
MH. Such payment shall be first applied to all costs incurred by ProMedCo in the
enforcement of the employment agreement for that departing physician and in
recruiting a replacement physician for that departing physician. The remainder,
if any, shall become an additional service fee to be paid to ProMedCo pursuant
to Section 7. The accounting treatment of such funds shall be consistently
applied and approved by ProMedCo's independent certified public accountants and
the Policy Council.
9.5 Enforcement. ProMedCo and MH acknowledge and agree that since a
remedy at law for any breach or attempted breach of the provisions of this
Section 9 shall be inadequate, either party shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such injunctive or other equitable
relief. If any provision of Section 9 relating to territory described therein
shall be declared by a court of competent jurisdiction to exceed the maximum
time period, scope of activity, restricted or geographical area such court deems
reasonable and enforceable under applicable law, the time period, scope of
activity, restricted and/or area of restriction deemed to be reasonable and
enforceable by the court shall thereafter be the time period, scope of activity,
restricted and/or area of restriction applicable to the restrictive covenant
provisions in this Section 9. The invalidity of non-enforceability of this
Section 9 in any respect shall not affect the validity of enforceability of the
remainder of this Section 9 or of any other provisions of this Agreement unless
the invalid or non-enforceable provisions materially affect the benefits either
party would otherwise be entitled to receive under this Section 9 or any other
provision of this Agreement.
9.6 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 10.2 herein, the employment agreement term contained in this Section 9
shall be null and void and of no force or effect.
10. TERM RENEWAL; TERMINATION;
10.1 Term and Renewal. The term of this Agreement shall commence on the
date hereof and shall continue for 40 years, after which it shall automatically
renew for five-year terms unless either party provides the other party with at
least 12 months but not more than 13 months written notice prior to any renewal
date.
10.2 Termination by MH. MH may terminate this Agreement as follows:
(i) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of
creditors by ProMedCo, or upon other action taken or
suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
ProMedCo, except for the filing of a petition in
involuntary bankruptcy against ProMedCo which is
dismissed within 30 days thereafter, MH may give
notice of the immediate termination of this
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Agreement.
(ii) In the event ProMedCo shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement and such default shall
continue for a period of 90 days after written notice thereof has been given to
ProMedCo by MH; or ProMedCo shall fail to remit the payments due as provided in
Section 7 hereof and such failure to remit shall continue for a period of 30
days after written notice thereof, MH may terminate this Agreement. Termination
of this Agreement pursuant to this Section 10.2(ii) by MH shall require the
affirmative vote of 75% of the Physician Shareholders.
10.3 Termination by ProMedCo. ProMedCo may terminate this Agreement
as follows:
(i) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of
creditors by MH, or upon other action taken or
suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
MH, except for the filing of a petition in
involuntary bankruptcy against MH which is dismissed
within 30 days thereafter, ProMedCo may give notice
of the immediate termination of this Agreement.
(ii) In the event MH shall materially default in the
performance of any duty or obligation imposed upon it
by this Agreement or in the event a majority of the
Physicians Shareholders shall materially default in
the performance of any duty or obligation imposed
upon them by this Agreement or by their employment
agreements with MH, and such default shall continue
for a period of 90 days after written notice thereof
has been given to MH and such Physician Shareholders
by ProMedCo, ProMedCo may terminate this Agreement.
10.4 Actions After Termination. In the event that this Agreement shall
be terminated, the MH Distribution and the ProMedCo Distribution shall be paid
through the effective date of termination. In addition, the various rights and
remedies herein granted to the aggrieved party shall be cumulative and in
addition to any others such party may be entitled to by law. The exercise of one
or more rights or remedies shall not impair the right of the aggrieved party to
exercise any other right or remedy, at law. Upon termination of this Agreement,
MH shall:
10.4.1 Asset Repurchase. Purchase from ProMedCo at book value
the intangible assets set forth on the Opening Balance Sheet, as
adjusted through the last day of the month most recently ended prior to
the date of such termination in accordance with GAAP to reflect
amortization or depreciation of the intangible assets, which
amortization shall be for a period not in excess of 40 years.
10.4.2 Real Estate. Purchase from ProMedCo all real estate, if any,
associated with
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the Clinic and owned by ProMedCo at the then book value thereof.
10.4.3 Improvements. Purchase all improvements, additions or
leasehold improvements which have been made by ProMedCo and which
relate solely to the performance of its obligations under this
Agreement or the properties subleased by ProMedCo, if any.
10.4.4 Debts. Assume all ordinary and necessary debt,
contracts, payables and leases which are obligations of ProMedCo and
which relate principally to the performance of its obligations under
this Agreement or the properties subleased by ProMedCo, if any.
10.4.5 Equipment; Inventories; Accounts Receivable; etc. Purchase from
ProMedCo at book value:
(i) Equipment. All of the equipment acquired by ProMedCo
pursuant to the Asset Purchase Agreement, including
all replacements and additions thereto made by
ProMedCo with the approval of the Policy Council
pursuant to the performance of its obligations under
this Agreement;
(ii) Inventory. All stocks, including inventory and
supplies, tangibles and intangibles of ProMedCo
relating to MH operations, set forth on the Opening
Balance Sheet, as adjusted through the last day of
the month most recently ended prior to the date of
such termination in accordance with GAAP to reflect
operations of the Clinic, depreciation, amortization
and other adjustments of assets shown on the Opening
Balance Sheet;
(iii) Accounts Receivable. All uncollected of accounts receivable
theretofore purchased by ProMedCo pursuant to Section 7.4 hereof at the book
value thereof on ProMedCo's books; and
(iv) Other Assets. All other assets of ProMedCo relating to the operations
of MH.
10.4.6 Closing of Repurchase. MH shall pay cash for the
repurchased assets. The amount of the purchase price shall be reduced
by the amount of debt and liabilities of ProMedCo assumed by MH and
shall be reduced by any payment ProMedCo has failed to make under this
Agreement. MH and any physician associated with MH shall execute such
documents as may be required to assume the liabilities set forth in
Section 10.4.4. and to remove ProMedCo from any liability with respect
to such repurchased Stocks and with respect to any property leased or
subleased by ProMedCo. The closing date for the repurchase shall be
determined by MH, but shall in no event occur later than 180 days from
the date of the notice of termination. The termination of this
Agreement shall become effective upon the closing of the sale of the
assets and MH shall be released from the Restrictive Covenants provided
for in Section 9 on the closing date. From and after any
<PAGE>
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termination, each party shall provide the other party with reasonable
access to books and records then owned by it to permit such requesting
party to satisfy reporting and contractual obligations which may be
required of it.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
11.1 Net Clinic Revenues shall mean MH's gross billings, including
ancillaries and any other revenues that have historically been recorded by MH,
less any adjustments such as uncollectible accounts, discounts, contractual
adjustments, Medicare allowances, Medicaid allowances, and professional
courtesies ("adjustments"). This specifically excludes Risk Pool Surpluses.
11.2 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.3 ProMedCo Distribution shall mean [*]% of Distribution Funds plus
a percentage of Risk Pool Surpluses established by Exhibit A.
11.4 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by MH and the MH Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.5 Clinic Facility shall mean the clinic facilities located at 220
West Walnut Street, Mayfield, Kentucky 42066, and any substitute facility or
additional facility location, whether within or without Graves County, as
approved by the Policy Council.
11.6 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
(i) Salaries, benefits (including contributions under any
Parent benefit plan), and other direct costs of all
employees of ProMedCo and Technical Employees
attributable to MH;
(ii) Direct costs, including benefits, of all employees or consultants of
Parent or affiliate of ProMedCo who, with approval of the Policy Council,
provides services at or in connection with MH required for improved performance,
such as work management, purchasing, information systems, charge and coding
analysis, managed care sales, negotiating and contracting, financial analysis,
and business office consultation; provided, however, only that portion of such
employee's or consultant's costs without mark-up by Parent that is allocable to
Clinic will be a Clinic Expense;
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
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(iii) Obligations of ProMedCo or Parent under leases or subleases related
to Clinic operations;
(iv) Interest Expense on indebtedness incurred by ProMedCo
or Parent to finance or refinance any of its
obligations hereunder or services provided hereunder.
(v) Personal property and intangible taxes assessed
against ProMedCo's assets used in connection with the
operation of Clinic commencing on the date of this
Agreement;
(vi) Malpractice insurance expenses for ProMedCo's
operations and for the MH Employees, as well as any
deductibles and non-insured expenses relating to
malpractice claims.
(vii) Other expenses incurred by ProMedCo in carrying out its obligations
under this Agreement.
11.7 Clinic Expenses shall not include:
(i) Corporate overhead charges or any other expenses of Parent or any
corporation affiliated with Parent other than the kind of items listed above;
(ii) Any federal or state income taxes;
(iii) Any expenses which are expressly designated herein as expenses or
responsibilities of MH and/or MH Employees;
(iv) Any amortization expense resulting from the
amortization of expenses incurred as shown on
Parent's financial statements, in connection with the
acquisition and execution of the Asset Purchase
Agreement and the execution of this Agreement; and
(v) Interest expense on indebtedness incurred by ProMedCo
or Parent to finance the consideration paid under the
Asset Purchase Agreement.
(vi) Any liabilities, judgments or settlements assessed
against MH or Physician Shareholders in excess of any
insurance policy limits.
11.8 Risk Pool Surpluses shall mean all hospital incentive funds,
specialists incentive funds, and funds from shared risk pools under any
risk-sharing arrangements. Risk Pool Surpluses shall be calculated by
aggregating all risk pools applicable, including making any deductions for pools
that are in a deficit position.
<PAGE>
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11.9 Opening Balance Sheet shall mean the balance sheet of ProMedCo as
of the Effective Date (as defined in the Asset Purchase Agreement), prepared in
accordance with GAAP (except for the absence of certain note information), and
substantially in the form of the attached Exhibit B subject to adjustments in
the Consideration (as defined in the Asset Purchase Agreement).
11.10 Technical Employees shall mean technicians who provide services
in the diagnostic areas of MH's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be MH employees.
11.11 Physician Shareholders shall mean any physician who is a
shareholder of MH, both as of the date of this Agreement (which said Physician
Shareholders are parties to this Agreement) and at any future point in time.
11.12 Physician Employees shall mean any physician employed by MH and
providing medical services to patients on behalf of MH, who are not Physician
Shareholders.
11.13 MH Employees shall mean all Physician Shareholders, Physician
Employees and Technical Employees at the relevant date.
11.14 Effective Date shall mean 12:01 a.m. on the first day of the month in
which the Closing Date (as such term is defined in the Asset Purchase Agreement)
occurs.
11.15 Physician Extenders shall mean all non-physician professional
employees who provide direct patient care for which a billed charge is
generated.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that MH and
ProMedCo are at all times acting and performing hereunder as independent
contractors. ProMedCo shall neither have nor exercise any control or direction
over the methods by which MH or the MH Employees practice medicine. The sole
function of ProMedCo hereunder is to provide all management services in a
competent, efficient and satisfactory manner. ProMedCo shall not, by entering
into and performing its obligations under this Agreement, become liable for any
of the existing obligations, liabilities or debts of MH unless otherwise
specifically provided for under the terms of this Agreement. ProMedCo will in
its management role have only an obligation to exercise reasonable care in the
performance of the management services. Neither party shall have any liability
whatsoever for damages suffered on account of the willful misconduct or
negligence of any employee, agent or independent contractor of the other party.
Each party shall be solely responsible for compliance with all state and federal
laws pertaining to employment taxes, income withholding, unemployment
compensation contributions and other employment related statutes regarding their
respective employees, agents and servants.
12.2 Other Contractual Arrangement. (a) The parties acknowledge and agree
that they have been advised and consent to the fact that ProMedCo, or it's
affiliates (i) may have, prior to the
<PAGE>
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date of this Agreement, discussed proposals with respect to, or (ii) may, from
time to time hereafter, enter into agreements with one or more MH Employees to
provide consulting, medical direction, advisory or similar services relating to
activities of ProMedCo or its affiliates in clinical areas. The parties agree
that such agreement, if any, shall be entered into at the sole discretion of the
parties thereto and subject to such terms and conditions to which such parties
may agree, and any compensation payable to or by ProMedCo, on the one hand, and
such MH Employees, on the other hand, shall not constitute Net Clinic Revenues,
or MH Compensation, and shall otherwise not be subject to the provisions of this
Agreement. (b) Each current Physician Shareholder, by his execution of this
Agreement as provided on the signature page hereof, agrees that neither the
negotiation nor the entry into any agreement or arrangement of a type described
in Section 12.2 (a) above shall constitute a breach of any fiduciary or other
duty owned by any MH Employee to another, or by ProMedCo, to MH or any Physician
Shareholder. Accordingly, MH and each Physician Shareholder hereby waive any
right to disclosure of the negotiations, proposals or terms of any such
agreement, arrangement or right to participate in and/or share revenues derived
from any such agreement or arrangement with any MH Employee, and hereby forever
release and discharge MH, the Physician Shareholders, ProMedCo, and their
respective representatives (including, but not limited to, their respective
attorneys, accountants, affiliates, shareholders, officer, directors, employees
and agents) from any and all actions, claims, charges, suits, damages and
liabilities of any kind whatsoever arising from or by reason of the
participation of any MH Employee in any agreement or arrangement with ProMedCo,
or their affiliates of a type described in Section 12.2(a) above or from or by
reason of the failure of ProMedCo, any MH Employee or their respective
representatives to disclose the negotiation, existence or terms of any such
agreement or arrangement. In keeping with the private nature of these matters,
the Physician Shareholders further agree that such negotiations, proposals or
terms of agreement are to be kept confidential between a MH Employee on the one
hand, and ProMedCo, on the other hand, and shall not be disclosed by them or
their representatives, except as required by applicable law.
12.3 Proprietary Property.
12.3.1 Each party agrees that the other party's proprietary
property shall not be possessed, used or disclosed otherwise than may
be necessary for the performance of this Agreement. Each party
acknowledges that its violation of this Agreement would cause the other
party irreparable harm, and may (without limiting the other party's
remedies for such breach) be enjoined at the instance of the other
party. Each party agrees that upon termination of this Agreement for
any reason, absent the prior written consent of the other party, it
shall have no right to and shall cease all use of the other party's
proprietary property, and shall return all such proprietary property of
the other party in its possession to the other party.
12.3.2 ProMedCo shall be the sole owner and holder of all
right, title and interest, to all intellectual property furnished by it
under this Agreement, including, but not limited to the trade name
"ProMedCo," all computer software, copyright, services mark and
trademark right to any material or documents acquired, prepared,
purchased or furnished by ProMedCo pursuant to this Agreement. MH shall
have no right, title or interest in or to such material
<PAGE>
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and shall not, in any manner, distribute or use the same without the
prior written authorization of ProMedCo, provided, however, that the
foregoing shall not restrict MH from distributing managed care
information brochures and materials without the prior written approval
of ProMedCo provided no Proprietary Property of ProMedCo is contained
therein. Not withstanding the preceding, however, ProMedCo agrees that
MH shall be entitled to use on a nonexclusive and nontransferable basis
for the term of this Agreement the name "MH" as may be necessary or
appropriate in the performance of MH's services and obligations
hereunder.
12.4 Cooperation. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement.
12.5 Licenses, Permits and Certificates. ProMedCo and MH shall each
obtain and maintain in effect, during the term of this Agreement, all licenses,
permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
12.6 Compliance with Rules, Regulations and Laws. ProMedCo and MH shall
comply with all federal and state laws and regulations in performance of their
duties and obligations hereunder. Neither party, nor their employees or agents,
shall take any action that would jeopardize the other party's participation, if
applicable, in any federal or state health program including Medicare and
Medicaid. ProMedCo and MH shall take particular care to ensure that no employee
or agent of either party takes any action intended to violate Section 1128B of
the Social Security Act with respect to soliciting, receiving, offering or
paying any remuneration (including any kickback, bribe, or rebate) directly or
indirectly, overtly or covertly, in cash or in kind in return for referring an
individual to a person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part under Title
XVIII or XIX of the Social Security Act, or for purchasing, leasing, ordering,
or arranging for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part
under Title XVIII or XIX of the Social Security Act.
12.7 Generally Accepted Accounting Principles (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
12.8 Notices. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this Section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
12.9 Attorneys' Fees. ProMedCo and MH agree that the prevailing party
in any legal dispute among the parties hereto shall be entitled to payment of
its attorneys' fees by the other party.
<PAGE>
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12.10 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing regulations to be invalid, void or unenforceable, the remaining
provisions will nevertheless continue in full force and effect.
12.11 Arbitration. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof will be settled by binding arbitration
in accordance with the rules of commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur within the County of Graves, Commonwealth of Kentucky,
unless the parties mutually agree to have such proceedings in some other locale.
The arbitrator(s) may in any such proceeding award attorneys' fees and costs to
the prevailing party.
12.12 Construction of Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of Kentucky. The parties
agree that the terms and provisions of this Agreement embody their mutual
interest and agreement and that they are not to be construed more liberally in
favor of, nor more strictly against, any party hereto.
12.13 Assignment and Delegation. ProMedCo shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
neither ProMedCo nor MH shall have the right to assign their respective rights
and obligations hereunder without the written consent of the other party. MH may
not delegate any of MH's duties hereunder, except as expressly contemplated
herein; however, ProMedCo may delegate some or all of ProMedCo' s duties
hereunder to the extent it concludes, in its sole discretion, that such
delegation is in the mutual interest of the parties hereto.
12.14 Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law.
12.15 Waiver. The waiver of any provision, or of the breach of any
provision of this Agreement must be set forth specifically in writing and signed
by the waiving party. Any such waiver shall not operate or be deemed to be a
waiver of any prior or future breach of such provision or of any other
provision.
12.16 Headings. The subject headings of the articles and sections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
12.17 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and
<PAGE>
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all of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
12.18 Time is of the Essence. Time is hereby expressly declared to be of
the essence in this Agreement.
12.19 Modifications of Agreement for Prospective Legal Events. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel for both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, or in the event the Kentucky State Board of Medical
Examiners or other authority with legal jurisdiction shall, solely by virtue of
this Agreement, initiate an action to revoke, suspend, or restrict the license
of any physician retained by MH to practice medicine in the State of Kentucky,
MH and ProMedCo shall amend this Agreement as necessary. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between MH and ProMedCo. In the event it is not possible
to amend this Agreement to preserve in all material respects the underlying
economic and financial arrangements between MH and ProMedCo, this Agreement may
be terminated by written notice by either party within 90 days from date of such
interpretation or action, termination to be effective no sooner than the earlier
of 180 days from the date notice of termination is given or the latest possible
date specified for such termination in any regulatory order or notice.
Termination pursuant to this Section 12.19 by MH shall require the affirmative
vote of a majority of Physician Shareholders.
12.20 Whole Agreement Modification;. A contract in which the amount
involved exceeds $50,000 in value is not enforceable unless the Agreement is in
writing and signed by the party to be bound or by that party's authorized
representative. The rights and obligations of the parties hereto shall be
determined solely from written agreements. Documents and instruments, and any
prior oral agreements between the parties are superseded by and merged into such
writings. This Agreement (As amended in writing from time to time), the
exhibits, and the schedules delivered pursuant hereto
<PAGE>
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represent the final agreement between the parties hereto and may not be
contradicted by; evidence of prior, contemporaneous, or subsequent oral
agreements by the parties. There are no unwritten oral agreements between the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written,
PROMEDCO OF MAYFIELD, INC.,
By:
Name:
Title:
Address: c/o ProMedCo, Inc.
801 Cherry St.
Suite 1450
Fort Worth, TX 76102
Attention: President
MORGAN-HAUGH, P.S.C.
By:
Name:
Title:
Address: 220 West Walnut St.
Mayfield, KY 40266
Attention: President
Jeffrey A. Carrico, M.D.
Physician Shareholder
Francis J. Dillard, M.D.
Physician Shareholder
Patricia S. Elliott, M.D.
Physician Shareholder
Brian K. Gaw, M.D.
Physician Shareholder
Mark D. Irvin, M.D.
Physician Shareholder
Michael H. McBee, M.D.
Physician Shareholder
<PAGE>
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Bruce J. Rowland, D.O.
Physician Shareholder
Dinesh H. Shah, M.D.
Physician Shareholder
Joseph C. Slaughter, M.D.
Physician Shareholder
GUARANTY
ProMedCo, Inc., a Texas corporation (the "Parent") which is the sole
shareholder of ProMedCo of Mayfield, Inc., a Kentucky corporation ("ProMedCo"),
hereby guarantees the performance of ProMedCo under the above Service Agreement.
PROMEDCO, INC.
By
Its
Name
<PAGE>
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EXHIBIT "A"
Allocation of Risk Pool Surpluses
ProMedCo shall receive a percentage of the Risk Pool Surpluses.
ProMedCo's percentage shall be based on the cumulative risk pool surpluses that
have occurred during the entire term of this Agreement, including any renewals.
The percentage shall be based on the graduated scale as shown below:
Cumulative Risk Pool Surpluses ProMedCo %
[*]
The distribution of Risk Pool Surpluses shall be made on an annual
basis no later than 90 days after the conclusion of each contract year of this
Agreement, and after a full analysis of an Incurred But Not Reported (IBNR)
liabilities. Once the final balance of Risk Pool Surpluses has been calculated,
[*]% of that amount shall be distributed, with the final [*]% held for
an additional 6 months to pay for any unanticipated claims. At the end of
that 6 months, any funds remaining from the [*]% reserved shall be distributed.
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------------------------------------------------------
AMENDED AND RESTATED SERVICE AGREEMENT
- -------------------------------------------------------------------------------
PROMEDCO OF LAKE -WORTH, INC.
AND
TARRANT FAMILY PRACTICE, P.A.
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Effective June 1, 1996
- --------------------------------------------------------------------------------
0346209.05
080020-003 08/15/96
<PAGE>
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Table of Contents
1. RESPONSIBILITIES OF THE PARTIES.................................1
1.1 General Responsibilities of the Parties...............1
1.2 Tarrant's Matters.....................................2
1.3 Patient Referrals.....................................2
2. POLICY COUNCIL...................................................2
2.1 Formation and Operation of the Policy Council.........2
2.2 Duties and Responsibilities of the Policy Council.......2
3. OBLIGATIONS OF PROMEDCO-LW........................................4
3.1 Management and Administration..........................4
3.3 Expansion of Clinic..................................8
3.4 Events Excusing Performance..............................8
3.5 Compliance With Applicable Laws........................8
4. REPRESENTATIONS OF TARRANT........................................8
5. OBLIGATIONS OF TARRANT............................................9
5.1 Professional Services..................................9
5.2 Employment Of Physician Employees.......................9
5.3 NonClinic Expenses......................................9
5.4 Medical Practice........................................9
5.5 Professional Insurance Eligibility......................9
5.6 Employment Of Non-Physician Employees...................9
5.7 Events Excusing Performance.............................10
5.8 Compliance With Applicable Laws.........................10
5.9 Restrictions on Use of Clinic Facility..................10
5.10 Tarrant Employee Benefit Plans..........................10
5.11 Physician Powers of Attorney............................11
5.12 Spokesperson............................................11
6. RECORDS...........................................................11
6.1 Patient Records.........................................11
6.2 Other Records..........................................11
6.3 Access to Records.......................................11
7. FACILITIES TO BE PROVIDED BY PROMEDCO-LW..........................11
7.1 Facilities..............................................11
7.2 Use of Facilities......................................12
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8. FINANCIAL ARRANGEMENTS....................................................12
8.1 Payments to Tarrant and ProMedCo-LW....................................12
8.2 Distribution....................................................12
8.3 Clinic Expenses.................................................12
8.4 Accounts Receivables............................................12
9. INSURANCE AND INDEMNITY...................................................13
9.1 Insurance to Be Maintained by ProMedCo-LW.......................13
9.2 Insurance to be Maintained by Tarrant...........................13
9.3 Tail Insurance Coverage.........................................13
9.4 Additional Insured.............................................14
9.5 Indemnification................................................14
10. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES...........................14
10.1 Restrictive Covenants by Tarrant..............................14
10.2 Restrictive Covenants By Current Physician Shareholders
and Physician Employees...................................14
10.3 Restrictive Covenants By Future Physician Employees............15
10.4 Physician Shareholder and Physician Employee Liquidated Damages15
10.5 Enforcement....................................................16
10.6 Termination of Restrictive Covenants...........................16
11. TERM.....................................................................17
11.1 Term and Renewal...............................................17
11.2 Termination by Tarrant.........................................17
11.3 Termination by ProMedCo-LW....................................17
11.4 Actions After Termination......................................18
12. DEFINITIONS............................................................19
12.1 Clinic .......................................................19
12.2 Clinic Expenses ...............................................20
12.3 Clinic Expenses shall not include..............................20
12.4 Clinic Facility ...............................................21
12.5 Distribution Funds ............................................21
12.6 Effective Date ................................................21
12.7 IPO............................................................21
12.8 Net Clinic Revenues ...........................................21
12.9 Opening Balance Sheet .........................................21
12.10 Physician Employees .........................................22
12.11 Physician Extenders ..........................................22
12.12 Physician Shareholders ......................................22
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12.13 ProMedCo-LW Distribution .....................................22
12.14 Risk Pool Surpluses ..........................................22
12.15 Tarrant Employees ............................................22
12.16 Technical Employees ..........................................22
13. GENERAL PROVISIONS.......................................................22
13.1 Independent Contractor.........................................22
13.2 Other Contractual Arrangement..................................23
13.3 Proprietary Property...........................................24
13.4 Cooperation....................................................24
13.5 Licenses, Permits and Certificates............................24
13.6 Compliance with Rules, Regulations and Laws....................24
13.7 Generally Accepted Accounting Principles (GAAP)................25
13.8 Notices........................................................25
13.9 Attorneys' Fees................................................25
13.10 Severability..................................................25
13.11 Alternative Dispute Resolution................................25
13.12 Construction of Agreement.....................................25
13.13 Assignment and Delegation.....................................26
13.14 Confidentiality...............................................26
13.15 Waiver........................................................26
13.16 Headings.....................................................26
13.17 No Third Party Beneficiaries..................................26
13.18 Time is of the Essence........................................26
13.19 Modifications of Agreement for Prospective Legal Events.......26
13.20 Whole Agreement...............................................27
0346209.05
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<PAGE>
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AMENDED AND RESTATED SERVICE AGREEMENT
AMENDED AND RESTATED SERVICE AGREEMENT dated June 24, 1996 between
ProMedCo of Lake Worth, Inc. a Texas corporation ("ProMedCo-LW"), and Tarrant
Family Practice, P.A., an association of physicians licensed to practice
medicine in the State of Texas ("Tarrant").
RECITALS:
Tarrant and HealthFirst Services, Inc., a Texas corporation
("HealthFirst") entered into a Management Services Agreement dated March 1, 1995
(the "Service Agreement"). Pursuant to an Asset Purchase Agreement dated as of
May 29, 1996 (the "Asset Purchase Agreement") between HealthFirst and
ProMedCo-LW, HealthFirst assigned to ProMedCo-LW all of HealthFirst's rights and
obligations under the Service Agreement. ProMedCo-LW and Tarrant now desire to
amend and restate the Service Agreement as set forth herein.
The parties agree as follows:
The Service Agreement is hereby amended and restated to read as
follows:
"SERVICE AGREEMENT
Service Agreement ("Agreement") dated June 24, 1996, between ProMedCo
of Lake Worth, Inc., a Texas corporation ("ProMedCo-LW") and Tarrant Family
Practice, P.A., an association of physicians licensed to practice medicine in
the State of Texas ("Tarrant").
RECITALS:
Subject to the terms and conditions hereof, Tarrant desires to engage
ProMedCo-LW to provide to Tarrant management services, facilities, personnel,
equipment and supplies necessary to operate the Clinic (as defined herein) and
ProMedCo-LW desires to accept such engagement.
The parties agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo-LW shall provide
Tarrant with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. Tarrant shall be
responsible for the recruitment and hiring of physicians, physician extenders
and all issues related to patient care and documentation thereof. ProMedCo-LW
shall neither exercise control over nor interfere with the physician-patient
relationship, which shall be maintained strictly between the physicians of
Tarrant and their patients.
0346209.05
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<PAGE>
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1.2 Tarrant's Matters. Tarrant shall maintain sole discretion and
authority over the financial matters relative to its corporate existence. It
shall set compensation levels for Tarrant Employees. Tarrant will also be
responsible for all other matters pertaining to the operation of Tarrant.
1.3 Patient Referrals. The parties agree that the benefits to Tarrant
do not require, are not payment for, and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by ProMedCo-LW to any of Tarrant's patients in any facility or
laboratory controlled, managed or operated by ProMedCo-LW.
2. POLICY COUNCIL
2.1 Formation and Operation of the Policy Council. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the Clinic. The Policy Council shall
consist of four members. ProMedCo-LW shall designate, at its sole discretion,
two members of the Policy Council. Members of the Policy Council designated by
ProMedCo-LW shall be entitled to attend and vote by proxy at any meetings of the
Policy Council so long as at least one such representative is present in person.
Tarrant at its sole discretion shall designate two members. Except as may
otherwise be provided, the act of a majority of the members of the Policy
Council shall be the act of the Policy Council.
2.2 Duties and Responsibilities of the Policy Council. During the term
of this Agreement, the Policy Council shall have the following duties and
responsibilities.
(a) Annual Budgets. All annual capital and operating budgets
prepared by ProMedCo- LW, as set forth in Section 3 and
employing ProMedCo-LW's financial expertise, shall be subject
to the review and approval of the Policy Council, provided;
however, ProMedCo-LW shall have final approval of any capital
expenditure required by ProMedCo-LW.
(b) Administrator. The selection and retention of the Administrator
pursuant to Section 3.1 shall be subject to the reasonable approval of the
Policy Council. If Tarrant is dissatisfied with the services provided by the
Administrator, Tarrant shall refer the matter to the Policy Council. ProMedCo-LW
and Policy Council shall in good faith determine whether the performance of the
Administrator could be brought to acceptable levels through counsel and
assistance, or whether the Administrator should be terminated. ProMedCo-LW shall
have the ultimate authority to terminate the Administrator.
(c) Advertising. All advertising, marketing, and public relations shall be
subject to the prior review and approval of the Policy Council, in compliance
with applicable laws and regulations governing professional advertising and in
accordance with the standards and
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medical ethics of the American Medical Association and the Texas Medical
Association.
(d) Ancillary Services. The Policy Council shall approve Clinic provided
ancillary services based upon the pricing, access to and quality of such
services.
(e) Capital Improvements and Expansion. The Policy Council shall
determine the priority for any renovation, expansion plans and
major equipment expenditures with respect to the Clinic based
upon economic feasibility, physician support, productivity and
market conditions. Any capital expenditure in excess of
$10,000 shall require the approval of the Policy Council.
(f) Exceptions to Inclusion in the Net Revenue Calculation. The exclusion
of any revenue from Net Clinic Revenues, whether now or in the future, shall be
subject to the approval of the Policy Council.
(g) Grievance Issues. Subject to the provisions of Section 1.2 of
this Agreement, the Policy Council shall consider and make
final decisions regarding grievances pertaining to matters not
specifically addressed in this Agreement as referred to it by
Tarrant's Board or ProMedCo-LW.
(h) Patient Fees. In consultation with Tarrant and ProMedCo-LW, the Policy
Council shall review and adopt the fee schedule for all physician and ancillary
services rendered by the Clinic.
(i) Physician Hiring. The Policy Council, with information and
analysis provided by ProMedCo-LW, shall determine the number
and type of physicians required for the efficient operation of
the Clinic and Tarrant shall determine the individual
physicians to be hired to fill such positions. The approval of
ProMedCo-LW shall be required for any variations to the
restrictive covenants in any physician employment contract.
(j) Provider and Payor Relationships. The Policy Council shall make the
decisions regarding the establishment and maintenance of relationships with
institutional health care providers and payors. The Policy Council shall be
responsible for approving the allocation of capitation risk pools between the
professional and institutional components of these pools to the extent
applicable under a payor agreement. ProMedCo-LW and Tarrant shall use actuarial
data from a nationally recognized actuarial firm as agreed to by both parties,
for the purposes of allocating capitation funds, for those professional services
provided directly by Tarrant.
(k) Strategic Planning. The Policy Council, with the assistance of
ProMedCo-LW, shall develop long-term strategic planning objectives.
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3. OBLIGATIONS OF PROMEDCO-LW
During the term of this Agreement, ProMedCo-LW shall provide or arrange
for the services set forth in this Section 3, the cost of all of which shall be
included in Clinic Expenses. ProMedCo-LW is hereby expressly authorized to
perform its services in whatever manner it deems reasonably appropriate, in
accordance with policies approved by the Policy Council, and including without
limitation, performance of some functions at locations other than the Clinic
Facility. Tarrant will not act in a manner which would prevent ProMedCo-LW from
efficiently managing the Clinic Facility operations in a businesslike manner.
Tarrant, through Tarrant Employees, will provide all medical services.
ProMedCo-LW will have no authority, directly or indirectly, to perform, and will
not perform, any medical function. ProMedCo-LW may, however, advise Tarrant as
to the relationship between its performance of medical functions and the overall
administrative and business functioning of the Clinic.
3.1 Management and Administration. During the term of this Agreement,
Tarrant hereby appoints ProMedCo-LW as the sole and exclusive manager and
administrator of all non-medical functions and services related to Tarrant's
services at the Clinic. Tarrant shall perform all medical services, and
ProMedCo-LW shall have no authority, directly or indirectly, to perform, and
will not perform, any medical function. Without limiting the generality of the
foregoing, ProMedCo-LW shall provide the following administrative, management
and marketing services as may be required in conjunction with Tarrant's services
at the Clinic. ProMedCo-LW shall hire and supervise an Administrator, subject to
the reasonable approval of the Policy Council, to manage and administer all of
the day-to-day business functions of ProMedCo-LW, including without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of
annual budgets. Annually and at least 30 days prior to the commencement
of each fiscal year, ProMedCo-LW shall prepare and deliver to Tarrant
capital and operating budgets reflecting in reasonable detail
anticipated revenues and expenses, sources and uses of capital to
maintain and enhance Tarrant's medical practice and Clinic services.
3.1.2 Financial Statements. ProMedCo-LW shall prepare monthly
and fiscal year unaudited financial statements containing a balance
sheet and a statement of income for Clinic operations, which shall be
delivered to Tarrant within thirty (30) days after the close of each
calendar month. The fiscal year statement shall be reviewed by a
certified public accountant as selected by ProMedCo-LW in connection
with the audit of the financial statements of ProMedCo. If Tarrant
desires an audit in addition to the audit provided by ProMedCo-LW, such
an audit would be at Tarrant's expense.
3.1.3 Non-Physician Personnel. ProMedCo-LW will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Physician Extenders and Technical Employees. ProMedCo-LW shall determine and
cause to be paid the
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salaries, fringe benefits and any sums for income taxes, unemployment
insurance, social security taxes or any other withholding amounts
required by applicable law or governmental authority, of all such
personnel. Such personnel shall be under the direction, supervision and
control of ProMedCo-LW, with those personnel performing patient care
services subject to the professional supervision of Tarrant. If Tarrant
is dissatisfied with the services of any person, Tarrant shall consult
with ProMedCo-LW. ProMedCo-LW shall in good faith determine whether the
performance of that employee could be brought to acceptable levels
through counsel and assistance, or whether such employee should be
terminated. All of ProMedCo-LW's obligations regarding staff shall be
governed by the overriding principle and goal of providing high quality
medical care. At ProMedCo-LW's option some or all of the non-physician
personnel may be carried on the books of Tarrant as Tarrant's employees
in which event the costs associated with such employees will be a
Clinic Expense.
3.1.4 Quality Assurance. ProMedCo-LW will assist Tarrant in
fulfilling its obligation to its patients to maintain high quality
medical and professional services, including patient satisfaction
programs, employee education, outcomes analysis, clinical protocol
development and to implement a risk management program.
3.1.5 Facilities and Equipment. ProMedCo-LW will ensure the
proper cleanliness of the premises, maintenance and cleanliness of the
equipment, furniture and furnishings located on the premises.
3.1.6 Inventory Control and Purchasing Supplies. ProMedCo-LW
shall order and purchase inventory and supplies, and such other
ordinary, necessary or appropriate materials which ProMedCo-LW shall
deem to be necessary in the operation of the Clinic, to deliver quality
Clinic services in a cost effective manner.
3.1.7 Managed Care Contracting. ProMedCo-LW will be
responsible for marketing, negotiation, and administering all managed
care contracts, subject to the provisions of Section 2.2(j); provided,
however, no contract or arrangement regarding the provision of clinical
services shall be entered into without Tarrant's consent.
3.1.8 Billing and Collections. ProMedCo-LW shall bill patients
and collect all fees for services performed inside or outside the
Clinic Facility or arrange for such billing and collection. Tarrant
hereby appoints ProMedCo-LW, for the term hereof, to be its true and
lawful attorney-in-fact for the following purposes (i) to bill patients
in Tarrant's name and on its behalf, (ii) to collect accounts
receivable resulting from such billing in Tarrant's name and on its
behalf, (iii) to receive payments from Blue Cross and Blue Shield,
Medicare, Medicaid, payments from health plans, and all other third
party payors; (iv) to receive the cash proceeds of any accounts
receivable; (v) to take possession of and endorse in the name of
Tarrant (and/or in the name of an individual physician, such payment
intended for purpose of payment of a
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physician's bill) any notes, checks, money orders, insurance payments
and other instruments received in payment of accounts receivable; and
(vi) in accordance with policies adopted by the Policy Council, to
initiate legal proceedings in the name of Tarrant to collect any
accounts and monies owed to the Clinic, to enforce the rights of
Tarrant as creditors under any contract or in connection with the
rendering of any service, and to contest adjustments and denials by
governmental agencies (or its fiscal intermediaries) as third-party
payors. All adjustments made for uncollectible accounts, professional
courtesies and other activities that do not generate a collectible fee
shall be done in a reasonable and consistent manner acceptable to
ProMedCo- LW's independent certified public accountants.
3.1.9 Deposit of Net Clinic Revenues. During the term of this
Agreement, all Net Clinic Revenues collected resulting from the
operations of the Clinic shall be deposited directly into a bank
account of which Tarrant shall be the owner ("Account"). ProMedCo-LW
and Tarrant shall maintain their accounting records in such a way as to
clearly segregate Net Clinic Revenues from other funds of ProMedCo-LW
or Tarrant. Tarrant hereby appoints ProMedCo- LW as its true and lawful
attorney-in-fact to deposit in the Account all revenues collected.
Tarrant covenants, and shall cause all Tarrant Employees to covenant,
to forward any payments received with respect to Net Clinic Revenues
for services provided by Tarrant and Tarrant Employees to ProMedCo-LW
for deposit. ProMedCo-LW shall have the right to withdraw funds from
the Account and all owners of the Account shall execute a revocable
standing transfer order ("Transfer Order") under which the bank
maintaining the Account shall periodically transfer the entire balance
of the Account to a separate bank account owned solely by ProMedCo-LW
("ProMedCo-LW Account"). Tarrant and ProMedCo-LW hereby agree to
execute from time to time such documents and instructions as shall be
required by the bank maintaining the Account and mutually agreed upon
to effectuate the foregoing provisions and to extend or amend such
documents and instructions. Any action by Tarrant that interferes with
the operation of this Section, including, but not limited to, any
failure to deposit or have ProMedCo-LW deposit any Net Clinic Revenues
into the Account, any withdrawal of any funds from the Account not
authorized by the express terms of this Agreement, or any revocation of
or attempt to revoke the Transfer Order (otherwise than upon expiration
or termination of this Agreement), will constitute a breach of this
Agreement and will entitle ProMedCo-LW, in addition to any other
remedies that it may have at law or in equity, to seek a court ordered
assignment of the following rights:
(a) To collect accounts receivable resulting from the provision of services
to patients of Tarrant and the Tarrant Employees;
(b) To receive payments from patients, third party payor
plans, insurance companies, Medicare, Medicaid and
all other payors with respect to services rendered by
Tarrant and its Tarrant Employees;
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(c) To take possession of and endorse any notes, checks,
money orders, insurance payments and any other
instruments received as payment of such accounts
receivable; and
(d) To collect all revenues of the Clinic.
3.1.10 Management Information Systems/Computer Systems. ProMedCo-LW shall
supervise and provide information systems that are necessary and appropriate for
the operation of the Clinic.
3.1.11 Legal and Accounting Services. ProMedCo-LW shall
arrange for or render to Tarrant such business and financial management
consultation and advice as may be reasonably required or requested by
Tarrant and directly related to the operations of the Clinic.
ProMedCo-LW shall not be responsible for rendering any legal or tax
advice or services or personal financial services to Tarrant or any
employee or agent of Tarrant.
3.1.12 Negotiation and Payment of Premiums For All Insurance
Products Held By Tarrant. ProMedCo-LW shall negotiate for and cause
premiums to be paid with respect to the insurance provided for in
Section 9. Premiums and deductibles with respect to such policies shall
be a Clinic Expense.
3.1.13 Physician Recruiting. ProMedCo-LW shall assist Tarrant
in recruiting additional physicians, carrying out such administrative
functions as may be appropriate such as advertising for and identifying
potential candidates, checking credentials, and arranging interviews;
provided, however, Tarrant shall interview and make the ultimate
decision as to the suitability of any physician to become associated
with the Clinic. All physicians recruited by ProMedCo-LW and accepted
by Tarrant shall be the sole employees of Tarrant to the extent such
physicians are hired as employees. Any expenses incurred in the
recruitment of physicians, including, but not limited to, employment
agency fees, relocation and interviewing expenses shall be Clinic
Expenses approved by the Policy Council.
3.1.14 Supervision of Ancillary Services. ProMedCo-LW shall operate and
supervise such ancillary services as approved by the Policy Council.
3.1.15 Strategic Planning Assistance. ProMedCo-LW shall assist with and
implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. This would be subject to the
review and approval of the Policy Council.
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3.1.17 Files and Records. ProMedCo-LW shall supervise and
maintain custody of all files and records relating to the operation of
the Clinic, including but not limited to accounting, billing, patient
medical records, and collection records. Patient medical records shall
at all times be and remain the property of Tarrant and shall be located
at Clinic facilities so that they are readily accessible for patient
care. The management of all files and records shall comply with
applicable state and federal statutes. ProMedCo-LW shall use its
reasonable efforts to preserve the confidentiality of patients' medical
records and use information contained in such records only for the
limited purpose necessary to perform the services set forth herein,
provided, however, in no event shall a breach of said confidentiality
be deemed a default under this Agreement.
3.2 Administrator. The selection and retention of the Administrator,
subject to the provisions of Section 2.2(b).
3.3 Expansion of Clinic. ProMedCo-LW will pursue various programs to
increase revenue and profitability including assisting Tarrant in adding
additional office based procedures, ancillary services and adding additional
satellite office(s) as determined by the Policy Council to be beneficial to the
Clinic. ProMedCo-LW will also assist in recruiting new physicians and developing
relationships and affiliations with other physicians, hospitals, networks, HMOs,
etc. To assist in the continued growth and development of the Clinic,
ProMedCo-LW may acquire other physician practices. Tarrant will cooperate with
ProMedCo-LW in such expansion efforts and use its reasonable efforts to assist
ProMedCo-LW with respect thereto. Without limiting the generality of the
foregoing, Tarrant will not enter into any agreements with respect to any such
matter without the prior consent of ProMedCo-LW.
3.4 Events Excusing Performance. ProMedCo-LW shall not be liable to
Tarrant for failure to perform any of the services required herein in the event
of strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which ProMedCo-LW has no control for so long as such events
continue, and for a reasonable amount of time thereafter.
3.5 Compliance With Applicable Laws. ProMedCo-LW shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4. REPRESENTATIONS OF TARRANT
Tarrant has made various representations and warranties to ProMedCo-LW
in an Inducement Agreement dated as of May 29, 1996 , which are incorporated
herein.
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5. OBLIGATIONS OF TARRANT
5.1 Professional Services. Tarrant shall provide professional services
to patients in compliance at all times with ethical standards, laws and
regulations applying to the medical profession. Tarrant shall also ensure that
each physician associated with Tarrant is licensed by the State of Texas. In the
event that any disciplinary actions or medical malpractice actions are initiated
against any such physician, Tarrant shall immediately inform the Administrator
of such action and the underlying facts and circumstances. Tarrant shall carry
out a program to monitor the quality of medical care practiced, with
ProMedCo-LW's assistance. Tarrant will cooperate with ProMedCo-LW in taking
steps to resolve any utilization review or quality assurance issues which may
arise in connection with the Clinic.
5.2 Employment Of Physician Employees. Tarrant shall have complete
control of and responsibility for the hiring, compensation, supervision,
evaluation and termination of its Physician Shareholders and Physician
Employees, although at the request of Tarrant, ProMedCo-LW shall consult with
Tarrant regarding such matters. Tarrant shall enforce formal employee agreements
from each of its Physician Shareholders and Physician Employees, hired or
contracted, substantially in the form attached hereto as Exhibit "C".
5.3 Non-Clinic Expenses. Tarrant shall be solely responsible for the
payment of all costs and expenses incurred in connection with Tarrant operations
which are not Clinic Expenses, including, but not limited to, accounting and
other professional services fees, salaries and benefits, retirement plan
contributions, health, disability and life insurance premiums, payroll taxes,
membership in professional associations, continuing medical education, and
licensing and board certification fees for its Physicians Employees and
Physician Extenders.
5.4 Medical Practice. Tarrant shall use and occupy the Clinic Facility
exclusively for the practice of medicine, and shall comply with all applicable
local rules, ordinances and all standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Clinic Facility shall be conducted solely by physicians associated with
Tarrant, and no other physician or medical practitioner shall be permitted to
use or occupy the Clinic Facility without the prior written consent of the
Policy Council.
5.5 Professional Insurance Eligibility. Tarrant shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Shareholders and Physician Employees are insurable, and participating
in an ongoing risk management program.
5.6 Employment Of Non-Physician Employees. There will be certain
Technical Employees that perform technical functions for Tarrant. These
Technical Employees will remain in the employ of Tarrant. As provided in Section
3.1.3, ProMedCo-LW will provide payroll and administrative services for such
Technical Employees.
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5.7 Events Excusing Performance. Tarrant shall not be liable to
ProMedCo-LW for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies, or other events over which Tarrant has no control for so long as such
events continue, and for a reasonable amount of time thereafter.
5.8 Compliance With Applicable Laws. Tarrant shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
5.9 Restrictions on Use of Clinic Facility. Tarrant shall at all times
during the term of this Agreement comply with the policy of ProMedCo-LW stated
in Section 7.2 herein.
5.10 Tarrant Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, Tarrant
has in effect the employee welfare benefit plans (as
such term is defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA")) and the employee pension benefit plans (as
such term is defined in Section 3(2) of ERISA), as
set forth in Exhibit 1.6 to the Inducement Agreement
dated May 29, 1996 between ProMedCo-LW and Tarrant.
(b) Tarrant shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo-LW. Except as otherwise required by law, Tarrant shall not materially
amend, freeze, terminate or merge any employee welfare or employee benefit plan
without the express written consent of ProMedCo-LW unless such action is
contemplated by the Asset Purchase Agreement. Tarrant agrees to make such
changes to any employee welfare or employee benefit plan, including the freeze,
termination, or merger of such plan, as may be approved by ProMedCo-LW.
(c) Expenses incurred in connection with any Tarrant Plan
or other employee benefit plan maintained by Tarrant,
including without limitation the compensation of
counsel, accountants, corporate trustees and other
agents shall not be included in Clinic Expenses.
(d) The contribution and administration expenses for
Physician Shareholders and Physician Employees shall
be an expense of Tarrant. ProMedCo-LW shall make
contributions or payments with respect to any Tarrant
Plan, as a Clinic Expense, on behalf of eligible
Technical Employees.
(e) ProMedCo-LW shall have the sole and exclusive
authority to adopt, amend, or terminate any employee
benefit plan for the benefit of its employees.
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ProMedCo-LW shall have the sole and exclusive
authority to appoint the trustee, custodian, and
administrator of any such plan.
5.11 Physician Powers of Attorney. Tarrant shall require all Tarrant
Employees to execute and deliver to ProMedCo-LW powers of attorney, satisfactory
in form and substance to ProMedCo-LW and Tarrant, appointing ProMedCo-LW as
attorney-in-fact for each for the purposes set forth in Sections 3.1.8 and
3.1.9, which powers of attorney shall immediately terminate upon termination of
this Agreement.
5.12 Spokesperson. Tarrant shall serve as spokesperson for ProMedCo-LW
and ProMedCo in Clinic, ProMedCo-LW and ProMedCo development activities. The
parties agree that Drs. Hardee and Morrison, or such other Physician Shareholder
as the Policy Council shall appoint, shall serve in this capacity on behalf of
Tarrant.
6. RECORDS
6.1 Patient Records. Upon termination of this Agreement, Tarrant shall
retain all patient medical records maintained by Tarrant or ProMedCo-LW in the
name of Tarrant. Tarrant shall, at its option, be entitled to retain copies of
financial and accounting records relating to all services performed by Tarrant.
6.2 Other Records. All records relating in any way to the operation of the
Clinic which are not the property of Tarrant under the provisions of Section 6.1
above, shall at all times be the property of ProMedCo-LW.
6.3 Access to Records. During the term of this Agreement, and
thereafter, Tarrant or its designee shall upon 24 hours notice have reasonable
access during normal business hours to Tarrant's and ProMedCo-LW's financial
records, including, but not limited to, records of collections, expenses and
disbursements as kept by ProMedCo-LW in performing ProMedCo-LW's obligations
under this Agreement, and Tarrant may copy any or all such records.
7. FACILITIES TO BE PROVIDED BY PROMEDCO-LW
7.1 Facilities. ProMedCo-LW hereby agrees to provide or arrange as a
Clinic Expense the offices and facilities for Clinic operations, including but
not limited to, the Clinic Facility and all costs of repairs, maintenance and
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, related real or personal property lease cost payments and
expenses, taxes and insurance, refuse disposal and all other costs and expenses
reasonable incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
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7.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo-LW or any of its affiliates in
whole or in part. ProMedCo-LW and Tarrant agree that Tarrant, as an independent
contractor, is a separate organization that retains the authority to direct the
medical, professional, and ethical aspects of its medical practice. If a
Physician Shareholder or a Physician Employee performs abortion procedures in
any facility, ProMedCo-LW shall not receive any ProMedCo-LW Distribution from
the revenue generated from such procedures.
8. FINANCIAL ARRANGEMENTS
8.1 Payments to Tarrant and ProMedCo-LW. Tarrant and ProMedCo-LW agree
that the compensation set forth herein is being paid to ProMedCo-LW in
consideration of a substantial commitment made by ProMedCo-LW hereunder and that
such fees are fair and reasonable. As payment for its services rendered to
Tarrant, each month ProMedCo-LW shall be paid the amount of all Clinic Expenses
and the ProMedCo-LW Distribution. All Net Clinic Revenues after deduction of
Clinic Expenses, and the ProMedCo-LW Distribution, shall be referred to as the
"Tarrant Distribution."
8.2 Distribution. The amounts to be paid to ProMedCo-LW under this
Section 8.2 shall be payable monthly. ProMedCo-LW shall pay to Tarrant, in
accordance with the provisions of Section 8.4, the Tarrant Distribution amounts
on or about the 15th day of such following month. Some amounts may need to be
estimated, with adjustments made as necessary the following month. Any audit
adjustments would be made after completion of the fiscal year audit.
8.3 Clinic Expenses. Commencing on the Effective Date, ProMedCo-LW
shall pay all Clinic Expenses as they fall due (including without limitation any
Non-Physician Personnel carried on the books of Tarrant at the requirement of
ProMedCo-LW), provided, however, that ProMedCo-LW may, in the name of and on
behalf of Tarrant, contest in good faith any claimed Clinic Expenses as to which
there is any dispute regarding the nature, existence or validity of such claimed
Clinic Expenses. ProMedCo-LW hereby agrees to indemnify and hold Tarrant
harmless from and against any liability, loss, damages, claims, causes of action
and reasonable expenses of Tarrant resulting from the contest of any Clinic
Expenses.
8.4 Accounts Receivables. Except for the first month of this Agreement,
on approximately the 15th day of each month, ProMedCo-LW shall purchase the
accounts receivable of Tarrant arising during the previous month, by payment of
cash, or other readily available funds into an account of Tarrant. The
consideration for the purchase shall be an amount equal to the Tarrant
Distribution for such previous month. Although it is the intention of the
parties that ProMedCo-LW purchase and thereby become owner of the accounts
receivable of Tarrant, in case such purchase shall be ineffective for any
reason, Tarrant, as of the Effective Date of this Agreement, grants and shall
cause each Tarrant Employee to grant to ProMedCo-LW a first priority lien on and
security interest in and to any and all interest of Tarrant and such Tarrant
Employees in any accounts receivable generated by the medical practice of
Tarrant and the Tarrant Employees or otherwise generated through the operations
of the
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Clinic, and all proceeds with respect thereto, to secure the payment to
ProMedCo-LW of all such accounts receivable, and this Agreement shall be deemed
to be a security agreement to the extent necessary to give effect to the
foregoing. In addition, Tarrant shall cooperate with ProMedCo-LW and execute and
deliver, and cause each Tarrant Employee to execute and deliver, all necessary
documents in connection with the pledge of such accounts receivable to
ProMedCo-LW or at ProMedCo-LW's option, its lenders. All collections in respect
of such accounts receivable shall be deposited in a bank account at a bank
designated by ProMedCo-LW. To the extent Tarrant or any Tarrant Employee comes
into possession of any payments in respect of such accounts receivable, Tarrant
or such Tarrant Employee shall direct such payments to ProMedCo-LW for deposit
in bank accounts designated by ProMedCo-LW.
9. INSURANCE AND INDEMNITY
9.1 Insurance to Be Maintained by ProMedCo-LW. Throughout the term of
this Agreement, ProMedCo-LW will use reasonable efforts to provide and maintain,
as a Clinic Expense, comprehensive professional liability insurance for all
professional employees of ProMedCo-LW and Tarrant with limits as determined
reasonable by ProMedCo-LW in its national program, comprehensive general
liability insurance and property insurance covering the Clinic Facility and
operations.
9.2 Insurance to be Maintained by Tarrant. Unless otherwise determined
by the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 5.5 and Section 9.1, Tarrant shall maintain comprehensive
professional liability insurance: (i) with limits for primary care physicians of
not less than $500,000 per claim and with aggregate policy limits of not less
than $1,000,000 per physician; and (ii) with limits for specialists of not less
than $1,000,000 per claim and with aggregate policy limits of not less than
$3,000,000 per physician; with a separate limit in either case for Tarrant;
provided however, Tarrant may maintain lesser limits for any physician employed
by Tarrant on the date hereof if such limits are at least $200,000 per claim
with aggregate policy limits of at least $600,000 per such physician with a
separate limit for Tarrant. Tarrant shall be responsible for all liabilities
(including without limitation deductibles and excess liabilities) not paid
within the limits of such policies. ProMedCo-LW shall have the option of
providing such professional liability insurance through an alternative program,
provided such program meets the requirements of the Insurance Commissioner of
the State of Texas and is approved by the Policy Council.
9.3 Tail Insurance Coverage. Tarrant will cause each individual
physician associated with the Clinic to enter into an agreement with Tarrant
that upon termination of such physician's relationship with Tarrant, for any
reason, tail insurance coverage will be purchased by the individual physician.
Such provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by Tarrant and the individual
physicians, and Tarrant hereby covenants with ProMedCo-LW to enforce such
provisions relating to the tail insurance coverage or to provide such coverage
at the expense of Tarrant.
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9.4 Additional Insured. Tarrant and ProMedCo-LW agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective professional liability insurance programs at ProMedCo-LW's
expense.
9.5 Indemnification. Tarrant shall indemnify, hold harmless and defend
ProMedCo-LW, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of (i)
the performance of medical services or any other acts or omissions by Tarrant
and/or its shareholders, agents, employees and/or subcontractors (other than
ProMedCo-LW) during the term hereof, including any claim against ProMedCo-LW by
a Tarrant Employee, which claim arises out of such Tarrant Employees' employment
relationship with Tarrant or as a result of services performed by such Tarrant
Employee, and which claim would typically be covered by worker's compensation
and (ii) ProMedCo-LW's entering into and its performance of the terms and
conditions of this Agreement except for than ProMedCo-LW's negligence or willful
misconduct. ProMedCo-LW shall indemnify, hold harmless and defend Tarrant, its
officers, directors and employees, from and against any and all liability, loss,
damage, claim, causes of action, and expenses (including reasonable attorneys'
fees), to the extent not covered by insurance, caused or asserted to have been
caused, directly or indirectly, by or as a result of the performance of any
intentional acts, negligent acts or omissions by ProMedCo-LW and/or its
shareholders, agents, employees and/or subcontractors (other than Tarrant)
during the term of this Agreement.
10. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo-LW
shall be feasible only if Tarrant operates an active medical practice to which
the physicians associated with Tarrant devote their full time and attention. To
that end:
10.1 Restrictive Covenants by Tarrant. During the term of this
Agreement, Tarrant shall not establish, operate or provide physician services at
any medical office, clinic or other health care facility providing services
substantially similar to those provided by Tarrant pursuant to this Agreement
anywhere within a radius of 25 miles of the Clinic Facility, or within a radius
of 25 miles of any current or future medical office, clinic or other health care
facility from which Tarrant provides medical services.
10.2 Restrictive Covenants By Current Physician Shareholders and
Physician Employees. Tarrant shall enforce employment agreements, in a form
satisfactory to ProMedCo-LW, with its current Physician Shareholders and
Physician Employees pursuant to which the Physician Shareholders and Physician
Employees agree that during the term of said Physician Shareholder or Physician
Employee's employment agreement, and for a period of two years after any
termination of employment with Tarrant, not to establish, operate or provide
physician services at any medical office, clinic or outpatient and/or ambulatory
treatment or diagnostic facility providing services substantially
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similar to those provided by Tarrant pursuant to this Agreement within a radius
of 25 miles of the Clinic Facility or within a radius of 25 miles of any medical
office, clinic or other health care facility from which Tarrant provides medical
services or is in the process of developing. ProMedCo-LW shall have third-party
rights to enforce such agreements.
10.3 Restrictive Covenants By Future Physician Employees. Tarrant shall
obtain and enforce formal employment agreements from each of its future
Physician Shareholders and Physician Employees in the form attached to the Asset
Purchase Agreement, pursuant to which such physicians agree that during the term
of said future Physician Shareholder or Physician Employee's employment
agreement, and for a period of two years after any termination of employment
with Tarrant, not to establish, operate or provide physician services at any
medical office, clinic or outpatient and/or ambulatory treatment or diagnostic
facility providing services substantially similar to those provided by Tarrant
pursuant to this Agreement within a radius of 25 miles of the Clinic Facility or
within a radius of 25 miles of any medical office, clinic or other health care
facility from which Tarrant provides medical services or is in the process of
developing. ProMedCo-LW shall have third-party rights to enforce such
agreements.
10.4 Physician Shareholder and Physician Employee Liquidated Damages.
(a) Release from Restrictive Covenants. The restrictive covenants
described in Sections 10.2 and 10.3 of this Agreement will
provide that the Physician Shareholders and Physician
Employees (existing or future) may be released from such
restrictive covenants by paying Liquidated Damages in the
amount of one times such physician's income related to the
Clinic, as reported to the Internal Revenue Service for the
previous 12 months.
(b) Repayment of Consideration in Certain Events. In addition, if a
Physician Shareholder or Physician Employee received any ProMedCo-LW
consideration pursuant to the Asset Purchase Agreement, and said Physician
Shareholder or Physician Employee terminates their employment agreement with
Tarrant for any reason (other than death or disability) prior to the fifth
anniversary of the Closing under the Asset Purchase Agreement, or is terminated
for cause by Tarrant prior to the fifth anniversary of the Closing under the
Asset Purchase Agreement, then Tarrant (or if the Physician Shareholder has
received any of the consideration paid to HealthFirst by ProMedCo-LW under the
Asset Purchase Agreement, said Physician Shareholder or Physician Employee)
shall be required to reimburse back to ProMedCo-LW some or all of the
consideration received by Tarrant (or that physician, as the case may be,
pursuant to the Asset Purchase Agreement as follows: (i) if such termination
occurs prior to the third such anniversary, 100% of such consideration; (ii) if
such termination occurs thereafter and prior to the fourth such anniversary, 67%
of such consideration; and (iii) if such termination occurs thereafter and prior
to the fifth such anniversary, 33% of such
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consideration. Such payments shall be passed on to ProMedCo-LW
by Tarrant simultaneously with the payment thereof by the
physician to Tarrant. For the purposes of this clause (b) Dr.
Jay H. Haynes, III shall be deemed to have received 38,697
shares of ProMedCo Stock, net of any reductions required by
ss. 2.13(d)(i)(1) of the Asset Purchase Agreement; in the
event the management agreement contemplated by ss.
2.13(d)(i)(1) of the Asset Purchase Agreement is terminated
under circumstances which, if it were a employment agreement,
would require some or all of such consideration to be returned
hereunder each individual of Tarrant who received ProMedCo
Stock as a result of the transactions contemplated by the
Asset Purchase Agreement shall be responsible for returning
such shares pro rata in relation to the number of shares of
the Stock Consideration (as defined in the Asset Purchase
Agreement) received by such individual. All payments made to
ProMedCo-LW under this clause (b) shall be first applied to
all costs incurred by ProMedCo-LW in the enforcement of the
employment or management agreement, as the case may be, for
that departing physician and the balance, if any, held in
escrow by ProMedCo-LW to be used solely for new physician
growth within Tarrant, subject to approval of the Policy
Council. The accounting treatment of such funds shall be
consistently applied and approved by ProMedCo-LW's independent
certified public accountants and the Policy Council.
10.5 Enforcement. ProMedCo-LW and Tarrant acknowledge and agree that
since a remedy at law for any breach or attempted breach of the provisions of
this Section 10 shall be inadequate, either party shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such injunctive or other equitable
relief. If any provision of Section 10 relating to territory described therein
shall be declared by a court of competent jurisdiction to exceed the maximum
time period, scope of activity, restricted or geographical area such court deems
reasonable and enforceable under applicable law, the time period, scope of
activity, restricted and/or area of restriction deemed to be reasonable and
enforceable by the court shall thereafter be the time period, scope of activity,
restricted and/or area of restriction applicable to the restrictive covenant
provisions in this Section 10. The invalidity of non-enforceability of this
Section 10 in any respect shall not affect the validity of enforceability of the
remainder of this Section 10 or of any other provisions of this Agreement unless
the invalid or non-enforceable provisions materially affect the benefits either
party would otherwise be entitled to receive under this Section 10 or any other
provision of this Agreement.
10.6 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 11.2 herein, the employment agreement term contained in this Section 10
shall be null and void and of no force or effect.
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11. TERM RENEWAL; TERMINATION;
11.1 Term and Renewal. The term of this Agreement shall commence on the
Effective Date hereof and shall continue for 40 years, after which it shall
automatically renew for five-year terms unless either party provides the other
party with at least 12 months but not more than 13 months written notice prior
to any renewal date.
11.2 Termination by Tarrant. Tarrant may terminate this Agreement as
follows:
(i) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of
creditors by ProMedCo-LW, or upon other action taken
or suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
ProMedCo-LW, except for the filing of a petition in
involuntary bankruptcy against ProMedCo-LW which is
dismissed within 30 days thereafter, Tarrant may give
notice of the immediate termination of this
Agreement.
(ii) In the event ProMedCo-LW shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement and such default
shall continue for a period of 90 days after written notice thereof has been
given to ProMedCo-LW by Tarrant; or ProMedCo-LW shall fail to remit the payments
due as provided in Section 8.2 hereof and such failure to remit shall continue
for a period of 30 days after written notice thereof, Tarrant may terminate this
Agreement. Termination of this Agreement pursuant to this Section 11.2(ii) by
Tarrant shall require the affirmative vote of 75% of the Physician Shareholders.
(iii) On each of the fourth, fifth or sixth anniversaries
of the Closing under the Asset Purchase Agreement if
(x) ProMedCo shall not have completed an IPO, as such
term is defined in the Asset Purchase Agreement and
(y) Tarrant shall have given notice of such
termination no earlier than 30 days prior and no
later than 15 days prior to such anniversary in the
event the IPO is not completed by such anniversary.
11.3 Termination by ProMedCo-LW. ProMedCo-LW may terminate this Agreement
as follows:
(i) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of
creditors by Tarrant, or upon other action taken or
suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
Tarrant, except for the filing of a petition in
involuntary bankruptcy against Tarrant which is
dismissed within 30 days thereafter, ProMedCo-LW
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may give notice of the immediate termination of this Agreement.
(ii) In the event Tarrant shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement or in the event a
majority of the Physicians Shareholders shall materially default in the
performance of any duty or obligation imposed upon them by this Agreement or by
their employment agreements with Tarrant, and such default shall continue for a
period of 90 days after written notice thereof has been given to Tarrant and
such Physician Shareholders by ProMedCo-LW, ProMedCo-LW may terminate this
Agreement.
11.4 Actions After Termination. In the event that this Agreement shall
be terminated, the Tarrant Distribution and the ProMedCo-LW Distribution shall
be paid through the effective date of termination. In addition, the various
rights and remedies herein granted to the aggrieved party shall be cumulative
and in addition to any others such party may be entitled to by law. The exercise
of one or more rights or remedies shall not impair the right of the aggrieved
party to exercise any other right or remedy, at law. Upon termination of this
Agreement, Tarrant shall:
11.4.1 Asset Repurchase. Purchase from ProMedCo-LW at book
value the intangible assets set forth on the Opening Balance Sheet, as
adjusted through the last day of the month most recently ended prior to
the date of such termination in accordance with GAAP to reflect
amortization or depreciation of the intangible assets, which
amortization shall be for a period not in excess of 40 years.
11.4.2 Real Estate. Purchase from ProMedCo-LW all real estate, if any,
associated with the Clinic and owned by ProMedCo-LW at the then book value
thereof.
11.4.3 Improvements. Purchase all improvements, additions or
leasehold improvements which have been made by ProMedCo-LW as reflected
on ProMedCo-LW's books as of the last day of this Agreement and which
relate solely to the performance of its obligations under this
Agreement or the properties subleased by ProMedCo-LW, if any.
11.4.4 Debts. Assume all ordinary and necessary debt,
contracts, payables and leases which are obligations of ProMedCo-LW and
which relate principally to the performance of its obligations under
this Agreement or the properties subleased by ProMedCo-LW, if any.
11.4.5 Equipment; Inventories; Accounts Receivable; etc. Purchase from
ProMedCo-LW at book value as reflected on ProMedCo-LW's books as of the last day
of this Agreement:
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(i) Equipment. All of the equipment acquired by
ProMedCo-LW pursuant to the Asset Purchase Agreement,
including all replacements and additions thereto made
by ProMedCo-LW with the approval of the Policy
Council pursuant to the performance of its
obligations under this Agreement;
(ii) Inventory. All stock, including inventory and supplies, tangibles and
intangibles of ProMedCo-LW relating to Tarrant operations;
(iii) Accounts Receivable. All uncollected accounts receivable theretofore
purchased by ProMedCo-LW pursuant to Section 8.4 hereof at the book value
thereof on ProMedCo-LW's books; and
(iv) Other Assets. All other assets of ProMedCo-LW relating to the
operations of Tarrant.
11.4.6 Closing of Repurchase. Tarrant shall pay cash for the
repurchased assets or may use shares of ProMedCo no par common stock
valued at $12.00 per share, adjusted to reflect stock splits and the
like. The amount of the purchase price shall be reduced by the amount
of debt and liabilities of ProMedCo-LW assumed by Tarrant and shall be
reduced by any payment ProMedCo-LW has failed to make under this
Agreement. Tarrant and any physician associated with Tarrant shall
execute such documents as may be required to assume the liabilities set
forth in Section 11.4.4 and to remove ProMedCo-LW from any liability
with respect to such repurchased Stocks and with respect to any
property leased or subleased by ProMedCo-LW. The closing date for the
repurchase shall be determined by Tarrant, but shall in no event occur
later than 180 days from the date of the notice of termination. The
termination of this Agreement shall become effective upon the closing
of the sale of the assets and Tarrant shall be released from the
Restrictive Covenants provided for in Section 1010 on the closing date.
From and after any termination, each party shall provide the other
party with reasonable access to books and records then owned by it to
permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
12. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
12.1 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by Tarrant and the Tarrant Employees, utilizing the management services
of ProMedCo-LW and the Clinic Facility, regardless of the location where such
services are rendered.
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12.2 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
(i) Salaries, benefits (including contributions under any
ProMedCo benefit plan), and other direct costs of all
employees of ProMedCo-LW and Technical Employees
attributable to Tarrant;
(ii) Direct costs, including benefits, of all employees or consultants of
ProMedCo or affiliates of ProMedCo-LW who, with approval of the Policy Council,
provides services at or in connection with Tarrant required for improved
performance, such as work management, purchasing, information systems, charge
and coding analysis, managed care sales, negotiating and contracting, financial
analysis, and business office consultation; provided, however, only that portion
of such employee's or consultant's costs without mark-up by ProMedCo that is
allocable to Clinic will be a Clinic Expense;
(iii) Obligations of ProMedCo-LW or ProMedCo under leases or subleases
related to Clinic operations;
(iv) Interest Expense on indebtedness incurred by
ProMedCo-LW or ProMedCo to finance or refinance any
of its obligations hereunder or services provided
hereunder.
(v) Personal property and intangible taxes assessed
against ProMedCo-LW's assets used in connection with
the operation of Clinic commencing on the date of
this Agreement;
(vi) Malpractice insurance expenses for ProMedCo-LW's
operations and for the Tarrant Employees, as well as
any deductibles and non-insured expenses relating to
malpractice claims.
(vii) Other expenses incurred by ProMedCo-LW in carrying out its
obligations under this Agreement.
12.3 Clinic Expenses shall not include:
(i) Corporate overhead charges or any other expenses of ProMedCo or any
corporation affiliated with ProMedCo other than the kind of items listed above;
(ii) Any federal or state income taxes;
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(iii) Any expenses which are expressly designated herein as
expenses or responsibilities of Tarrant and/or
Tarrant Employees other than Technical Employees;
(iv) Any amortization expense resulting from the
amortization of expenses incurred as shown on
ProMedCo's financial statements, in connection with
the acquisition and execution of the Asset Purchase
Agreement and the execution of this Agreement; and
(v) Interest expense on indebtedness incurred by
ProMedCo-LW or ProMedCo to finance the consideration
paid under the Asset Purchase Agreement.
(vi) Any liabilities, judgments or settlements assessed
against Tarrant or Physician Shareholders in excess
of any insurance policy limits.
(vii) The direct expenses associated with management of Risk Pool
Surpluses.
12.4 Clinic Facility shall mean the clinic facilities located at (i)
4504 Boat Club Road, Suite 800, Fort Worth, Texas 76136, (ii) 2751 Green Oaks
Road, Fort Worth, Texas 76116, (iii) 112 Denver Trail, Azle, Texas 76020, (iv)
6867A Green Oaks Road, Fort Worth, Texas 76116, (v) 313 West Main, Azle, Texas
76020, (vi) 2401 Westport Parkway, Suite 140, Fort Worth, Texas 76177, (vii)
6825-27 Green Oaks Rd., Fort Worth, Texas 76116 and (viii) any substitute
facility or additional facility location, whether within or without Tarrant
County, as approved by the Policy Council.
12.5 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
12.6 Effective Date shall mean 12:01 a.m. on June 1, 1996.
12.7 IPO shall mean the initial public offering of ProMedCo securities
pursuant to a registration statement filed with the Securities and Exchange
Commission.
12.8 Net Clinic Revenues shall mean Tarrant's gross billings, including
ancillaries and any other revenues that have historically been recorded by
Tarrant as well as non-real estate revenues historically recorded by
HealthFirst, less any adjustments such as uncollectible accounts, discounts,
contractual adjustments, Medicare allowances, Medicaid allowances, and
professional courtesies ("adjustments"). This specifically excludes Risk Pool
Surpluses.
12.9 Opening Balance Sheet shall mean the balance sheet of ProMedCo-LW
as of the Effective Date (as defined in the Asset Purchase Agreement), prepared
in accordance with GAAP (except for the absence of certain note information),
and substantially in the form of the attached Exhibit
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B subject to adjustments in the Consideration (as defined in the Asset Purchase
Agreement).
12.10 Physician Employees shall mean any physician employed by Tarrant
and providing medical services to patients on behalf of Tarrant, who are not
Physician Shareholders.
12.11 Physician Extenders shall mean all non-physician professional
employees who provide direct patient care for which a billed charge is
generated.
12.12 Physician Shareholders shall mean any physician who is a
shareholder of Tarrant, both as of the date of this Agreement (which said
Physician Shareholders are parties to this Agreement) and at any future point in
time.
12.13 ProMedCo-LW Distribution shall mean [*]% of Distribution Funds
plus a percentage of Risk Pool Surpluses established by Exhibit A.
12.14 Risk Pool Surpluses shall mean all hospital incentive funds,
specialists incentive funds, and funds from shared risk pools under any
risk-sharing arrangements after the direct expenses associated with risk pool
management have been deducted. Risk Pool Surpluses shall be calculated by
aggregating all risk pools applicable, including making any deductions for pools
that are in a deficit position. Primary care capitation shall be treated as a
separate risk pool for purposes of this Section 12.14. Pursuant to Section
2.2(j) hereof, the Policy Council shall determine the amount allocated to
primary care capitation in situations in which the payor has not made such a
determination, and shall determine the fee schedule against which such primary
care capitation would be billed. In the event that primary care capitation is in
a deficit position, then that deficit shall be aggregated with all other risk
pools applicable before a distribution is made pursuant to Exhibit "A" of this
Agreement.
12.15 Tarrant Employees shall mean all Physician Shareholders, Physician
Employees, Physician Extenders and Technical Employees at the relevant dates.
12.16 Technical Employees shall mean technicians who provide services
in the diagnostic areas of Tarrant's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be Tarrant employees.
13. GENERAL PROVISIONS
13.1 Independent Contractor. It is acknowledged and agreed that Tarrant
and ProMedCo- LW are at all times acting and performing hereunder as independent
contractors. ProMedCo-LW shall neither have nor exercise any control or
direction over the methods by which Tarrant or the Tarrant Employees practice
medicine. The sole function of ProMedCo-LW hereunder is to provide all
management services in a competent, efficient and satisfactory manner.
ProMedCo-LW shall not, by entering into and performing its obligations under
this Agreement, become liable for any of the existing
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CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATLEY WTIH THE SECURITIES AND EXCHANGE COMMISSION
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obligations, liabilities or debts of Tarrant unless otherwise specifically
provided for under the terms of this Agreement. ProMedCo-LW will in its
management role have only an obligation to exercise reasonable care in the
performance of the management services. Neither party shall have any liability
whatsoever for damages suffered on account of the willful misconduct or
negligence of any employee, agent or independent contractor of the other party.
Each party shall be solely responsible for compliance with all state and federal
laws pertaining to employment taxes, income withholding, unemployment
compensation contributions and other employment related statutes regarding their
respective employees, agents and servants.
13.2 Other Contractual Arrangement.
(a) The parties acknowledge and agree that they have been advised and
consent to the fact that ProMedCo-LW, or its affiliates (i) may have, prior to
the date of this Agreement, discussed proposals with respect to, or (ii) may,
from time to time hereafter, enter into agreements with one or more Tarrant
Employees to provide consulting, medical direction, advisory or similar services
relating to activities of ProMedCo-LW or its affiliates in clinical areas. The
parties agree that such agreements, if any, shall be entered into at the sole
discretion of the parties thereto and subject to such terms and conditions to
which such parties may agree, and any compensation payable to or by ProMedCo-LW,
on the one hand, and such Tarrant Employees, on the other hand, shall not
constitute Net Clinic Revenues, or Tarrant Compensation, and shall otherwise not
be subject to the provisions of this Agreement.
(b) Each current Physician Shareholder, by his execution of this Agreement
as provided on the signature page hereof, agrees that neither the negotiation
nor the entry into any agreement or arrangement of a type described in Section
13.2(a) above shall constitute a breach of any fiduciary or other duty owned by
any Tarrant Employee to another, or by ProMedCo-LW, to Tarrant or any Physician
Shareholder. Accordingly, Tarrant and each Physician Shareholder hereby waive
any right to disclosure of the negotiations, proposals or terms of any such
agreement, arrangement or right to participate in and/or share revenues derived
from any such agreement or arrangement with any Tarrant Employee, and hereby
forever release and discharge Tarrant, the Physician Shareholders, ProMedCo-LW,
and their respective representatives (including, but not limited to, their
respective attorneys, accountants, affiliates, shareholders, officer, directors,
employees and agents) from any and all actions, claims, charges, suits, damages
and liabilities of any kind whatsoever arising from or by reason of the
participation of any Tarrant Employee in any agreement or arrangement with
ProMedCo-LW, or their affiliates of a type described in Section 13.2(a) above or
from or by reason of the failure of ProMedCo-LW, any Tarrant Employee or their
respective representatives to disclose the negotiation, existence or terms of
any such agreement or arrangement. In keeping with the private nature of these
matters, the Physician
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Shareholders further agree that such negotiations, proposals
or terms of agreement are to be kept confidential between a
Tarrant Employee on the one hand, and ProMedCo- LW, on the
other hand, and shall not be disclosed by them or their
representatives, except as required by applicable law.
13.3 Proprietary Property.
13.3.1 Each party agrees that the other party's proprietary
property shall not be possessed, used or disclosed otherwise than may
be necessary for the performance of this Agreement. Each party
acknowledges that its violation of this Agreement would cause the other
party irreparable harm, and may (without limiting the other party's
remedies for such breach) be enjoined at the instance of the other
party. Each party agrees that upon termination of this Agreement for
any reason, absent the prior written consent of the other party, it
shall have no right to and shall cease all use of the other party's
proprietary property, and shall return all such proprietary property of
the other party in its possession to the other party.
13.3.2 ProMedCo-LW shall be the sole owner and holder of all
right, title and interest, to all intellectual property furnished by it
under this Agreement, including, but not limited to the trade name
"ProMedCo," all computer software, copyright, services mark and
trademark right to any material or documents acquired, prepared,
purchased or furnished by ProMedCo- LW pursuant to this Agreement.
Tarrant shall have no right, title or interest in or to such material
and shall not, in any manner, distribute or use the same without the
prior written authorization of ProMedCo-LW, provided, however, that the
foregoing shall not restrict Tarrant from distributing managed care
information brochures and materials without the prior written approval
of ProMedCo-LW provided no Proprietary Property of ProMedCo-LW is
contained therein. Notwithstanding the preceding, however, ProMedCo-LW
agrees that Tarrant shall be entitled to use on a nonexclusive and
nontransferable basis for the term of this Agreement the name "Tarrant
Family Practice" as may be necessary or appropriate in the performance
of Tarrant's services and obligations hereunder.
13.4 Cooperation. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement.
13.5 Licenses, Permits and Certificates. ProMedCo-LW and Tarrant shall
each obtain and maintain in effect, during the term of this Agreement, all
licenses, permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
13.6 Compliance with Rules, Regulations and Laws. ProMedCo-LW and
Tarrant shall comply with all federal and state laws and regulations in
performance of their duties and obligations hereunder. Neither party, nor their
employees or agents, shall take any action that would jeopardize the other
party's participation, if applicable, in any federal or state health program
including Medicare and
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Medicaid. ProMedCo-LW and Tarrant shall take particular care to ensure that no
employee or agent of either party takes any action intended to violate Section
1128B of the Social Security Act with respect to soliciting, receiving, offering
or paying any remuneration (including any kickback, bribe, or rebate) directly
or indirectly, overtly or covertly, in cash or in kind in return for referring
an individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part under
Title XVIII or XIX of the Social Security Act, or for purchasing, leasing,
ordering, or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service, or item for which payment may be made in whole or in
part under Title XVIII or XIX of the Social Security Act.
13.7 Generally Accepted Accounting Principles (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
13.8 Notices. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this Section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
13.9 Attorneys' Fees. ProMedCo-LW and Tarrant agree that the prevailing
party in any legal dispute among the parties hereto shall be entitled to payment
of its attorneys' fees by the other party.
13.10 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing regulations to be invalid, void or unenforceable, the remaining
provisions will nevertheless continue in full force and effect.
13.11 Alternative Dispute Resolution. Any dispute, disagreement, claim
or controversy arising out of or related to this Agreement (a "Disputed Matter")
may, at the option of either party hereto upon written notice to the other
party, be submitted to non-binding mediation before a mutually acceptable
neutral advisor. To the extent the neutral advisor is compensated, the parties
shall each bear half the cost. Any Disputed Matter that is not resolved through
mediation will be settled by binding arbitration in accordance with the rules of
commercial arbitration of the American Arbitration Association, and judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Such arbitration shall occur within Tarrant County, Texas,
unless the parties mutually agree to have such proceedings in some other locale.
The arbitrator(s) may in any such proceeding award attorneys' fees and costs to
the prevailing party.
13.12 Construction of Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas. The parties agree
that the terms and provisions of this
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-26-
Agreement embody their mutual interest and agreement and that they are not to be
construed more liberally in favor of, nor more strictly against, any party
hereto.
13.13 Assignment and Delegation. ProMedCo-LW shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo-LW and to any lending
institution, for security purposes or as collateral, from which ProMedCo-LW or
ProMedCo obtains financing for itself and as agent. Except as set forth above,
neither ProMedCo-LW nor Tarrant shall have the right to assign their respective
rights and obligations hereunder without the written consent of the other party.
Tarrant may not delegate any of Tarrant's duties hereunder, except as expressly
contemplated herein; however, ProMedCo-LW may delegate some or all of
ProMedCo-LW' s duties hereunder to the extent it concludes, in its sole
discretion, that such delegation is in the mutual interest of the parties
hereto.
13.14 Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law.
13.15 Waiver. The waiver of any provision, or of the breach of any
provision of this Agreement must be set forth specifically in writing and signed
by the waiving party. Any such waiver shall not operate or be deemed to be a
waiver of any prior or future breach of such provision or of any other
provision.
13.16 Headings. The subject headings of the articles and sections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
13.17 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and all
of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
13.18 Time is of the Essence. Time is hereby expressly declared to be of
the essence in this Agreement.
13.19 Modifications of Agreement for Prospective Legal Events. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel for both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, or in the event the Texas State Board of Medical
Examiners or other authority with legal
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-27-
jurisdiction shall, solely by virtue of this Agreement, initiate an action to
revoke, suspend, or restrict the license of any physician retained by Tarrant to
practice medicine in the State of Texas, Tarrant and ProMedCo-LW shall amend
this Agreement as necessary. To the maximum extent possible, any such amendment
shall preserve the underlying economic and financial arrangements between
Tarrant and ProMedCo-LW. In the event it is not possible to amend this Agreement
to preserve in all material respects the underlying economic and financial
arrangements between Tarrant and ProMedCo-LW, this Agreement may be terminated
by written notice by either party within 90 days from date of such
interpretation or action, termination to be effective no sooner than the earlier
of 180 days from the date notice of termination is given or the latest possible
date specified for such termination in any regulatory order or notice.
Termination pursuant to this Section 13.19 by Tarrant shall require the
affirmative vote of a majority of Physician Shareholders.
13.20 Whole Agreement Modification;. A contract in which the amount
involved exceeds $50,000 in value is not enforceable unless the Agreement is in
writing and signed by the party to be bound or by that party's authorized
representative. The rights and obligations of the parties hereto shall be
determined solely from written agreements. Documents and instruments, and any
prior oral agreements between the parties are superseded by and merged into such
writings. This Agreement (As amended in writing from time to time), the
exhibits, and the schedules delivered pursuant hereto
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represent the final agreement between the parties hereto and may not be
contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements by the parties. There are no unwritten oral agreements between the
parties."
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PROMEDCO OF LAKE WORTH, INC.
By:
Name:
Title:
Address: 801Cherry Street
Suite 1450
Fort Worth, TX 76102
TARRANT FAMILY PRACTICE, P.A.
By:
Name:
Title:
Address: 4504 Boat Club Road
Suite 800
Fort Worth, TX 76135
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<PAGE>
-29-
UNANIMOUS CONSENT OF DIRECTORS
The undersigned constituting all of the directors of Tarrant Family
Practice, P.A., a Texas professional association (the "Company"), hereby
unanimously (i) consent to, and approve of, the foregoing Amended and Restated
Service Agreement (the "Agreement"); (ii) ratify the actions of officers of the
Company in negotiating, executing and delivering the Agreement; and (iii)
authorize the officers of the Company to carry into effect the transaction
contemplated by the Agreement, including the taking of any action and the
delivery of any document reasonably in furtherance thereof.
Todd K. Cowan, M.D.
Steve H. Hardee, M.D.
J. H. Huntzinger, M.D.
William D. Littlejohn, M.D.
Kriss E. Myers, M.D.
Marshall M. Morrison, M.D.
William M. Seger, M.D.
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<PAGE>
-30-
EXHIBIT "A"
Allocation of Risk Pool Surpluses
ProMedCo-LW shall receive a percentage of the Risk Pool Surpluses, or
be responsible for a percentage of any Risk Pool Surpluses that are in a deficit
position. ProMedCo-LW's percentage shall be based on the cumulative risk pool
surpluses that have occurred during the entire term of this Agreement, including
any renewals. The percentage shall be based on the graduated scale as shown
below:
Risk Pool Savings ProMedCo-LW Percentage
[*]%
[*]
The distribution of Risk Pool Surpluses shall be made based upon the following:
In the event that the payor or any entity other than Tarrant holds the risk
pools, and makes a payment to Tarrant in the form of a Risk Pool Surplus, then
[*]% of that Risk Pool Surplus shall be distributed no later than 30 days after
receipt by Tarrant. In the event that Tarrant holds the risk pools, then the
distribution of Risk Pool Surpluses shall be made on an annual basis no later
than 90 days after the conclusion of each contract year of any relevant payor
agreement, and after a full analysis of any Incurred But Not Reported (IBNR)
liabilities. Once the final balance of Risk Pool Surpluses have been calculated,
[*]% of that amount shall be distributed, with the final [*]% held for an
additional 6 months to pay any additional IBNR or other liabilities. At the end
of that 6 months, any funds remaining from the [*]% reserved shall be
distributed.
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WTIH THE SECURITIES AND EXCHANGE COMMISSION
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CONFIDENTIAL TREATMENT REQUESTED
SERVICE AGREEMENT
By and Between
PROMEDCO OF DENTON, INC.
and
NORTH TEXAS MEDICAL SURGICAL CLINIC, P.A.
Effective June 1, 1995
<PAGE>
SERVICE AGREEMENT
This Service Agreement ("Agreement") dated June 30, 1995, between
ProMedCo of Denton, Inc., a Texas corporation ("ProMedCo") which is an affiliate
of ProMedCo, Inc., a Texas corporation ("Parent") and North Texas Medical
Surgical Clinic, P.A., a Texas professional association ("NTMS").
RECITALS:
WHEREAS, NTMS is a multi-specialty group medical practice in Denton,
Texas which provides professional medical care to the general public;
WHEREAS, ProMedCo is in the business of owning certain assets of and
managing and administering medical clinics, and providing non-professional
support services to and furnishing medical practices, with the necessary
facilities, equipment, personnel, supplies and support staff;
WHEREAS, pursuant to an Asset Purchase Agreement dated June 30, 1995,
between ProMedCo, Inc. and Seller (as such term is defined therein) ("Asset
Purchase Agreement") ProMedCo agreed to assume the leases for certain real
property, assume certain contracts, and purchase equipment, accounts receivable,
inventory and other assets utilizing the operation of the medical practice to be
conducted by NTMS;
WHEREAS, subject to the terms and conditions hereof, NTMS desires to
engage ProMedCo to provide to NTMS management services, facilities, personnel,
equipment and supplies necessary to operate the clinic (as defined herein) and
ProMedCo desires to accept such engagement; and
WHEREAS, the basis for the financial considerations provided in this
Agreement are derived from the revenues generated by the medical practice of
NTMS, such revenues having been documented by NTMS and delivered to ProMedCo
prior to the formulation and agreement of such aforementioned financial
considerations;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, NTMS and ProMedCo hereby agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo shall provide
NTMS with offices, facilities, equipment, supplies, non-professional support
personnel, and management and financial advisory services. NTMS shall be
responsible for the recruitment and hiring of physicians, Technical Employees
and all issues related to patient care and documentation thereof. ProMedCo shall
neither exercise control over nor interfere with the physician-patient
relationship, which shall be maintained strictly between the physicians of NTMS
and their patients.
1.2 NTMS's Matters. NTMS shall maintain sole discretion and authority
over the financial matters relative to it's own professional association. It
shall set compensation levels for NTMS Employees. NTMS will also be responsible
for all other matters pertaining to the operation of NTMS.
1.3 Patient Referrals. The parties agree that the benefits to NTMS do not
require, are not payment for, and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
<PAGE>
service offered by ProMedCo to any of NTMS's patients in any facility or
laboratory controlled, managed or operated by ProMedCo.
2. POLICY COUNCIL
2.1 Formation and Operation of the Policy Council. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the Clinic. The Policy Council shall
consist of four (4) members. ProMedCo shall designate,at it's sole discretion,
two (2) members of the Policy Council. NTMS at it's sole discretion shall
designate two (2) members. Except as may otherwise be provided, the act of a
majority of the members of the Policy Council shall be the act of the Policy
Council.
2.2 Duties and Responsibilities of the Policy Council. The policy
council shall have the following duties and responsibilities.
2.2.1 Physician Hiring. The Policy Council, with information and analysis
provided by ProMedCo, shall determine the number and type of physicians required
for the efficient operation of the Clinic and NTMS shall determine the
individual physicians to be hired to fill such positions. The approval of the
Policy Council shall be required for any variations to the restrictive covenants
in any physician employment contract.
2.2.2 Patient Fees. As a part of the annual operating budget, in
consultation with NTMS and ProMedCo, the Policy Council shall review and adopt
the fee schedule for all physician and ancillary services rendered by the
Clinic.
2.2.3 Administrator. The selection and retention of the Administrator
pursuant to Section 3.1 shall be subject to the reasonable approval of the
Policy Council. If NTMS is dissatisfied with the services provided by the
Administrator, NTMS shall refer the matter to the Policy Council. ProMedCo and
Policy Council shall in good faith determine whether the performance of the
Administrator could be brought to acceptable levels through counsel and
assistance, or whether the Administrator should be terminated. ProMedCo shall
have the ultimate authority to terminate the Administrator.
2.2.4 Ancillary Services. The Policy Council shall approve Clinic
provided ancillary services based upon the pricing, access to and quality of
such services.
2.2.5 Provider and Payor Relationships. The Policy Council shall have
responsibility regarding the establishment and maintenance of relationships
with institutional health care providers and payors.
2.2.6 Capital Improvements and Expansion. The Policy Council shall
determine the priority for any renovation, expansion plans and major equipment
expenditures with respect to the Clinic based upon economic feasibility,
physician support, productivity and market conditions. Any capital expenditure
in excess of $1,000 shall require the approval of the Policy Council.
2.2.7 Annual Budgets. All annual capital and operating budgets prepared by
ProMedCo, as set forth in Section 3 and employing ProMedCo's financial
expertise, shall be subject to the review and approval of the Policy Board,
provided, however, ProMedCo shall have final approval of any capital required by
ProMedCo.
2.2.8 Strategic Planning. The Policy Council, with the assistance of
<PAGE>
ProMedCo, shall develop long-term strategic planning objectives.
2.2.9 Exceptions to Inclusion in the Net Revenue Calculation. The
exclusion of any revenue from Net Revenue, whether now or in the future, shall
be subject to the approval of the Policy Council.
2.2.10 Advertising. All advertising and marketing of the services performed
at the Clinic shall be subject to the prior review and approval of the Policy
Council, in compliance with applicable laws and regulations governing
professional advertising and in accordance with the standards and medical ethics
of the American Medical Association and the Texas Medical Association.
2.2.11 Grievance Issues. Subject to the provisions of Section 1.2 of this
Agreement, the Policy Council shall consider and make final decisions regarding
grievances pertaining to matters not specifically addressed in this Agreement as
referred to it by NTMS's board or ProMedCo.
<PAGE>
3. OBLIGATIONS OF PROMEDCO
During the term of this Agreement, ProMedCo shall provide or arrange
for the services set forth in this Section 3, the cost of all of which shall be
included in Clinic Expenses. ProMedCo is hereby expressly authorized to perform
its services in whatever manner it deems reasonably appropriate, in accordance
with policies approved by the Policy Council, and including without limitation,
performance of some functions at locations other than the Clinic Facility. NTMS
will not act in a manner which would prevent ProMedCo from efficiently managing
the Clinic Facility operations in accordance with the terms of this Agreement.
NTMS, through its NTMS Employees, will provide all medical services. ProMedCo
will have no authority, directly or indirectly, to perform, and will not perform
any medical function. ProMedCo may, however, advise NTMS as to the relationship
between its performance of medical functions and the overall administrative and
business functioning of the Clinic.
3.1 Management and Administration. NTMS hereby appoints ProMedCo as the
sole and exclusive manager and administrator of all non-medical functions and
services related to NTMS's services at the Clinic. NTMS shall perform all
medical services, and ProMedCo shall have no authority, directly or indirectly,
to perform, and will not perform any medical function. Without limiting the
generality of the foregoing, ProMedCo shall provide the following
administrative, management and marketing services as may be required in
conjunction with NTMS's services at the Clinic. ProMedCo shall hire and
supervise an Administrator, subject to the reasonable approval of the Policy
Council, to manage and administer all of the day-to-day business functions of
ProMedCo, including without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of annual budgets.
Annually and at least thirty (30) days prior to the commencement of each fiscal
year, ProMedCo shall prepare and deliver to NTMS capital and operating budgets
reflecting in reasonable detail anticipated revenues and expenses, sources and
uses of capital for growth of NTMS' practice and Clinic services.
3.1.2 Financial Statements. ProMedCo shall prepare monthly and fiscal year
unaudited financial statements containing a balance sheet and a statement of
income for Clinic operations, which shall be delivered to NTMS within thirty
(30) days after the close of each calendar month. The fiscal year statement
shall be reviewed by a certified public accountant as selected by ProMedCo in
connection with the audit of the financial statements of Parent. If NTMS desires
an audit in addition to the audit provided by ProMedCo, such an audit would be
at NTMS's expense.
3.1.3 Non-Physician Personnel. ProMedCo will provide all personnel
reasonably necessary for the conduct of Clinic operations with the exception of
Technical Employees. ProMedCo shall determine and cause to be paid the salaries,
fringe benefits and any sums for income taxes, unemployment insurance, social
security taxes or any other withholding amounts required by applicable law or
governmental authority, of all such personnel. Such personnel shall be under the
direction, supervision and control of ProMedCo, with those personnel performing
patient care services subject to the professional supervision of NTMS. If NTMS
is dissatisfied with the services of any person, NTMS shall consult with
ProMedCo. ProMedCo shall in good faith determine whether the performance of that
employee could be brought to acceptable levels through counsel and assistance,
or whether such employee should be terminated. All of ProMedCo's obligations
regarding staff shall be governed by the overriding principle and goal of
providing high quality medical care.
<PAGE>
3.1.4 Quality Assurance. ProMedCo will assist NTMS in fulfilling its
obligation to its patients to maintain high quality medical and professional
services, including patient satisfaction programs, employee education, outcomes
analysis, clinical protocol development and to implement a risk management
program.
3.1.5 Facilities and Equipment. ProMedCo will ensure the proper
cleanliness of the premises, maintenance and cleanliness of the equipment,
furniture and furnishings located on the premises.
3.1.6 Inventory Control and Purchasing Supplies. ProMedCo shall order and
purchase inventory and supplies, and such other ordinary, necessary or
appropriate materials which ProMedCo shall deem to be necessary in the operation
of the Clinic, to deliver quality Clinic services in a cost effective manner;
provided, however, that NTMS shall order, purchase, stock and monitor the
inventory of pharmaceutical and other medical supplies, substances, or items
whose purchase, maintenance, or security requires licensure as a healthcare
provider or requires a permit, registration, certification or identification
number that requires licensure or certification as a healthcare provider.
3.1.7 Managed Care Contracting. ProMedCo will be responsible for marketing,
negotiation, and administering all managed care contracts, subject to the
provisions of Section 2.2.5; provided, however, no contract or arrangement
regarding the provision of Clinical services shall be entered into without NTMS'
consent.
3.1.8 Billing and Collections. ProMedCo shall bill patients and collect all
fees for services performed inside or outside the Clinic Facility. NTMS hereby
appoints ProMedCo, for the term hereof, to be its true and lawful
attorney-in-fact for the following purposes (i) to bill patients in NTMS's name
and on its behalf, (ii) to collect accounts receivable resulting from such
billing in NTMS's name and on its behalf; (iii) to receive payments from Blue
Shield, Medicare, Medicaid, payments from health plans, and all other third
party payors; (iv) to take possession of and endorse in the name of NTMS (and/or
in the name of an individual physician, such payment intended for purpose of
payment of a physician's bill) any notes, checks, money orders, insurance
payments and other instruments received in payment of accounts receivable; and
(v) in accordance with policies adopted by the Policy Council, to initiate legal
proceedings in the name of NTMS to collect any accounts and monies owed to the
Clinic, to enforce the rights of NTMS as creditors under any contract or in
connection with the rendering of any service, and to contest adjustments and
denials by governmental agencies (or its fiscal intermediaries) as third-party
payors. All adjustments made for uncollectible accounts, professional courtesies
and other activities that do not generate a collectible fee shall be done in a
reasonable and consistent manner approved by ProMedCo's independent certified
public accountants.
3.1.9 Deposit of Net Clinic Revenues. During the term of this Agreement,
all Net Clinic Revenues collected resulting from the operations of the Clinic
shall be deposited directly into a bank account of which NTMS shall be the owner
("Account"). ProMedCo and NTMS shall maintain their accounting records in such a
way as to clearly segregate Net Clinic Revenues from other funds of ProMedCo or
NTMS. NTMS hereby appoints ProMedCo as its true and lawful attorney-in-fact to
deposit in the Account all revenues collected. NTMS covenants, and shall cause
all NTMS Employees to covenant, to forward any payments received with respect to
Net Clinic Revenues for services provided by NTMS and NTMS Employees to ProMedCo
for deposit. ProMedCo shall have the right to withdraw funds from the Account
and all owners of the Account shall execute a revocable standing transfer order
("Transfer Order") under which the
<PAGE>
bank maintaining the Account shall periodically transfer the entire balance of
the Account to a separate bank account owned solely by ProMedCo ("ProMedCo
Account"). NTMS and ProMedCo hereby agree to execute from time to time such
documents and instructions as shall be required by the bank maintaining the
Account and mutually agreed upon to effectuate the foregoing provisions and to
extend or amend such documents and instructions. Any action by NTMS that
interferes with the operation of this Section, including, but not limited to,
any failure to deposit or have ProMedCo deposit any Net Clinic Revenues into the
Account, any withdrawal of any funds from the Account not authorized by the
express terms of this Agreement, or any revocation of or attempt to revoke the
Transfer Order (otherwise than upon expiration or termination of this
Agreement), will constitute a breach of this Agreement and will entitle
ProMedCo, in addition to any other remedies that it may have at law or in
equity, to seek a court ordered assignment of the following rights:
(a) To collect accounts receivable resulting from the provision of
services to patients of NTMS and its NTMS Employees;
(b) To receive payments from patients, third party payor plans, insurance
companies, Medicare, Medicaid and all other payors with respect to services
rendered by NTMS and its NTMS Employees;
(c) To take possession of and endorse any notes, checks, money orders,
insurance payments and any other instruments received as payment of such
accounts receivable; and
(d) To collect all revenues of the Clinic.
3.1.10 Management Information Systems/Computer Systems.
3.1.11 Legal and Accounting Services. ProMedCo shall arrange for or render
to NTMS such business, legal and financial management consultation and advice as
may be reasonably required or requested by NTMS and directly related to the
operations of the Clinic. ProMedCo shall not be responsible for rendering any
legal or tax advice or services or personal financial services to NTMS or any
employee or agent of NTMS.
3.1.12 Negotiation and Payment of Premiums For All Insurance Products
Held By NTMS.
3.1.13 Physician Recruiting. ProMedCo shall assist NTMS in recruiting
additional physicians, carrying out such administrative functions as may be
appropriate such as advertising for and identifying potential candidates,
checking credentials, and arranging interviews; provided, however, NTMS shall
interview and make the ultimate decision as to the suitability of any physician
to become associated with the Clinic. All physicians recruited by ProMedCo and
accepted by NTMS shall be the sole employees of NTMS to the extent such
physicians are hired as employees. Any expenses incurred in the recruitment of
physicians, including, but not limited to, employment agency fees, relocation
and interviewing expenses shall be budgeted Clinic Expenses set forth in the
budget approved by the Policy Council.
3.1.14 Supervision of Ancillary Services.
3.1.15 Strategic Planning Assistance.
3.1.16 Advertising and Public Relations. This would be subject to the
review and approval of the Policy Council.
3.1.17 Files and Records. ProMedCo shall supervise and maintain custody
<PAGE>
of all files and records relating to the operation of the Clinic, including but
not limited to accounting, billing, patient medical records, and collection
records. Patient medical records shall at all times be and remain the property
of NTMS and shall be located at Clinic facilities so that they are readily
accessible for patient care. The management of all files and records shall
comply with applicable state and federal statutes. ProMedCo shall use its
reasonable efforts to preserve the confidentiality of patients medical records
and use information contained in such records only for the limited purpose
necessary to perform the services set forth herein, provided, however, in no
event shall a breach of said confidentiality be deemed a default under this
Agreement.
3.2 Administrator. The selection and retention of the Administrator,
subject to the provisions of Section 2.2.3.
3.3 Expansion of Clinic. ProMedCo will pursue various programs to
increase revenue and profitability including assisting NTMS in adding additional
office based procedures, ancillary services and adding additional satellite
office(s) as determined by the Policy Council to be beneficial to the Clinic.
ProMedCo will also assist in recruiting new physicians and developing
relationships and affiliations with other physicians, hospitals, networks, HMOs,
etc. To assist in the continued growth and development of the Clinic, ProMedCo
may acquire other physician practices. NTMS will cooperate with ProMedCo in such
efforts and use its best efforts to assist ProMedCo with respect thereto.
Without limiting the generality of the foregoing, NTMS will not enter into any
agreements with respect to any such matter without the prior consent of
ProMedCo.
3.4 Events Excusing Performance. ProMedCo shall not be liable to NTMS
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which ProMedCo has no control for so long as such events
continue, and for a reasonable amount of time thereafter.
3.5 Compliance With Applicable Laws. ProMedCo shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4. OBLIGATIONS OF NTMS
4.1 Professional Services. NTMS shall provide professional services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the medical profession. NTMS shall also ensure that each physician
associated with NTMS is licensed by the State of Texas. In the event that any
disciplinary actions or medical malpractice actions are initiated against any
such physician, NTMS shall immediately inform the Administrator of such action
and the underlying facts and circumstances. NTMS shall carry out a program to
monitor the quality of medical care practiced, with ProMedCo's assistance. NTMS
will cooperate with ProMedCo in taking steps to resolve any utilization review
or quality assurance issues which may arise in connection with the Clinic.
4.2 Employment Of Physician Employees. NTMS shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Shareholders and Physician Employees, although at
the request of NTMS, ProMedCo shall consult with NTMS regarding such matters.
NTMS shall enforce formal employee agreements from each of its Physician
Shareholders and Physician Employees, hired or contracted, substantially in the
form attached hereto as Exhibit "C".
<PAGE>
4.3 Non-Clinic Expenses. NTMS shall be solely responsible for the
payment of all costs and expenses incurred in connection with NTMS' s operations
which are not Clinic Expenses, including, but not limited to, accounting and
other professional services fees, salaries and benefits, retirement plan
contributions, health, disability and life insurance premiums, payroll taxes,
and continuing medical education.
4.4 Medical Practice. NTMS shall use and occupy the Clinic Facility
exclusively for the practice of medicine, and shall comply with all applicable
local rules, ordinances and all standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Clinic Facility shall be conducted solely be physicians associated with
NTMS, and no other physician or medical practitioner shall be permitted to use
or occupy the Clinic Facility without the prior written consent of ProMedCo.
4.5 Professional Insurance Eligibility. NTMS shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that
its Physician Shareholders and Physician Employees are insurable, and
participating in an ongoing risk management program.
4.6 Employment Of Non-Physician Employees. There will be certain
Technical Employees that perform technical functions for NTMS. These Technical
Employees will remain in the employ of NTMS. As provided in Section 3.1.4.,
ProMedCo will provide payroll and administrative services for such Technical
Employees.
4.7 Events Excusing Performance. NTMS shall not be liable to ProMedCo
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which NTMS has no control for so long as such events continue,
and for a reasonable amount of time thereafter.
4.8 Compliance With Applicable Laws. NTMS shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4.9 Restrictions on use of Clinic Facility. NTMS shall at all times during the
term of this Agreement comply with the policy of ProMedCo stated in Section 6
herein.
<PAGE>
4.10 NTMS Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, NTMS has in effect the
employee welfare benefit plans (as such term is defined in Section 3(l) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and the
employee pension benefit plans (as such term is defined in Section 3(2) of
ERISA), as set forth in Exhibit "D" to this Agreement. With respect to any such
employee pension benefit plan ("NTMS Plan"), effective on the Effective Date of
this Agreement such NTMS Plan shall be amended to provide that the ProMedCo
employees who are classified as "leased employees" (as defined in Section 414(n)
of the Internal Revenue Code of 1986, as amended ("Code")) of NTMS shall be
treated as NTMS employees for purposes of eligibility and participation in such
NTMS Plan. Not less often than annually, NTMS and ProMedCo shall agree upon and
identify in writing those individuals to be classified as leased employees of
NTMS and shall establish mutually agreeable procedures, with respect to the
participation of such leased employees in the NTMS plan. Such procedures shall
be designed to avoid the tax disqualification of the NTMS Plan, similar plans of
clinics similarly situated, and any similar plan sponsor maintained by ProMedCo
from time to time (collectively, the "Plans").
(b) If the Policy Council determines that the relationship between
ProMedCo and NTMS (and other clinics similarly situated) constitutes an
"affiliated service group" (as defined in Code Section 414(m)), ProMedCo and
NTMS shall take such actions as may be necessary to avoid the tax
disqualification of the Plans. Such actions may include the amendment, freeze,
termination or merger of the NTMS Plan.
(c) NTMS shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent of
ProMedCo. Except as otherwise required by law, NTMS shall not materially amend,
freeze, terminate or merge any NTMS Plan without the express written consent of
ProMedCo. In the event of either of the foregoing, ProMedCo's consent shall not
be withheld if such action would not jeopardize the qualification of any of the
Plans. NTMS agrees to make such changes to NTMS' Plan, including the freeze,
termination, or merger of such NTMS Plan, as may be approved by ProMedCo.
(d) Expenses incurred in connection with any NTMS Plan or other
employee benefit plan maintained by NTMS, including without limitation the
compensation of counsel, accountants, corporate trustees and other agents shall
be included in Clinic Expenses.
(e) The contribution and administration expenses for Physician
Shareholders and Physician Employees shall be an expense of NTMS. ProMedCo shall
make contributions or payments with respect to any NTMS Plan, as a Clinic
Expense, on behalf of eligible Technical Employees and designated leased
employees.
(f) ProMedCo shall have the sole and exclusive authority to adopt,
amend, or terminate any employee benefit plan for the benefit of its employees,
regardless of whether such employees are designated leased employees, unless
such actions would require the amendment, freeze or termination of any NTMS Plan
to avoid disqualification of such plan, in which case any such action would be
subject to the express prior written consent of the Policy Council. ProMedCo
shall have the sole and exclusive authority to appoint the trustee, custodian,
and administrator of any such plan.
(g) In the event that any employee welfare benefit plan maintained or
sponsored by NTMS must be amended, terminated, modified, or changed as the
<PAGE>
result of NTMS and ProMedCo being deemed to be a part of an affiliated service
group, the Policy Council will replace any such plan or plans with a plan or
plans that provides those benefits approved by ProMedCo with the advice of the
Poky Council. It shall be the goal of the Policy Council in such event to
provide substantially similar or comparable benefits that the same can be
provided at a substantially similar cost to the replaced plan.
4.11 Physician Powers of Attorney. NTMS shall require all NTMS
Employees to execute and deliver to ProMedCo powers of attorney, satisfactory in
form and substance to ProMedCo and NTMS, appointing ProMedCo as attorney-in-fact
for each for the purposes set forth in Section 3.1.9, which powers of attorney
shall immediately terminate upon termination of this Agreement.
4.12 Spokesperson. NTMS shall serve as spokesperson for ProMedCo,
Parent and Clinic sales and development activities. The parties agree that Drs.
Blucker, Taylor and Shelton, or such other Physician Shareholders as the Policy
Council shall appoint, shall serve in this capacity on behalf of NTMS.
5. RECORDS
5.1 Patient Records. Upon termination of this Agreement, NTMS shall
retain all patient medical records maintained by NTMS or ProMedCo in the name of
NTMS. NTMS shall, at its option, be entitled to retain copies of financial and
accounting records relating to all services performed by NTMS.
5.2 Other Records. All records relating in any way to the operation
of the Clinic which are not the property of NTMS under the provisions of
Section 5.1 above, shall at all times be the property of ProMedCo.
5.3 Access to Records. During the term of this Agreement, and
thereafter, NTMS or its accountant or other designee shall upon 24 hours notice
have reasonable access during normal business hours to NTMS's and ProMedCo's
financial records, including, but not limited to, records of collections,
expenses and disbursements as kept by ProMedCo in performing ProMedCo's
obligations under this Agreement, and NTMS may copy any or all such records.
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6. FACILITIES TO BE PROVIDED BY PROMEDCO
6.1 Facilities. ProMedCo hereby agrees to provide as a Clinic Expense
the offices and facilities for Clinic operations, including but not limited to,
the Clinic Facility and all costs of repairs, maintenance and improvements,
utility (telephone, electric, gas, water) expenses, normal janitorial services,
related real or personal property lease cost payments and expenses, taxes and
insurance, refuse disposal and all other costs and expenses reasonable incurred
in conducting operations in the Clinic Facility during the term of this
Agreement.
6.2 Use of Facilities. Voluntary abortions will not be performed in
facilities that are owned or leased by ProMedCo or any of its affiliates in
whole or in part. ProMedCo and NTMS agree that NTMS, as an independent
contractor, is a separate organization that retains the authority to direct the
medical, professional, and ethical aspects of its medical practice. If a
Physician Shareholder or a Physician Employee performs abortion procedures in
any facility, ProMedCo shall not receive any ProMedCo Distribution from the
revenue generated from such procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to NTMS and ProMedCo. NTMS and ProMedCo agree that the
compensation set forth herein is being paid to ProMedCo in consideration of a
substantial commitment made by ProMedCo hereunder and that such fees are fair
and reasonable. As payment for its services rendered to NTMS, each month
ProMedCo shall be paid the amount of all Clinic Expenses and New Investment
Expenses and the ProMedCo Distribution. All Net Clinic Revenues and New
Investment Revenues after deduction of Clinic Expenses, New Investment Expenses
and the ProMedCo Distribution, shall be referred to as the "NTMS Distribution."
7.2 Calculation of Payments. The amounts to be paid to ProMedCo under
this Section 7 shall be payable monthly. ProMedCo shall, to the extent it is
reasonably able, estimate such amounts by the 10th day of the following month
and shall pay to NTMS in accordance with the provisions of Section 7.4 the NTMS
Distribution amounts on or about the 15th day of such following month. Some
amounts may need to be estimated, with adjustments made as necessary the
following month. Any audit adjustments would be made after completion of the
fiscal year audit.
7.3 Clinic Expenses. Commencing on the Effective Date, ProMedCo shall
pay all Clinic Expenses as they fall due, provided, however, that ProMedCo may,
in the name of and on behalf of NTMS, contest in good faith any claimed Clinic
Expenses as to which there is any dispute regarding the nature, existence or
validity of such claimed Clinic Expenses. ProMedCo hereby agrees to indemnify
and hold NTMS harmless from and against any liability, loss, damages, claims,
causes of action and reasonable expenses of NTMS resulting from the contest of
any Clinic Expenses.
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7.4 Accounts Receivables. On approximately the 15th day of each month,
ProMedCo shall purchase the accounts receivable of NTMS arising during the
previous month, by payment of cash, or other readily available funds into an
account of NTMS. The consideration for the purchase shall be an amount equal to
the NTMS Distribution for such previous month. Although it is the intention of
the parties that ProMedCo purchase and thereby become owner of the accounts
receivable of NTMS, in case such purchase shall be ineffective for any reason,
NTMS, as of the Effective Date of this Agreement, grants and shall cause each
NTMS Employee to grant to ProMedCo a first priority lien on and security
interest in and to any and all interest of NTMS and such NTMS Employees in any
accounts receivable generated by the medical practice of NTMS and the NTMS
Employees or otherwise generated through the operations of the Clinic, and all
proceeds with respect thereto, to secure the payment to ProMedCo of all such
accounts receivable, and this Agreement shall be deemed to be a security
agreement to the extent necessary to give effect to the foregoing. In addition,
NTMS shall cooperate with ProMedCo and execute and deliver, and cause each NTMS
Employee to execute and deliver, all necessary documents in connection with the
pledge of such accounts receivable to ProMedCo or at ProMedCo's option, its
lenders. All collections in respect of such accounts receivable shall be
deposited in a bank account at a bank designated by ProMedCo. To the extent NTMS
or any NTMS Employee comes into possession of any payments in respect of such
accounts receivable, NTMS or such NTMS Employee shall direct such payments to
ProMedCo for deposit in bank accounts designated by ProMedCo.
7.5 Additional NTMS Payments. In addition to the NTMS Distribution
provided for in Section 7.1 of this Agreement, within 45 days following the end
of each fiscal quarter of ProMedCo, ProMedCo shall determine its net after-tax
income for such quarter, in accordance with GAAP, and shall distribute to NTMS,
as an additional payment, an amount equal to 15% of such net after-tax income.
Any audit adjustments would be made after completion of the fiscal year audit.
7.6 NTMS Advance. In the event that for either of the second and third
years following the Effective Date of this Agreement (each of such years
hereafter referred to as the "Computation Year"), the NTMS Distribution amount
plus the Additional NTMS Payments payable to NTMS pursuant to Section 7.5
hereof, payable to NTMS during such Computation Year (collectively, the "NTMS
Payments") are not equal to or greater than what would have been computed as the
Distribution Funds for North Texas Medical-Surgical, P.A., the Seller under the
Asset Purchase Agreement, (the "Predecessor Corporation") for the 12-month
period immediately prior to the Effective Date of this Agreement ("Historical
Distribution Funds"), then for such Computation Year NTMS shall be entitled to
an advance in accordance with the following terms:
(a) For the Computation Year, ProMedCo shall advance to NTMS an amount
equal to the difference, if any, between the Historical Distribution Funds and
the actual NTMS Payments for such Computation Year; provided, however, that in
no event shall the advance for any Computation Year exceed 15% of the Historical
Distribution Funds.
(b) ProMedCo shall be obligated to make such advance and NTMS shall be
eligible for such advance only in the event that the Net Clinic Revenues for the
Computation Year are equal to or greater than the Net Clinic Revenue of the
Predecessor Corporation for the 12-month period immediately preceding the
Effective Date of this Agreement.
(c) For purposes of computing the advance amount set forth in
subparagraph (a) above, for each Computation Year the Historical Distribution
<PAGE>
Funds shall be subject to an adjustment in the event that during such
Computation Year all of the original NTMS shareholders (other than Robert J.
Lee, M.D. who is retiring) shall no longer be employed by NTMS on a full-time
basis. In such event, the Historical Distribution Fund for such Computation Year
shall be reduced by 1/7 of the Historical Distribution Fund amount for each such
original shareholder no longer employed on a full-time basis by NTMS.
(d) The Computation Year shall be a 12 month period which commences on the
second and third anniversary dates of the Effective Date of this Agreement. The
advance, if any, shall be paid by ProMedCo within 15 days of review of the
financial statement by a certified public accountant, as provided in Section
3.1.2 hereof, for each of such Computation Years.
(e) With respect to any advance made in accordance with the provisions
of this Section, ProMedCo shall be entitled to charge interest against the
balance of such advance at the minimum applicable federal rate for such period
of time as the advance shall remain outstanding.
(f) Any advances made, and interest thereon, shall be paid to ProMedCo
by NTMS from future NTMS Payments, but only to the extent that such NTMS
Payments exceed the Historical Distribution Funds.
8. INSURANCE AND INDEMNITY
8.1 Insurance to be Maintained by ProMedCo. Throughout the term of this
Agreement, ProMedCo will use reasonable efforts to provide and maintain, as a
Clinic Expense, comprehensive professional liability insurance for all
professional employees of ProMedCo and NTMS with limits as determined reasonable
by ProMedCo in its national program, comprehensive general liability insurance
and property insurance covering the Clinic Facility and operations.
8.2 Insurance to be Maintained by NTMS. Unless otherwise determined by
the Policy Council, throughout the term of this Agreement, subject to the
provisions of Section 4.5 and Section 8.1, NTMS shall maintain comprehensive
professional liability insurance with limits of not less than $500,000 per claim
and with aggregate policy limits of not less than $1,000,000 per physician and a
separate limit for NTMS. NTMS shall be responsible for all liabilities
(including without limitation deductibles and excess liabilities) not paid
within the limits of such policies. ProMedCo shall have the option, with Policy
Council approval, of providing such professional liability insurance through an
alternative program, provided such program meets the requirements of the
Insurance Commissioner of the State of Texas.
8.3 Tail Insurance Coverage. NTMS will cause each individual physician
associated with the Clinic to enter into an agreement with NTMS that upon
termination of such physician's relationship with NTMS, for any reason, tail
insurance coverage will be purchased by the individual physician. Such
provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by NTMS and the individual
physicians, and NTMS hereby covenants with ProMedCo to enforce such provisions
relating to the tail insurance coverage or to provide such coverage at the
expense of NTMS.
8.4 Additional Insured. NTMS and ProMedCo agree to use their best
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at ProMedCo's expense.
<PAGE>
8.5 Indemnification. NTMS shall indemnify, hold harmless and defend
ProMedCo, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of medical services or any other acts or omissions by NTMS and/or
its shareholders, agents, employees and/or subcontractors (other than ProMedCo)
during the term hereof, including any claim against ProMedCo by an NTMS
Employee, which claim arises out of such NTMS Employees' employment relationship
with NTMS or as a result of services performed by such NTMS Employee, and which
claim would typically be covered by worker's compensation. ProMedCo shall
indemnify, hold harmless and defend NTMS, its officers, directors and employees,
from and against any and all liability, loss, damage, claim, causes of action,
and expenses (including reasonable attorneys' fees), to the extent not covered
by insurance, caused or asserted to have been caused, directly or indirectly, by
or as a result of the performance of an intentional acts, negligent acts or
omissions by ProMedCo and/or its shareholders, agents, employees and/or
subcontractors (other than NTMS) during the term of this Agreement.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by ProMedCo
shall be feasible only if NTMS operates an active medical practice to which the
physicians associated with NTMS devote their full time and attention. To that
end:
9.1 Restrictive Covenants by NTMS. During the term of this Agreement,
NTMS shall not establish, operate or provide physician services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by NTMS pursuant to this Agreement anywhere within
Denton County, Texas. The restrictive covenant contained within this Section 9.1
shall not apply to any Clinic Facility approved by the Policy Council.
9.2 Restrictive Covenants By Current Physician Shareholders and
Physician Employees. NTMS shall enforce the employment agreements with its
current Physician Shareholders and Physician Employees obtained in connection
with the Asset Purchase Agreement, pursuant to which the Physician Shareholders
and Physician Employees agree not to establish, operate or provide physician
services at any medical office, clinic or outpatient and/or ambulatory treatment
or diagnostic facility providing services substantially similar to those
provided by NTMS pursuant to this Agreement within Denton County and for a
period of thirty-six (36) months after the first date of such Physician
Shareholder's or such Physician Employee's employment with NTMS. ProMedCo shall
have third-party rights to enforce such agreements.
9.3 Restrictive Covenants By Future Physician Employees. NTMS shall
obtain and enforce formal employment agreements from each of its future
Physician Shareholders and Physician Employees, pursuant to which such
physicians agree not to establish, operate or provide physician services at any
medical office, clinic or outpatient and/or ambulatory treatment or diagnostic
facility providing services substantially similar to those provided by NTMS
pursuant to this Agreement within Denton County during the term of said
Physician Employee's employment with NTMS and for a period of thirty-six (36)
months after the date of their first employment, with NTMS. ProMedCo shall have
third-party rights to enforce such agreements.
9.4 Physician Shareholder and Physician Employee Liquidated Damages.
The restrictive covenants described in Sections 9.2 and 9.3 of this Agreement
may provide that the Physician Shareholders and Physician Employees (existing
<PAGE>
or future) may be released from their restrictive covenants by paying Liquidated
Damages in the amount of $75,000. Such payment shall be made to ProMedCo by NTMS
simultaneously with the payment by the physician to NTMS. Such payment shall be
first applied to all costs incurred by ProMedCo in the enforcement of the
restrictive covenant for that departing physician and in recruiting a
replacement physician for that departing physician. The remainder, if any, shall
become an additional service fee to be paid to ProMedCo pursuant to Section 7.
The accounting treatment of such funds shall be consistently applied and
approved by ProMedCo's independent certified public accountants and the Policy
Council.
9.5 Additional Covenants with Respect to Payor Contracts. In addition
to the restrictive covenants set forth in Sections 9.2 and 9.3 of this Section
9, the employment agreements with Physician Shareholders and Physician Employees
shall require that for the period stated hereafter each such Physician
Shareholder and Physician Employee shall not enter into a provider agreement or
other contract with, nor provide any medical services in connection with or
pursuant to any such provider agreement or other contract, any third party payor
having a provider agreement or other contract with NTMS or any NTMS Employee at
any time within 120 days prior to and including the date of such physician's
termination of employment with NTMS. For Physician Shareholders and Physician
Employees employed by NTMS on the date of this Agreement, the restrictive
covenants contained in this Section 9.5 shall apply for the four-year period
commencing on the first date of such Physician Shareholder's or such Physician
Employee's employment with NTMS. For Physician Shareholders and Physician
Employees who are not employed by NTMS on the date of this Agreement, the
restrictive covenants set forth in this Section 9.5 shall apply for a period of
12 months following the date of such Physician Shareholder's or Physician
Employee's termination of employment with NTMS. As used herein, a third party
payor shall include, without limitation, any employer, coalition of employers,
union or similar organization maintaining a health benefit plan for the benefit
of its employees or members, any insurance company, any Blue Cross/Blue Shield
plan, any health maintenance organization, preferred provider organization,
independent physicians association, physician hospital organization, or similar
entity or arrangement which contracts for physician services on behalf of its
employees or members or other third party payors. However, as used herein the
term "third party payor" shall not include the federal Medicare program or the
state Medicaid program, although such terms shall include any health maintenance
organization providing Medicare or Medicaid benefits to plan participants.
9.6 Enforcement. ProMedCo and NTMS acknowledge and agree that since a
remedy at law for any breach or attempted breach of the provisions of this
Section 9 shall be inadequate, either party shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such injunctive or other equitable
relief. If any provision of Section 9 relating to territory described therein
shall be declared by a court of competent jurisdiction to exceed the maximum
time period, scope of activity, restricted or geographical area such court deems
reasonable and enforceable under applicable law, the time period, scope of
activity, restricted and/or area of restriction deemed to be reasonable and
enforceable by the court shall thereafter be the time period, scope of activity,
restricted and/or area of restriction applicable to the restrictive covenant
provisions in this Section 9. The invalidity of non- enforceability of this
Section 9 in any respect shall not affect the validity of enforceability of the
remainder of this Section 9 or of any other provisions of this Agreement unless
the invalid or non-enforceable provisions materially affect the benefits either
party would otherwise be entitled to
<PAGE>
receive under this Section 9 or any other provision of this Agreement.
9.7 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 10.2 herein, the restrictive covenants contained in this Section 9 shall
be null and void and of no force or effect.
10. TERM; RENEWAL; TERMINATION
10.1 Term and Renewal. The term of this Agreement shall commence on the
date hereof and shall continue for forty (40) years, after which it shall
automatically renew for 5-year terms unless either party provides the other
party with at least twelve (12) months but not more than fifteen (I 5) months
written notice prior to any renewal date.
<PAGE>
10.2 Termination by NTMS. NTMS may terminate this Agreement as
follows:
10.2.1 In the event of the filing of a petition in voluntary bankruptcy or
an assignment for the benefit of creditors by ProMedCo, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by ProMedCo, except for the filing of a petition in
involuntary bankruptcy against ProMedCo which is dismissed within 30 days
thereafter, NTMS may give notice of the immediate termination of this Agreement.
10.2.2 In the event ProMedCo shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement and such default shall
continue for a period of 90 days after written notice thereof has been given to
ProMedCo by NTMS; or ProMedCo shall fail to remit the payments due as provided
in Section 7 hereof and such failure to remit shall continue for a period of 15
days after written notice thereof, NTMS may terminate this Agreement.
Termination of this Agreement pursuant to this subsection (2) by NTMS shall
require the affirmative vote of 75% of the Physician Shareholders.
10.2.3 In the event ProMedCo intentionally misappropriates or misapplies
the NTMS Distribution.
10.2.4 In the event a court of competent jurisdiction makes a final
determination that ProMedCo has breached a fiduciary duty owed to NTMS.
10.2.5 In the event Parent shall default in any obligation it may have to
purchase the Shares owned by any Stockholder in accordance with the provisions
of Section 3.1 of the Stock Agreement between Parent and the stockholders of
NTMS dated of even date with this Agreement.
10.3 Termination by ProMedCo. ProMedCo may terminate this Agreement as
follows:
10.3.1 In the event of the filing of a petition in voluntary bankruptcy or
an assignment for the benefit of creditors by NTMS, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by NTMS, except for the filing of a petition in
involuntary bankruptcy against NTMS which is dismissed within 30 days
thereafter, ProMedCo may give notice of the immediate termination of this
Agreement.
10.3.2 In the event NTMS shall materially default in the performance of any
duty or obligation imposed upon it by this Agreement or in the event a majority
of the Physicians Shareholders shall materially default in the performance of
any duty or obligation imposed upon them by this Agreement or by their
employment agreements with NTMS, and such default shall continue for a period of
90 days after written notice thereof has been given to NTMS and such Physician
Shareholders by ProMedCo, ProMedCo may terminate this Agreement.
10.4 Actions After Termination. In the event that this Agreement shall
be terminated, the NTMS Compensation and the ProMedCo Distribution shall be paid
through the effective date of termination. In addition, the various rights and
remedies herein granted to the aggrieved party shall be cumulative and in
addition to any others such party may be entitled to by law. The exercise of one
or more rights or remedies shall not impair the right of the aggrieved party to
exercise any other right or remedy, at law. Upon termination of this Agreement,
NTMS shall:
<PAGE>
10.4.1 Asset Repurchase. Purchase from ProMedCo at book value the
Restrictive Covenants provided for in Section 9 and any other intangible assets
set forth on the Opening Balance Sheet, as adjusted through the last day of the
month most recently ended prior to the date of such termination in accordance
with GAAP to reflect amortization or depreciation of the Restrictive Covenants
and intangibles, which amortization shall be for a period not in excess of 40
years.
10.4.2. Real Estate. Purchase from ProMedCo all real estate, if
any, associated with the Clinic at the then book value thereof.
10.4.3. Improvements. Purchase all improvements, additions or
leasehold improvements which have been made by ProMedCo and which relate
solely to the performance of its obligations under this Agreement or the
properties subleased by ProMedCo, if any.
10.4.4. Debts. Assume all ordinary and necessary debt, contracts,
payables and leases watch are obligations of ProMedCo and which relate
principally to the performance of its obligations under this Agreement or the
properties subleased by ProMedCo, if any.
10.4.5. Equipment. Purchase from ProMedCo at book value all of the
equipment listed as set forth in the Asset Purchase Agreement, including all
replacements and additions thereto made by ProMedCo with the approval of the
Policy Council pursuant to the performance of its obligations under this
Agreement, and all other assets, including inventory and supplies, tangibles and
intangibles, set forth on the Opening Balance Sheet, as adjusted through the
last day of the month most recently ended prior to the date of such termination
in accordance with GAAP to reflect operations of the Clinic, depreciation,
amortization and other adjustments of assets shown on the Opening Balance Sheet.
10.4.6. Closing of Repurchase. NTMS shall, at its option, pay cash or
surrender shares of common stock of Parent valued at the greater of (i) $12.00
per share or (ii) the then current market value, if such shares are then traded
on any exchange or pursuant to the NASDAQ System, for the repurchased assets.
The amount of the purchase price shall be reduced by the amount of debt and
liabilities of ProMedCo assumed by NTMS and shall be reduced by any payment
ProMedCo has failed to make under this Agreement. NTMS and any physician
associated with NTMS shall execute such documents as may required to assume the
liabilities set forth in Section 10.4.4. and to remove ProMedCo from any
liability with respect to such repurchased assets and with respect to any
property leased or subleased by ProMedCo. The closing date for the repurchase
shall be determined by NTMS, but shall in no event occur later than 180 days
from the date of the notice of termination. The termination of this Agreement
shall become effective upon the closing of the sale of the assets and NTMS shall
be released from the Restrictive Covenants provided for in Section 9 on the
closing date. From and after any termination, each party shall provide the other
party with reasonable access to books and records then owned by it to permit
such requesting party to satisfy reporting and contractual obligations which may
be required of it.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
11.1 Net Clinic Revenues shall mean NTMS's gross billings, including
ancillaries and any other revenues that have historically been recorded by NTMS,
less any adjustments such as uncollectible accounts, discounts,
<PAGE>
contractual adjustments, Medicare allowances, Medicaid allowances, and
professional courtesies ("adjustments"). This specifically excludes New
Investment Revenues and Risk Pool Reserves.
11.2 New Investment Revenues shall mean NTMS's gross billings (net of
adjustments) which are not, except as provided below, Physician Service
Revenues, but excluding any interest, investment, rental or similar payments or
income made or payable to NTMS that are unrelated to the provisions of medical
or administrative services or products, arising from a new project which
required the expenditure of capital by ProMedCo, as approved by the Policy
Council. Additionally, New Investment Revenues shall include any Physician
Service Revenues arising from a new project which required the expenditure of
capital by ProMedCo, and which are so designated in writing by the Policy
Council prior to such expenditure.
11.3 New Investment Expenses shall mean those expenses which constitute
expenses related to New Investment Revenues.
11.4 Distribution Funds shall mean those amounts remaining after Clinic
Expenses have been deducted from Net Clinic Revenue.
11.5 New Investment Distribution Funds shall mean those funds remaining
after New Investment Expenses and [*]% of New Investment Revenues are
subtracted from New Investment Revenues.
11.6 ProMedCo Distribution shall mean [*]% of Distribution Funds,
a percentage of Risk Pool Reserves established by Exhibit A, [*]% of New
Investment Revenues, as well as [*]% of New Investment Distribution Funds.
11.7 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by NTMS and the NTMS Employees, utilizing the management services of
ProMedCo and the Clinic Facility, regardless of the location where such services
are rendered.
11.8 Clinic Facility shall mean the clinic facility located at 2509
Scripture, Suite 200, Denton, Texas, and any substitute facility or additional
facility location, whether within or without Denton County, as approved by the
Policy Council.
11.9 Clinic Expenses shall mean the amount of all expenses incurred in
the operation of the Clinic including, without limitation:
11.9.1 Salaries, benefits (including contributions under any Parent benefit
plan), and other direct costs of all employees of ProMedCo and Technical
Employees attributable to NTMS;
11.9.2 Direct costs, including benefits, of all employees or consultants of
Parent or affiliate of ProMedCo who, with approval of the Policy Council,
provides services at or in connection with NTMS required for improved
performance, such as work management, purchasing, information systems, charge
and coding analysis, managed care sales, negotiating and contracting, financial
analysis, and business office consultation; provided, however, only that portion
of such employee's or consultant's costs without mark-up by Parent that is
allocable to Clinic will be a Clinic Expense;
11.9.3 Obligations of ProMedCo or Parent under leases or subleases
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATLEY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
related to Clinic operations;
11.9.4 Interest Expense on indebtedness incurred by ProMedCo or Parent to
finance or refinance any of its obligations hereunder or services provided
hereunder.
11.9.5 Personal property and intangible taxes assessed against ProMedCo's
assets used in connection with the operation of Clinic commencing of the date of
this Agreement;
11.9.6 Malpractice insurance expenses for ProMedCo's operations and for
the NTMS Employees, as well as any deductibles and non-insured expenses
relating to malpractice claims;
11.9.7 Other expenses incurred by ProMedCo in carrying out its
obligations under this Agreement.
<PAGE>
11.10 Clinic Expenses shall not include:
11.10.1 Corporate overhead charges or any other expenses of Parent or any
corporation affiliated with Parent other than the kind of items listed above;
11.10.2 Any federal or state income taxes;
11.10.3 Any expenses which are expressly designated herein as
expenses or responsibilities of NTMS and/or NTMS Employees;
11.10.4 Any amortization expense resulting from the amortization of
expenses incurred as shown on Parent's financial statements, in connection with
the acquisition pursuant to the Asset Purchase Agreement and the execution of
this Agreement;
11.10.5 Interest expense or indebtedness incurred by ProMedCo
or Parent to finance the consideration paid under the Asset Purchase Agreement;
and
11.10.6 Any expense classified as New Investment Expense.
11.11 Risk Pool Reserves shall mean all hospital incentive funds,
specialists incentive funds, and funds from shared risk pools under any
risk-sharing arrangements.
11.12 Opening Balance Sheet shall mean the balance sheet of ProMedCo as
of the Closing Date (as defined in the Asset Purchase Agreement), prepared in
accordance with GAAP (except for the absence of certain note information), and
substantially in the form of the attached Exhibit B subject to adjustments in
the Consideration (as defined in the Asset Purchase Agreement).
11.13 Technical Employees shall mean technicians who provide services in
the diagnostic areas of NTMS's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be NTMS employees.
11.14 Physician Shareholders shall mean any physician who is a
shareholder of NTMS, both as of the date of this Agreement (which said Physician
Shareholders are parties to this Agreement) and at any future point in time.
11.15 Physician Employees shall mean any physician employed by NTMS and
providing medical services to patients on behalf of NTMS, who are not Physician
Shareholders.
11.16 NTMS Employees shall mean all Physician Shareholders, Physician
Employees and Technical Employees at the relevant date.
11.17 Effective Date shall mean 12:01 a.m. on the first day of the month
in which the Closing Date (as such term is defined in the Asset Purchase
Agreement) occurs.
11.18 Physician Service Revenues shall mean all fees actually recorded
each month (net of adjustments) by or on behalf of NTMS as a result of
professional medical services personally furnished to patients by NTMS Employees
and other fees or income generated in their capacities as professionals, whether
rendered in an in-patient or out-patient setting.
11.19 Capitation Revenues shall mean all payments from managed care
<PAGE>
organizations, where payment is made periodically on a per member basis for the
partial or total medical care needs of a patient (and co-payments with respect
thereto) but excluding any amounts allocated to Risk Pool Reserves. Such
Capitation Revenues shall be divided between the categories of Physician Service
Revenues and New Investment Revenues in such manner as shall be determined by
the Policy Council.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that NTMS
and ProMedCo are at all times acting and performing hereunder as independent
contractors. ProMedCo shall neither have nor exercise any control or direction
over the methods by which NTMS or the NTMS Employees practice medicine. The sole
function of ProMedCo hereunder is to provide all management services in a
competent, efficient and satisfactory manner. ProMedCo shall not, by entering
into and performing its obligations under this Agreement, become liable for any
of the existing obligations, liabilities or debts of NTMS unless otherwise
specifically provided for under the terms of this Agreement. ProMedCo will in
its management role have only an obligation to exercise reasonable care in the
performance of the management services. Neither party shall have any liability
whatsoever for damages suffered on account of the willful misconduct or
negligence of any employee, agent or independent contractor of the other party.
Each party shall be solely responsible for compliance with all state and federal
laws pertaining to employment taxes, income withholding, unemployment
compensation contributions and other employment related statutes regarding their
respective employees, agents and servants.
12.2 Other Contractual Arrangement.
(a) The parties acknowledge and agree that they have been
advised and consent to the fact that ProMedCo, or its affiliates (i) may have,
prior to the date of this Agreement, discussed proposals with respect to, or
(ii) may, from time to time hereafter, enter into agreements with one or more
NTMS Employees to provide consulting, medical direction, advisory or similar
services relating to activities of ProMedCo or its affiliates in clinical areas.
The parties agree that such agreement, if any, shall be entered into at the sole
discretion of the parties thereto and subject to such terms and conditions to
which such parties may agree, and any compensation payable to or by ProMedCo, on
the one hand, and such NTMS Employees, on the other hand, shall not constitute
Net Clinic Revenues, or NTMS Compensation, and shall otherwise not be subject to
the provisions of this Agreement.
(b) Each current Physician Shareholder, by his execution of
this Agreement as provided on the signature page hereof, agrees that neither the
negotiation nor the entry into any agreement or arrangement of a type described
in Section 12.2 (a) above shall constitute a breach of any fiduciary or other
duty owned by any NTMS Employee to another, or by ProMedCo to NTMS or any
Physician Shareholder. Accordingly, NTMS and each Physician Shareholder hereby
waive any right to disclosure of the negotiations, proposals or terms of any
such agreement, arrangement or right to participate in and/or share revenues
derived from any such agreement or arrangement with any NTMS Employee, and
hereby forever release and discharge NTMS, the Physician Shareholders, ProMedCo,
and their respective representatives (including, but not limited to, their
respective attorneys, accountants, affifiates, shareholders, officer, directors,
employees and agents) from any and all actions, claims, charges, suits, damages
and liabilities of any kind whatsoever arising from or by reason of the
participation of any NTMS Employee in any agreement or arrangement with
ProMedCo, or their affiliates of a type described in Section 12.2(a) above or
from or by reason of the failure of
<PAGE>
ProMedCo, any NTMS Employee or their respective representatives to disclose the
negotiation, existence or terms of any such agreement or arrangement. In keeping
with the private nature of these matters, the Physician Shareholders further
agree that such negotiations, proposals or terms of agreement are to be kept
confidential between an NTMS Employee on the one hand, and ProMedCo, on the
other hand, and shall not be disclosed by them or their representatives, except
as required by applicable law.
12.3 Proprietary Property.
12.3.1 Each party agrees that the other party's proprietary property shall
not be possessed, used or disclosed otherwise than may be necessary for the
performance of this Agreement. Each party acknowledges that its violation of
this Agreement would cause the other party irreparable harm, and may (without
limiting the other parts' remedies for such breach) be enjoined at the instance
of the other party. Each party agrees that upon termination of this Agreement
for any reason, absent the prior written consent of the other party, it shall
have no right to and shall cease all use of the other party's proprietary
property, and shall return all such proprietary property of the other party in
its possession to the other party.
12.3.2 ProMedCo shall be the sole owner and holder of all right, title and
interest, to all intellectual property fimnished by it under this Agreement,
including, but not limited to the trade name "North Texas Medical- Surgical,"
all computer software, copyright, services mark and trademark right to any
material or documents acquired, prepared, purchased or furnished by ProMedCo
pursuant to this Agreement. NTMS shall have no right, title or interest in or to
such material and shall not, in any manner, distribute or use the same without
the prior written authorization of ProMedCo, provided, however, that the
foregoing shall not restrict NTMS from distributing managed care information
brochures and materials without the prior written approval of ProMedCo provided
no Proprietary Property of ProMedCo is contained therein. Notwithstanding the
preceding, however, ProMedCo agrees that NTMS shall be entitled to use on a
nonexclusive and nontransferable basis for the term of this Agreement the name
"North Texas Medical-Surgical" as may be necessary or appropriate in the
performance of NTMS' services and obligations hereunder.
12.4 Cooperation. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement.
12.5 Licenses, Permits and Certificates. ProMedCo and NTMS shall each
obtain and maintain in effect, during the term of this Agreement, all licenses,
permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
12.6 Compliance with Rules, Regulations and Laws. ProMedCo and NTMS
shall comply with all federal and state laws and regulations in performance of
their duties and obligations hereunder. Neither party, nor their employees or
agents, shall take any action that would jeopardize the other party's
participation, if applicable, in any federal or state health program including
Medicare and Medicaid. ProMedCo and NTMS shall take particular care to ensure
that no employee or agent of either party takes any action intended to violate
Section 1128B of the Social Security Act with respect to soliciting, receiving,
offering or paying any remuneration (including any kickback, bribe, or rebate)
directly or indirectly, overtly or covertly, in cash or in kind in return for
referring an individual to a person for the fiimishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part under Title XVIII or XIX of the Social Security Act, or for purchasing,
leasing, ordering, or arranging for or recommending purchasing,
<PAGE>
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part under Title XVIII or XIX of the Social Security Act.
12.7 Generally Accepted Accounting Principles (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
12.8 Notices. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this Section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
12.9 Attorneys' Fees. ProMedCo and NTMS agree that the prevailing
party in any legal dispute among the parties hereto shall be entitled to
payment of its attorneys' fees by the other party.
12.10 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing regulations to be invalid, void or unenforceable, the remaining
provisions will nevertheless continue in full force and effect.
12.11 Arbitration. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof will be settled by binding arbitration
in accordance with the rules of commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur within the County of Tarrant, State of Texas, unless the
parties mutually agree to have such proceedings in some other locale. The
arbitrator(s) may in any such proceeding award attorneys' fees and costs to the
prevailing party.
12.12 Construction of Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas. The parties
agree that the terms and provisions of this Agreement embody their mutual
interest and agreement and that they are not to be construed more liberally in
favor of, nor more strictly against, any party hereto.
12.13 Assignment and Delegation. ProMedCo shall have the right to
assign its rights hereunder to any person, firm or corporation controlling,
controlled by or under common control with ProMedCo and to any lending
institution, for security purposes or as collateral, from which ProMedCo or the
Parent obtains financing for itself and as agent. Except as set forth above,
neither ProMedCo nor NTMS shall have the right to assign their respective rights
and obligations hereunder without the written consent of the other party. NTMS
may not delegate any of NTMS's duties hereunder, except as expressly
contemplated herein; however, ProMedCo may delegate some of all of ProMedCo's
duties hereunder to the extent it concludes, in its sole discretion, that such
delegation is in the mutual interest of the parties hereto.
12.14 Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
<PAGE>
required by law.
12.15 Waiver. The waiver of any provision, or of the breach of any
provision of this Agreement must be set forth specifically in writing and signed
by the waiving party. Any such waiver shall not operate or be deemed to be a
waiver of any prior or future breach of such provision or of any other
provision.
<PAGE>
12.16 Headings. The subject headings of the articles and sections of
this Agreement are not included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
12.17 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and all
of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
12.18 Time is of the Essence. Time is hereby expressly declared to be
of the essence in this Agreement.
12.19 Modifications of Agreement for Prospective Legal Events. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel for both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, or in the event the Texas State Board of Medical
Examiners or other authority with legal jurisdiction shall, solely by virtue of
this Agreement, initiate an action to revoke, suspend, or restrict the license
of any physician retained by NTMS to practice medicine in the State of Texas,
NTMS and ProMedCo shall amend this Agreement as necessary. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between NTMS and ProMedCo. In the event it is not
possible to amend this Agreement to preserve in all material respects the
underlying economic and financial arrangements between NTMS and ProMedCo, this
Agreement may be terminated by written notice by either party within 90 days
from date of such interpretation or action, termination to be effective no
sooner than the earfier of 180 days from the date notice of termination is given
or the latest possible date specified for such termination in any regulatory
order or notice. Termination pursuant to this Section 6.21 by NTMS shall require
the affirmative vote of a majority of Physician Shareholders.
12.20 Whole Agreement; Modirication. A contract in which the amount
involved exceeds $50,000 in value is not enforceable unless the Agreement is in
writing and signed by the party to be bound or by that part's authorized
representative. The rights and obligations of the parties hereto shall be
determined solely from written agreements. Documents and instruments, and any
prior oral agreements between the parties are superseded by and merged into such
writings. This Agreement (as amended in writing from time to time), the
exhibits, and the schedules delivered pursuant hereto represent the final
agreement between the parties hereto and may not be contradicted by; evidence of
prior, contemporaneous, or subsequent oral agreements by the parties. There are
no unwritten oral agreements between the parties. This paragraph is included
herein pursuant to Section 26.02 of the Texas Business and Commerce Code, as
amended from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written,
PROMEDCO OF DENTON, INC.,
By:
Name:
Title:
Address:
NORTH TEXAS MEDICAL SURGICAL
CLINIC, P.A.
By:
Name:
Title:
Address:
Thomas 0. Blucker, M.D.
Physician Shareholder
Douglas B. Hagen, M.D.
Physician Shareholder
Harvard L. McBrayer, Jr., M.D.
Physician Shareholder
John S. Shelton, M.D.
Physician Shareholder
<PAGE>
Eugene M. Taylor, M.D.
Physician Shareholder
Charles H. Wahlert, M.D.
Physician Shareholder
Arvin D. Short, M.D., F.A.C. S.
Physician Shareholder
<PAGE>
EXHIBIT "A"
Allocation of Risk Pool Reserves
ProMedCo shall receive a percentage of the Risk Pool Reserves.
ProMedCo's percentage shall be based on the cumulative risk pool savings that
have occurred during the entire term of this Agreement, including any renewals.
The percentage shall be based on the graduated scale as shown below:
Cumulative Risk Pool Savings ProMedCo %
---------------------------- ----------
[*]
The distribution of Risk Pool Reserves shall be made on an annual basis no later
than 90 days after the conclusion of each Payor contract annual term, and after
a full analysis of an Incurred But Not Reported (IBNR) liabilities. Once the
final balance of Risk Pool Reserves has been calculated, [*]% of that amount
shall be distributed, with the final [*]% held for an additional 6 months to pay
for any unanticipated claims. At the end of that 6 months, any funds remaining
from the [*]% reserved shall be distributed.
CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
EXHIBIT "B"
Opening Balance Sheet
Current Assets
Cash
Accounts Receivable
Prepaid
Other Current Assets
Total Current Assets
Other Assets
Investments
Deposits
Other Assets
Total Other Assets
Property and Equipment
Land
Buildings
Building Fixed Equipment
Equipment
Capitalized Lease Equipment
Accrued Depreciation
Total Property and Equipment
Intangibles
Organization Cost
Loan Cost
Non-Compete Covenants
Other Intangibles
Total Intangibles
TOTAL ASSETS
<PAGE>
Current Liabilities
Accounts Payable
Notes Payable
Payroll & Taxes Payable
Accrued Expenses
Accrued Interest
Current Maturities-Leases
Current Maturities-Notes
Other Current Liabilities
Total Current Liabilities
Other Liabilities
Deficit in Partnership
Deferred Credits
Total Other Liabilities
Long Term Payables
Mortgages
Notes Payable
Lease Obligations
Total Long Tenn Payables
Shareholders Equity
Common Stock
Paid in Capital
Retained Earnings
Total Shareholders Equity
TOTAL LIABILITIES AND EQUITY
CREDIT AGREEMENT
DATED AS OF JUNE 12, 1996
AMONG
PROMEDCO, INC.
THE LENDERS REFERRED TO HEREIN
AND
NATIONSCREDIT COMMERCIAL CORPORATION,
AS AGENT
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.......................................1
SECTION 1.01. CERTAIN DEFINED TERMS.............................1
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS..............17
SECTION 1.03. OTHER DEFINITIONAL PROVISIONS....................18
ARTICLE II REVOLVING CREDIT LOANS...........................18
SECTION 2.01. REVOLVING CREDIT LOANS AND COMMITMENTS...........18
SECTION 2.02. REVOLVING CREDIT NOTES...........................19
SECTION 2.03. INTEREST ON THE REVOLVING CREDIT LOANS...........20
SECTION 2.05. MANDATORY REPAYMENTS AND PREPAYMENTS.............22
SECTION 2.06. OPTIONAL PREPAYMENTS.............................22
SECTION 2.07. APPLICATION OF PAYMENTS..........................22
SECTION 2.08. REDUCTION OF COMMITMENT..........................23
ARTICLE III CONDITIONS.......................................23
SECTION 3.01. CONDITIONS TO CLOSING............................23
SECTION 3.02. CONDITIONS TO ACQUISITION LOANS..................25
SECTION 3.03. CONDITIONS TO EACH LOAN..........................26
ARTICLE IV REPRESENTATIONS AND WARRANTIES...................27
SECTION 4.01. CORPORATE EXISTENCE AND POWER....................27
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION;
NO CONTRAVENTION.............................27
SECTION 4.03. BINDING EFFECT; LIENS OF SECURITY DOCUMENTS.......27
SECTION 4.04. FINANCIAL INFORMATION.............................28
SECTION 4.05. LITIGATION........................................28
SECTION 4.06. OWNERSHIP OF PROPERTY, LIENS......................29
SECTION 4.07. NO DEFAULT........................................29
SECTION 4.08. NO BURDENSOME RESTRICTIONS........................29
SECTION 4.09. LABOR MATTERS.....................................30
SECTION 4.10. SUBSIDIARIES; OTHER EQUITY INVESTMENTS............30
SECTION 4.11. INVESTMENT COMPANY ACT............................30
SECTION 4.12. MARGIN REGULATIONS................................30
SECTION 4.13. TAXES.............................................30
SECTION 4.14. COMPLIANCE WITH ERISA.............................31
SECTION 4.15. BROKERS...........................................31
SECTION 4.16. EMPLOYMENT, SHAREHOLDERS AND
SUBSCRIPTION AGREEMENTS......................31
SECTION 4.17. FULL DISCLOSURE...................................31
SECTION 4.18. PRIVATE OFFERING..................................32
SECTION 4.19. COMPLIANCE WITH ENVIRONMENTAL
REQUIREMENTS; NO HAZARDOUS MATERIALS..........32
SECTION 4.20. REAL PROPERTY INTERESTS...........................33
SECTION 4.21. THIRD PARTY REIMBURSEMENT.........................34
SECTION 4.22 ADDITIONAL REPRESENTATIONS; SCHEDULES.............34
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<PAGE>
ARTICLE V AFFIRMATIVE COVENANTS.............................34
SECTION 5.01. FINANCIAL STATEMENTS AND OTHER REPORTS............34
SECTION 5.02. PAYMENT OF OBLIGATIONS............................38
SECTION 5.03. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE..38
SECTION 5.04. MAINTENANCE OF PROPERTY; INSURANCE................39
SECTION 5.05. COMPLIANCE WITH LAWS..............................39
SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS.........40
SECTION 5.07. USE OF PROCEEDS...................................40
SECTION 5.08. FURTHER ASSURANCES................................40
SECTION 5.09. LENDERS' MEETINGS.................................40
SECTION 5.10. HEDGING FACILITIES................................41
SECTION 5.11. HAZARDOUS MATERIALS; REMEDIATION..................41
SECTION 5.12. COLLATERAL REPORTS................................41
SECTION 5.13. COLLECTIONS; RIGHT TO NOTIFY ACCOUNT DEBTORS......41
SECTION 5.14. ENFORCEMENT OF COVENANTS NOT TO COMPETE...........42
SECTION 5.15. LANDLORD AND WAREHOUSEMAN WAIVERS.................42
SECTION 5.16. ADDITIONAL SUBSIDIARIES...........................42
SECTION 5.17 ACCREDITATION AND LICENSING.......................42
ARTICLE VI NEGATIVE COVENANTS................................43
SECTION 6.01. DEBT...............................................43
SECTION 6.02. NEGATIVE PLEDGE....................................44
SECTION 6.03. CAPITAL STOCK......................................44
SECTION 6.04. RESTRICTED PAYMENTS................................44
SECTION 6.05. ERISA..............................................45
SECTION 6.06. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS........45
SECTION 6.07. PURCHASE OF ASSETS, INVESTMENTS....................45
SECTION 6.08. TRANSACTIONS WITH AFFILIATES.......................47
SECTION 6.09. AMENDMENTS OR WAIVERS..............................47
SECTION 6.10. FISCAL YEAR........................................47
SECTION 6.11. MANAGEMENT COMPENSATION............................47
SECTION 6.12. LEASE PAYMENTS.....................................47
SECTION 6.13. CAPITAL EXPENDITURES...............................48
SECTION 6.14. TOTAL DEBT COVERAGE RATIO..........................48
SECTION 6.15. DEBT TO CAPITALIZATION.............................48
SECTION 6.16. SENIOR DEBT TO EBITDA..............................48
SECTION 6.17. [RESERVED].........................................48
SECTION 6.18. MINIMUM NET WORTH..................................48
SECTION 6.19. TRANSITION RULES...................................48
ARTICLE VII EVENTS OF DEFAULT..................................49
SECTION 7.01. EVENTS OF DEFAULT..................................49
ARTICLE VIII FEES, EXPENSES AND INDEMNITIES; GENERAL
PROVISIONS RELATING TO PAYMENTS....................53
SECTION 8.01. FEES...............................................53
SECTION 8.02. COMPUTATION OF INTEREST AND FEES...................53
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<PAGE>
SECTION 8.03. GENERAL PROVISIONS REGARDING PAYMENTS.............53
SECTION 8.04. EXPENSES..........................................53
SECTION 8.05. INDEMNITY.........................................54
SECTION 8.06. TAXES.............................................55
SECTION 8.07. FUNDING LOSSES....................................55
SECTION 8.08. MAXIMUM INTEREST..................................55
ARTICLE IX THE AGENT.........................................56
SECTION 9.01. APPOINTMENT AND AUTHORIZATION.....................56
SECTION 9.02. AGENT AND AFFILIATES..............................56
SECTION 9.03. ACTION BY AGENT...................................57
SECTION 9.04. CONSULTATION WITH EXPERTS.........................57
SECTION 9.05. LIABILITY OF AGENT................................57
SECTION 9.06. INDEMNIFICATION...................................57
SECTION 9.07. CREDIT DECISION...................................57
SECTION 9.08. SUCCESSOR AGENT...................................57
ARTICLE X MISCELLANEOUS.....................................58
SECTION 10.01. SURVIVAL..........................................58
SECTION 10.02. NO WAIVERS........................................58
SECTION 10.03. NOTICES...........................................58
SECTION 10.04. SEVERABILITY......................................59
SECTION 10.05. AMENDMENTS AND WAIVERS............................59
SECTION 10.06. SUCCESSORS AND ASSIGNS; REGISTRATION..............59
SECTION 10.07. COLLATERAL........................................61
SECTION 10.08. HEADINGS..........................................61
SECTION 10.09. GOVERNING LAW; SUBMISSION TO JURISDICTION.........61
SECTION 10.10. NOTICE OF BREACH BY AGENT OR LENDER...............62
SECTION 10.11. WAIVER OF JURY TRIAL..............................62
SECTION 10.12. COUNTERPARTS......................................62
EXHIBIT A - Revolving Credit Note
EXHIBIT B - Notice of Borrowing
EXHIBIT C - Company Security Agreement
EXHIBIT D - Pledge Agreement
EXHIBIT E - Subsidiary Guaranty Agreement
EXHIBIT F - Subsidiary Security Agreement
EXHIBIT G - Professional Service Provider Security Agreement
EXHIBIT H - Borrowing Base Certificate
EXHIBIT I - Opinion of counsel to the Company
EXHIBIT J - Opinion of Kilpatrick & Cody, Special Counsel
to the Agent
EXHIBIT K - Option Agreement
SCHEDULE 3.01(n) - Schedule of Management
SCHEDULE 4.10 - Schedule of Subsidiaries
-iii-
<PAGE>
SCHEDULE 4.16 - Employment, Shareholders' and Subscription Agreements
SCHEDULE 4.19 - Environmental Matters
SCHEDULE 4.20 - Real Property Interests
SCHEDULE 5.04 - Required Insurance
SCHEDULE 6.01 - Outstanding Debt
SCHEDULE 6.04 - Existing Additional Acquisition Liabilities
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<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of June 12, 1996, among PROMEDCO, INC., the LENDERS
listed on the signature pages hereof and NATIONSCREDIT COMMERCIAL CORPORATION,
as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. The following terms have the following
meanings:
"Account Debtor" shall mean any Person who may become obligated to any Credit
Party under, with respect to, or on account of a Receivable of such Credit Party
(including without limitation any guarantor of the payment or performance of a
Receivable or any Third Party Payor).
"Acquisition" means the purchase by the Company of any physician practice or
physician practice group or a majority of the assets of a physician practice or
physician practice group or of any other business the purchase of which the
Required Lenders shall consent to in their sole and absolute discretion, with
the proceed of an Acquisition Loan provided pursuant to Section 2.01(c).
"Acquisition Availability" has the Meaning specified in Section 2.01(c).
"Acquisition Loans" means, collectively, the Revolving Credit Loans of the
Lenders to be made to the Company pursuant to Section 2.01(c).
"Additional Acquisition Liabilities" means the Existing Additional Acquisition
Liabilities and the Future Additional Acquisition Liabilities.
"Adjusted LIBOR" means a rate per annum (rounded upward, if necessary to the
next higher 1/16 of 1%) equal to the rate obtained by dividing (a) LIBOR
(similarly rounded) by (b) a percentage equal to 1 minus the Reserve Requirement
in effect from time to time.
"Affiliate" means (i) any Person that directly, or indirectly through one or
more intermediaries, controls the Company (a "Controlling Person") or (ii) any
Person (other than the Company or any of its Subsidiaries) which is controlled
by or is under common control with a Controlling Person. As used herein, the
term "control" of a Person means the possession, directly or indirectly, of the
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<PAGE>
power to vote 10% or more of any class of voting securities of such Person or to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agent" means NationsCredit in its capacity as agent for the Lenders hereunder,
and its successors in such capacity.
"Agreement Date" means the date as of which this Agreement is dated.
"Authorized Signatory" means a Person designated as such by the Company to the
Agent in writing.
"Availability Termination Date" means May 31, 1998, or such later date to which
the Lenders and the Company may mutually agree to extend the Company's ability
to incur Revolving Loans.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Bessemer Stock" means the 500,000 shares of the Company's Series A Convertible
Preferred Stock, no par value per share, held by Bessemer Venture Partners III,
L.P. and various affiliates thereof.
"Blue Cross/Blue Shield" means any and all contracts or agreements in force
between any Credit Party and any Blue Cross/Blue Shield plan.
"Borrowing Base" means, on any date, a dollar amount equal to 80% of Eligible
Receivables determined as of such date.
"Borrowing Base Certificate" means a certificate, duly executed by the chief
financial officer or treasurer of the Company, appropriately completed and
substantially in the form of Exhibit I.
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in Chicago or New York City are authorized by law to close.
"Capital Lease" of any Person means any lease of any property (whether real,
personal or mixed) by such Person as lessee which would, in accordance with
GAAP, be required to be accounted for as a capital lease on the balance sheet of
such Person.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as amended from time to
time, and regulations promulgated thereunder.
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"CHAMPUS Receivable" means a Receivable payable pursuant to CHAMPUS.
"CHAMPUS" means, collectively, the Civilian Health and Medical Program of the
Uniformed Service, a program of medical benefits covering former and active
members of the uniformed services and certain of their dependents, financed and
administered by the United States Departments of Defense, Health and Human
Services and Transportation, and all laws, rules, regulations, manuals, orders,
guidelines or requirements pertaining to such program including (a) all federal
statutes (whether set forth in 10 U.S.C. ss.ss.1071-1106 or elsewhere) affecting
such program; and (b) all rules, regulations (including 32 C.F.R. ss.199),
manuals, orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
"CHAMPVA Receivable" means a Receivable payable pursuant to CHAMPVA.
"CHAMPVA" means, collectively, the Civilian Health and Medical Program of the
Department of Veteran Affairs, a program of medical benefits covering retirees
and dependents of former members of the armed services administered by the
United States Department of Veteran Affairs, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program including
(a) all federal statutes (whether set forth in 38 U.S.C. ss.1713 or elsewhere)
affecting such program or, to the extent applicable to CHAMPVA, CHAMPUS; and (b)
all rules, regulations (including 38 C.F.R. ss.17.54), manuals, orders and
administrative, reimbursement and other guidelines of all governmental
authorities promulgated in connection with such program (whether or not having
the force of law), in each case as the same may be amended, supplemented or
otherwise modified from time to time.
"Closing Date" means the date of the initial funding of the Loans which funding
shall not in any event occur later than July 15, 1996.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Collateral" means all property mortgaged, pledged or otherwise purported to be
subjected to a Lien pursuant to the Security Documents.
"Commitment" means the Revolving Credit Commitment.
"Commitment Termination Date" shall have the meaning assigned to it in Section
2.05.
"Common Stock" means the Voting Common Stock.
"Company" means ProMedCo, Inc., a Texas corporation.
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"Company Account" means the account specified on the signature pages hereof into
which all Loans to the Company shall be made available, or such other account as
the Company shall from time to time specify by notice to the Lenders.
"Company Security Agreement" means the Security Agreement dated as of the date
hereof between the Company and the Agent, substantially in the form of Exhibit
C.
"Consolidated Capital Expenditures" means, for any period, the aggregate amount
of expenditures by the Company and its Consolidated Subsidiaries for plant,
property and equipment during such period but excluding any such expenditures
made for the replacement or restoration of assets to the extent financed by
condemnation awards or proceeds of insurance received with respect to the loss
or taking of or damage to the asset or assets being replaced or restored.
"Consolidated Capitalization" means at any time of determination, the sum of (a)
the Consolidated Total Debt at such time, and (b) the Consolidated Net Worth at
such time.
"Consolidated Free Cash Flow" means, for any period, EBITDA for such period
minus the following amounts:
(a)all cash payments of income taxes by the Company and its
Consolidated Subsidiaries during such period;
(b)Consolidated Capital Expenditures for such period, to the extent
that such Consolidated Capital Expenditures are not financed during
such period (and are not anticipated to be financed in any future
period) with the proceeds of Debt of the Company; and
(c)any net gain in respect of asset sales during such period.
"Consolidated Net Income" means, for any period, net income of the Company and
its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Worth" means as of the date of any determination thereof, the
amount of the shareholder's equity of the Company and its Consolidated
Subsidiaries as would be shown on the consolidated balance sheet of the Company
and its Consolidated Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Senior Debt" means at any date the principal amount of the
Obligations and any Debt other than debt that is subordinated to the Obligations
on terms and conditions satisfactory to the Agent and the Required Lenders.
"Consolidated Subsidiary" means at any date any Subsidiary or other entity the
accounts of which
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would be consolidated with those of the Company in its consolidated financial
statements if such statements were prepared as of such date.
"Consolidated Total Debt" means at any date the Debt of the Company and its
Consolidated Subsidiaries, determined on a consolidated basis at such date.
"Credit Party" means any of the Company, any Subsidiary or any party to a
Service Agreement.
"Debt" of a Person means at any date, without duplication, (i) all obligations
of such Person for borrowed money, (ii) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (iii) all obligations
of such Person to pay the deferred purchase price of property or services,
except trade accounts payable arising in the ordinary course of business, (iv)
all Capital Leases of such Person, (v) all obligations of such Person to
purchase securities (or other property) which arise out of or in connection with
the issuance or sale of the same or substantially similar securities (or
property), (vi) all non-contingent obligations of such Person to reimburse any
bank or other Person in respect of amounts paid under a letter of credit or
similar instrument, (vii) all equity securities of such Person (other than the
Bessemer Stock) subject to repurchase or redemption otherwise than at the sole
option of such Person, (viii) all Debt secured by a Lien on any asset of such
Person, whether or not such Debt is otherwise an obligation of such Person, and
(ix) all Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of Default or
which with the giving of notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"Default Rate" has the meaning set forth in Section 2.03(e), provided that with
respect to any Obligation for which a rate of interest is not otherwise
specified herein, the Default Rate shall be the Prime Rate plus 2.5% per annum.
"EBITDA" means, for any period, the consolidated net income of the Company and
its Consolidated Subsidiaries for such period, after all expenses and other
proper charges except depreciation, interest, amortization and income taxes,
determined in accordance with GAAP eliminating without duplication: (i) all
intercompany items, (ii) all earnings attributable to equity interests in
Persons that are not Subsidiaries unless actually received by the Company or a
Consolidated Subsidiary, (iii) all income arising from the forgiveness,
adjustment, or negotiated settlement of any indebtedness, (iv) any extraordinary
items of income or expense, (v) any increase or decrease in income arising from
any change in the Company's method of accounting, subject to Section 1.02, and
(vi) any interest income.
"Eligible Receivables" means, at any date of determination thereof, the
aggregate amount of all Receivables at such date due to the Company and each of
its Subsidiaries other than the following (determined without duplication):
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<PAGE>
(a)any Receivable due from an Account Debtor that is not both domiciled
in the United States of America and (if not a natural person) organized
under the laws of the United States of America or any political
subdivision thereof and any Receivable that is not denominated and
payable in U.S. dollars;
(b)any Receivable that does not comply with all applicable legal
requirements, including, without limitation, all laws, rules,
regulations and orders of any governmental or judicial authority
(including any Receivable due from an account debtor located in the
States of Indiana, New Jersey or Minnesota, unless the Company or the
applicable Subsidiary (at the time the Receivable was created and at
all times thereafter) (i) had filed and has maintained effective a
current notice of business activities report with the appropriate
office or agency of the State of Indiana, New Jersey or Minnesota, as
applicable, or (ii) was and has continued to be exempt from filing such
report and has provided Agent with satisfactory evidence thereof);
(c)any Receivable in respect of which there is any unresolved dispute
with the Account Debtor, but only to the extent of such dispute;
(d)any Receivable payable more than 30 days after the date of the
issuance of the original invoice therefor;
(e)any Receivable that remains unpaid for more than 120 days from the
date of the original issuance of the invoice therefor;
(f)any unbilled Receivable;
(g)any Receivable arising outside the ordinary course of business of
the Credit Party whose activities gave rise thereto;
(h)(i) that portion of any Receivable in respect of which there has
been, or should have been, established by the Company a contra account
whether in respect of contractual allowances, audit adjustments,
anticipated discounts or otherwise, or (ii) which is a Private
Receivable and is due from an Account Debtor to whom the Company owes a
trade payable, but only to the extent of such account or trade payable
or (iii) which Receivable is subject to any right of recession,
set-off, recoupment, counterclaim or defense, whether arising out of
transactions concerning the provision of medical services or otherwise,
provided that this clause (iii) shall not apply to adjustments in the
ordinary course with respect to Government Receivables;
(i)any Receivable that is not subject to a first priority perfected
Lien under the Security Documents and any Receivable evidenced by an
"instrument" (as defined in the UCC) not
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in the possession of the Agent;
(j)any Receivable due from any Third Party Payor (i) as to which on
such date Receivables representing more than 25% of aggregate amount of
all Receivables of such Third Party Payor have remained unpaid for more
than 120 days from the original due date specified at the time of the
original issuance of the original invoice therefor, (ii) in respect of
which a credit loss has been recognized or reserved by any Credit
Party, (iii) in respect of which the Agent shall have notified the
Company that such Third Party Payor does not have a satisfactory credit
standing as determined in good faith by the Agent, (iv) that is a
Subsidiary or Affiliate of the Company, (v) that, except in the case of
a Government Receivable, is the United States of America or any state
government or any department, agency or instrumentality thereof, unless
the Company has complied in all respects with the Federal Assignment of
Claims Act of 1940 or the corresponding provision of any applicable
state law, or (vi) that is the subject of a case or proceeding of the
type described in clauses (g) and (h) of Section 7.01 or that is not
Solvent;
(k)any Receivables other than Government Receivables due from a Third
Party Payor at any time, to the extent that the aggregate outstanding
amount of Receivables due from such Third Party Payor and its
affiliates at such time exceeds 10% of the aggregate amount of all
Receivables due to the Company at such time, but only to the extent of
such excess;
(l)if such Receivable is a Private Receivable, the Third Party Payor
thereon has not received such notice of the assignment thereof to the
Agent as the Agent shall reasonably require; and
(m)the Credit Party owning such Receivable has not executed a Security
Agreement or such other documents as the Agent shall require assigning
its rights to such Receivables to the Agent as security for the
Obligations.
"Employment Contracts" means the employment contracts delivered by the Company
to NationsCredit on the Closing Date pursuant to Section 3.01(n), and listed on
Schedule 4.16 from time to time.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions, whether now or
hereafter in effect, relating to human health, the environment or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Materials or
wastes into the environment, including ambient air, surface water, ground water
or land, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Materials or wastes or the clean-up or other remediation
thereof.
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<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time, or any successor statute.
"ERISA Group" means the Company, any Subsidiary and all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Company or any Subsidiary, are
treated as a single employer under Section 414 of the Code.
"Event of Default" has the meaning set forth in Section 7.01.
"Excess Cash Flow" means, for any period, an amount equal to: (i) EBITDA for
such period, minus (ii) the sum of: (x) Consolidated Capital Expenditures (to
the extent such Consolidated Capital Expenditures are permitted pursuant to
Section 6.13 and except to the extent financed by the proceeds of Debt of the
Company permitted by Section 6.01), (y) Total Debt Service (exclusive of
amortization of debt discount or premium) and all prepayments of the Loans
hereunder that result in a permanent reduction of the Commitment, and (z) all
cash payments of income taxes by the Company and its Subsidiaries, all as
determined for such period, plus (iii) any interest income for such period.
"Existing Additional Acquisition Liabilities" means those obligations (actual or
contingent) of the Company and/or any of its Subsidiaries to pay additional
consideration in respect of acquisitions existing on the date hereof and
described on Schedule 6.04, whether arising under the acquisition agreement
relating thereto or any Service Agreement, in the amounts and upon the terms
described on Schedule 6.04.
"Financing Documents" means this Agreement, the Notes, the Subsidiary Guaranty
Agreement, the Option Agreement and the Security Documents.
"Fiscal Year" means a fiscal year of the Company.
"Future Additional Acquisition Liabilities" means those obligations (actual or
contingent), of the Company and/or any of its Subsidiaries to pay additional
consideration in respect of acquisitions, whether arising under the acquisition
agreement relating thereto, or any Service Agreement, that are not described on
Schedule 6.04.
"GAAP" has the meaning set forth in Section 1.02.
"Government Receivables" means, collectively, any and all Receivables which are
(a) Medicare Receivables, (b) Medicaid Receivables, (c) CHAMPUS Receivables, (d)
CHAMPVA Receivables, or (e) any other Receivable payable by a governmental
authority approved by the Agent.
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<PAGE>
"Guarantee" by any Person means any obligation, contingent or otherwise, of such
Person directly or indirectly guaranteeing any Debt or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the obligee of such
Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"HCFA" shall mean the Health Care Financing Administration, an agency of HHS,
and any successor thereto.
"HHS" means the United States Department of Health and Human Services or any
successor thereto.
"Hazardous Materials" means (i) any "hazardous substance" as defined in CERCLA;
(ii) asbestos; (iii) polychlorinated biphenyls; (iv) petroleum, its derivatives,
by-products and other hydrocarbons; and (v) any other toxic, radioactive,
caustic or otherwise hazardous substance regulated under Environmental Laws.
"Hazardous Materials Contamination" means contamination (whether now existing or
hereafter occurring) of the improvements, buildings, facilities, personalty,
soil, groundwater, air or other elements on or of the relevant property by
Hazardous Materials, or any derivatives thereof, or on or of any other property
as a result of Hazardous Materials, or any derivatives thereof, generated on,
emanating from or disposed of in connection with the relevant property.
"Healthcare Law" means, collectively, any and all federal, state or local laws,
rules, regulations, manuals, orders, guidelines and requirements pertaining to
Government Receivables, including without limitation all laws, rules,
regulations, manuals, orders, guidelines and requirements pertaining to CHAMPUS,
CHAMPVA, Medicaid or Medicare
"Indemnitees" has the meaning set forth in Section 8.05.
"Index Rate" means for any day in any calendar month, the rate of interest
equivalent to the money market yield for the Interest Determination Date falling
in such month on the one month commercial paper rate for dealer-placed
commercial paper of issuers whose corporate bonds are rated "AA" or its
equivalent by a nationally recognized rating agency, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York and published weekly by the Board
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<PAGE>
of Governors of the Federal Reserve System in its H.15 report, or any successor
publication published by the Board of Governors of the Federal Reserve System
or, if such rate for such date is not yet published in such statistical release,
the rate for that date will be the rate set forth in the weekly statistical
release designated as such, or any successor publication, published by the Board
of Governors of the Federal Reserve System.
"Interest Determination Date" means June 3, 1996 and the first Business Day of
each calendar month thereafter.
"Inventory" means inventory as defined in Article 9 of the UCC.
"Investment" means any investment in any Person, whether by means of share
purchase, capital contribution, loan, time deposit or otherwise.
"Lender" means NationsCredit and each other Person that becomes a holder of a
Note pursuant to Section 12.06, and their respective successors, and "Lenders"
means all of the foregoing.
"LIBOR" means, with respect to any Interest Determination Date, (i) the London
Interbank Offered Rate for deposits in U.S. dollars for a period of time
comparable to the period from and including such Interest Determination Date to
and including the next succeeding Interest Determination Date which is published
in The Wall Street Journal (Eastern Edition) under the caption "Money Rates -
London Interbank Offered Rates (LIBOR)" on such Interest Determination Date; or
(ii) if The Wall Street Journal does not publish such rate, the offered rate for
deposits in U.S. dollars for a period of time comparable to the period from and
including such Interest Determination Date to and including the next succeeding
Interest Determination Date which appears on the Reuters Screen LIBO Page as of
10:00 a.m., New York time, on such Interest Determination Date, provided that if
at least two rates appear on the Reuters Screen LIBO Page, the "London Interbank
Offered Rate" applicable to such period shall be the arithmetic mean of such
rates; or (iii) if The Wall Street Journal does not publish such rate and no
such rate appears on the Reuters Screen LIBO Page at such time, the rate per
annum at which deposits in U.S. dollars are offered by the principal London
office of The Chase Manhattan Bank, N.A. to leading banks in the London
interbank market at approximately 11:00 a.m., London time, on such Interest
Determination Date in an amount approximately equal to the principal amount of
the Loans for a period of time comparable to the period from and including such
Interest Determination Date to and including the next succeeding Interest
Determination Date, in each case as determined by the Agent whose determination
shall be conclusive absent manifest error.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind, or any other type of preferential
arrangement that has the practical effect of creating a security interest, in
respect of such asset. For the purposes of this Agreement and the other
Financing Documents, the Company or any Subsidiary shall be deemed to own
subject to a
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<PAGE>
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
"Loans" means the Revolving Credit Loans.
"Lockbox Accounts" has the meaning set forth in the Security Agreements.
"Lockbox Agreement" means, collectively, the Lockbox Agreements each in form and
substance satisfactory to Lender, entered into among the Agent, the Company and
its Subsidiaries and the Lockbox Banks pursuant to the Security Agreements.
"Lockbox Bank" means, collectively, the banks or other depository institutions
at which Lockbox Accounts are established and maintained.
"Margin Stock" has the meaning assigned thereto in Regulation G, U or X of the
Federal Reserve Board, as the same may be amended, supplemented or modified from
time to time.
"Material Adverse Effect" means, with respect to any event, act, condition or
occurrence of whatever nature (including any adverse determination in any
litigation, arbitration, or governmental investigation or proceeding), whether
singly or in conjunction with any other event or events, act or acts, condition
or conditions, occurrence or occurrences, whether or not related, a material
adverse change in, or a material adverse effect upon, any of (a) the financial
condition, operations, business, properties or prospects of the Company and its
Subsidiaries, taken as a whole, (b) the rights and remedies of the Agent or the
Lenders under the Financing Documents, or the ability of the Company or any
Subsidiary to perform its obligations under the Financing Documents to which it
is a party, as applicable, (c) the legality, validity or enforceability of any
Financing Document, or (d) the existence, perfection or priority of any security
interest granted in the Financing Documents.
"Material Plan" means at any time a Plan having Unfunded Liabilities.
"Maximum Lawful Rate" has the meaning set forth in Section 2.03.
"Medicaid" means, collectively, the healthcare assistance program established by
Title XIX of the Social Security Act (42 USC ss.ss.1396 et seq.) and any
statutes succeeding thereto, and all laws, rules, regulations, manuals, orders,
guidelines or requirements pertaining to such program including (a) all federal
statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting such program; (b) all state statutes and plans for medical
assistance enacted in connection with such program and federal rules and
regulations promulgated in connection with such program; and (c) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all government authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended,
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<PAGE>
supplemented or otherwise modified from time to time.
"Medicaid Receivable" means a Receivable payable pursuant to a Medicaid Provider
Agreement.
"Medicaid Certification" means certification of a facility by HCFA or a state
agency or entity under contract with HCFA that such healthcare facility fully
complies with all the conditions of Medicaid.
"Medicaid Provider Agreement" means an agreement entered into between a state
agency or other entity administering Medicaid in such state and a health care
facility or physician under which the health care facility or physician agrees
to provide services or merchandise for Medicaid patients.
"Medicare" means, collectively, the health insurance program for the aged and
disabled established by Title XVIII of the Social Security Act (42 USC
ss.ss.1395 et seq.) and any statutes succeeding thereto, and all laws, rules,
regulations, manuals, orders or guidelines pertaining to such program including
(a) all federal statutes (whether set forth in Title XVIII of the Social
Security Act or elsewhere) affecting such program; and (b) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all governmental authorities
promulgated in connected with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.
"Medicare Receivable " means a Receivable payable pursuant to Medicare Provider
Agreement.
"Medicare Certification" mean certification of a facility by HCFA or a state
agency or entity under contract with HCFA that such healthcare facility fully
complies with all conditions for such facility's participation in Medicare.
"Medicare Provider Agreement" means an agreement entered into between a state
agency or other entity administering Medicare in such state and a health care
facility or physician under which the health care facility or physician agrees
to provide services or merchandise for Medicare patients.
"Multiemployer Plan" means at any time an employee pension benefit plan within
the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA
Group is then making or accruing an obligation to make contributions or has
within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"NationsCredit" means NationsCredit Commercial Corporation, a Delaware
corporation, and its successors.
"Net Proceeds of Capital Stock" means any consideration received by the Company
or any of its Consolidated Subsidiaries in respect of the issuance of capital
stock (including, without limitation,
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by way of conversion of Debt into such capital stock), after deducting therefrom
all reasonable and customary costs and expenses incurred by such Person or such
Subsidiary directly in connection with the issuance of such capital stock.
"Note" means a Revolving Credit Note.
"Notice of Borrowing" has the meaning set forth in Section 2.04.
"Obligations" means all unpaid principal of and accrued and unpaid interest on
the Loans, all accrued and unpaid fees and all expenses, reimbursements,
indemnities and other obligations of the Company to the Lenders or to any
Lender, the Agent or any indemnified party hereunder arising under the Financing
Documents.
"Officers' Certificate" means a certificate executed on behalf of a Person by
its chairman of the board (if an officer), chief executive officer or president
or one of its vice presidents and by its chief financial officer or treasurer.
"Option Agreement" means the Option Agreement, dated the Agreement Date, in
substantially the form of Exhibit K.
"Options" means the rights to acquire Common Stock of the Company issued to
NationsCredit pursuant to the Option Agreement.
"Payment Account" means, with respect to each Lender, the account specified on
the signature pages hereof into which all payments by or on behalf of the
Company to such Lender under the Financing Documents shall be made, or such
other account as such Lender shall from time to time specify by notice to the
Company.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA.
"Permitted Contest" means a contest maintained in good faith by appropriate
proceedings promptly instituted and diligently conducted and with respect to
which such reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; provided that compliance with the
obligation that is the subject of such contest is effectively stayed during such
challenge.
"Permitted Liens" means Liens permitted pursuant to Section 6.02.
"Permitted Refinancing" means any refunding or refinancing of an item of Debt at
a market rate of interest; provided, that (i) the principal amount thereof shall
not be increased except, in the case of
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<PAGE>
a public debt offering for accrued interest thereon (in an amount not to exceed
6 months interest), (ii) the time for repayment therefor shall not be reduced,
(iii) the security thereof shall not be increased, and (iv) the terms thereof
shall not otherwise be materially altered.
"Person" means any natural person, corporation, limited partnership, limited
liability company, professional association, general partnership, joint stock
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust or other organization, whether or not a legal entity, and
any government agency or political subdivision thereof.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
"Pledge Agreement" means the Pledge Agreement dated as of the date hereof
between the Company and the Agent, substantially in the form of Exhibit D.
"Prime Rate" means the rate publicly announced from time to time by NationsBank
of North Carolina, N.A. as its "prime rate". Changes in the Prime Rate shall be
effective as of the opening of business on the date of each announced change
therein.
"Private Receivables" mean, collectively, any and all Receivables that are not
Government Receivables.
"Professional Service Provider Security Agreement" means the Security Agreement
dated as of the date hereof between the Agent and the various professional
service providers listed on Exhibit A thereto, which agreement shall be in
substantially the form of Exhibit G hereto.
"Quarterly Date" means the first Business Day of each January, April, July and
October occurring after the Agreement Date.
"Receivable" means, as at any date of determination thereof, the unpaid portion
of the obligation, as stated in the respective invoice, of a patient of any
Credit Party in respect of Inventory or medical services rendered in the
ordinary course of business, which amount has been earned by performance under
the terms of the related contract and recognized as revenue on the books of the
Company, net of any credits, rebates or offsets owed to the patient or any Third
Party Payor in respect thereof and also net of any commissions payable to
Persons other than a Credit Party or any employee thereof.
"Receivables Report" has the meaning given such term in Section 5.01(m).
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"Required Lenders" means at any time Lenders holding Notes evidencing at least
51% of the aggregate unpaid principal amount of the Loans or, if no Loans are
outstanding, having at least 51% of the aggregate amount of the Commitments.
"Reserve Requirement" means at any time the then current maximum rate for which
reserves (including any marginal, supplemental or emergency reserve) are
required to be maintained under Regulation D by member banks of the Federal
Reserve System in New York City with deposits comparable in amount to those of
NationsBank of North Carolina, N.A. against "Eurocurrency liabilities", as that
term is used Regulation D. Adjusted LIBOR shall be adjusted automatically on and
as of the effective date of any change in the Reserve Requirement.
"Restricted Payment" means (i) any dividend or other distribution on any shares
of the Company's capital stock (except dividends payable solely in shares of its
capital stock of the same class or payment of cash in lieu of fractional shares)
or (ii) any payment on account of the purchase, redemption, retirement or
acquisition of (a) any shares of the Company's capital stock or (b) any option,
warrant or other right to acquire shares of the Company's capital stock.
"Revolving Credit Commitment" means (i) for NationsCredit as Lender, initially
$25,000,000, less any amount assigned to another person that becomes a Lender
after the date hereof (a "Subsequent Lender") and (ii) for any Subsequent
Lender, the amount of Revolving Credit Commitment assigned to such Lender, in
each case as such amount may be reduced from time to time in accordance with
this agreement.
"Revolving Credit Loan" shall have the meaning assigned to it in Section
2.01(a).
"Revolving Credit Note" shall have the meaning assigned to it in Section 2.03
and each Revolving Credit Note shall be substantially in the form of Exhibit A
hereto.
"Securities Act" means the Securities Act of 1933, as amended from time to time,
and the rules and regulations promulgated thereunder.
"Security Agreements" means, collectively, the Company Security Agreement and
the Subsidiary Security Agreement.
"Security Documents" means the Security Agreements, the Professional Service
Provider Security Agreement, the Pledge Agreement and any other agreement
pursuant to which the Company or any of its Subsidiaries or Affiliates or any
other Credit Party provides a Lien on its assets in favor of the Agent for the
benefit of the Lenders, and all supplementary assignments, security agreements,
pledge agreements, acknowledgments or other documents delivered or to be
delivered pursuant to the terms hereof or of any other Security Document.
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"Service Agreement" means an agreement between the Company and/or one or more of
its Subsidiaries and one or more physician practice groups pursuant to which the
Company and/or such Subsidiary agrees to provide certain management services to
the group.
"Solvent" shall mean, with respect to any Person, such Person: (i) owns property
whose fair salable value is greater than the amount required to pay all of such
Person's liabilities (including contingent debts), (ii) is able to pay all of
its liabilities as such liabilities mature, and (iii) has capital sufficient to
carry on its business and transactions and all business and transactions to
which it is about to engage.
"Subsidiary" means any Person of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by the Company.
"Subsidiary Guaranty Agreement" means the guaranty agreement between the
Subsidiaries listed on Exhibit A thereto and the Agent, substantially in the
form of Exhibit E.
"Subsidiary Security Agreement" means the Security Agreement between the
Subsidiaries listed on Exhibit A thereto and the Agent, substantially in the
form of Exhibit F.
"Temporary Cash Investment" means any Investment in: (i) direct obligations of
the United States or any agency thereof, or obligations guaranteed by the United
States or any agency thereof, (ii) commercial paper rated at least A-1 by
Standard & Poor's Rating Group and P-1 by Moody's Investors Service, Inc., (iii)
time deposits with, including certificates of deposit issued by, any office
located in the United States of any bank or trust company which is organized
under the laws of the United States or any State thereof and has capital,
surplus and undivided profits aggregating at least $500,000,000 and which issues
(or the parent of which issues) certificates of deposit or commercial paper with
a rating described in clause (ii) above, (iv) repurchase agreements with respect
to securities described in clause (i) above entered into with an office of a
bank or trust company meeting the criteria specified in clause (iii) above,
provided in each case that such Investment matures within one year from the date
of acquisition thereof by the Company or any of its Subsidiaries or (v) any open
ended, redeemable money market or mutual fund that invests only in the
foregoing, the sponsor of which is nationally recognized as a responsible
sponsor.
"Third Party Payor" means any governmental entity, insurance company, health
maintenance organization, preferred provider organization or similar entity that
is obligated to make payments with respect to a Receivable.
"Total Debt Service" means, for any period, the sum of: (i) the aggregate
interest charges incurred by the Company and its Consolidated Subsidiaries for
such period, whether expensed or capitalized, including the portion of any
obligation under Capital Leases allocable to interest expense in
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accordance with GAAP and the portion of any debt discount or premium (but not
expenses of issuance) that shall be amortized in such period, and (ii) the
aggregate amount of all scheduled principal payments on all Debt, including the
portion of any payment under Capital Leases that is allocable to principal.
"UCC" has the meaning set forth in the Security Agreements.
"Unfunded Liabilities" means, with respect to any Plan at any time, the amount
(if any) by which (i) the value of all benefit liabilities under such Plan,
determined on a plan termination basis using the assumptions prescribed by the
PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value
of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Voting Common Stock" means the Common Stock and the Class B Common Stock of the
Company, no par value per share.
"Working Capital Availability" has the meaning specified in Section 2.01(b).
"Working Capital Loans" means Revolving Credit Loans made to the Company
pursuant to Section 2.01(b).
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with generally accepted
accounting principles as in effect from time to time ("GAAP"), applied on a
basis consistent (except for changes concurred in by the Company's independent
public accountants) with the most recent audited consolidated financial
statements of the Company and its Consolidated Subsidiaries delivered to the
Lenders; provided that, if the Company notifies the Lenders that the Company
wishes to amend any covenant in Article VI or the definition of "Excess Cash
Flow" or any related definition to eliminate the effect of any change in GAAP on
the operation of such covenant or the determination of "Excess Cash Flow" (or if
the Agent notifies the Company that the Required Lenders wish to amend Article
VI or the definition of "Excess Cash Flow" or any related definition for such
purpose), then the Company's compliance with such covenant or "Excess Cash
Flow", as the case may be, shall be determined on the basis of GAAP in effect
immediately before the relevant change in GAAP became effective, until either
such notice is withdrawn or such covenant is amended in a manner satisfactory to
the Company and the Required Lenders.
SECTION 1.03. Other Definitional Provisions. References in this Agreement to
"Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles,
Sections, Schedules or Exhibits of or to
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this Agreement unless otherwise specifically provided. Any of the terms defined
in Section 1.01 may, unless the context otherwise requires, be used in the
singular or plural depending on the reference. "Include", "includes" and
"including" shall be deemed to be followed by "without limitation" whether or
not they are in fact followed by such words or words of like import. "Writing",
"written" and comparable terms refer to printing, typing and other means of
reproducing words in a visible form. References to any agreement or contract are
to such agreement or contract as amended, modified or supplemented from time to
time in accordance with the terms hereof and thereof. References to any Person
include the successors and assigns of such Person. References "from" or
"through" any date mean, unless otherwise specified, "from and including" or
"through and including", respectively.
ARTICLE II
REVOLVING CREDIT LOANS
SECTION 2.01. Revolving Credit Loans and Commitments. (a) Upon the terms and
subject to the conditions set forth herein, from time to time prior to the
Availability Termination Date, each Lender severally and not jointly agrees to
make revolving credit loans ("Revolving Credit Loans") from time to time to the
Company in an aggregate principal amount at any time outstanding not to exceed
such Lender's Revolving Credit Commitment. Such Revolving Credit Loans shall
constitute either Working Capital Loans or Acquisition Loans.
(b) (i) Working Capital Loans shall be available for the working capital needs
of the Company and its Subsidiaries and shall not exceed in aggregate principal
amount at any time outstanding the least of (the "Working Capital
Availability"):
(A)$5,000,000,
(B)prior to the Availability Termination Date, an
amount equal to the Borrowing Base, and
(C)the Revolving Credit Commitment then in
effect, less the aggregate outstanding principal
amount of Acquisition Loans.
(ii)Each borrowing of Working Capital Loans shall be in an aggregate amount of
$100,000 or an integral multiple of $10,000 in excess thereof. No more than two
borrowings of Working Capital Loans shall be made within any week beginning on
Monday of such week and ending on the last Business Day of such week.
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(c)(i)Acquisition Loans shall be available in the sole good faith discretion of
the Agent and the Required Lenders for the purpose of financing Acquisitions by
the Company, in an aggregate principal amount not to exceed at any time
outstanding (the "Acquisition Availability") the Revolving Credit Commitment
then in effect, less the aggregate outstanding principal amount of Working
Capital Loans.
(ii)Acquisition Loans may be made in such amounts and at such times as the Agent
and the Required Lenders shall agree in good faith and upon such terms and
conditions as the Agent and the Required Lenders shall require.
(iii)In connection with the Agent's and Required Lenders' approval of any
Acquisition and any borrowing of Acquisition Loans, the Company agrees to
provide the Agent and the Lenders, as soon as practicable following the
execution thereof, with copies of any term sheet or commitment letter agreed to
in connection with such Acquisition. As promptly as practicable following
receipt of such termsheet and/or commitment, the Agent and the Required Lenders
agree to notify the Company whether they can consent to the proposed Acquisition
as the basic terms thereof are outlined in the documents provided. Such
indication shall be subject to approval of the definitive documentation and the
results of any due diligence performed in connection therewith. At the time of
such approval, the Agent shall notify the Company of any due diligence materials
that it wishes to review. Promptly upon the completion of the definitive
documentation and as soon as the due diligence materials required are available,
the Company shall furnish a copy of such documentation and/or such materials to
the Agent and the Agent and the Required Lenders agree to review the same
promptly and respond to the Company as promptly as practicable as to whether
they approve the Acquisition.
(d)Within the foregoing limits, to but excluding the Availability Termination
Date, the Company may borrow under this Section 2.01, prepay or repay Revolving
Credit Loans as required under Section 2.05(b) or to the extent permitted by
Section 2.06, and reborrow pursuant to this Section 2.01.
SECTION 2.02. Revolving Credit Notes. The Revolving Credit Loans of each Lender
shall be evidenced by a single Revolving Credit Note, substantially in the form
of Exhibit A (each such note, a "Revolving Credit Note"), dated the Closing Date
in an aggregate principal amount equal to the amount of such Lender's Revolving
Credit Commitment, duly executed and delivered and payable to such Lender. Each
Lender shall record the date and amount of each Revolving Credit Loan made by
it, whether such Revolving Credit Loan was a Working Capital Loan or an
Acquisition Loan, and the date and amount of each payment of principal made by
the Company with respect thereto, and prior to any transfer of its Revolving
Credit Note shall endorse on Schedule A thereto (or any continuation thereof)
forming a part thereof appropriate notations to evidence the foregoing
information with respect to each such Revolving Credit Loan then outstanding;
provided that the failure of any Lender to make any such recordation or
endorsement shall not affect the obligations of the Company hereunder or under
the Revolving Credit Notes. Each Lender is hereby irrevocably
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authorized by the Company so to endorse its Revolving Credit Note and to attach
to and make a part of its Revolving Credit Note a continuation of any such
schedule as and when required.
SECTION 2.03. Interest on the Revolving Credit Loans. (a) The Company shall pay
interest on the Revolving Credit Loans to the Lenders monthly in arrears on the
first (1st) day of each calendar month immediately succeeding the month for
which such interest accrues, commencing with the first (1st) day of the calendar
month following the calendar month in which the Closing Date occurs. In all
cases accrued interest on all of the Revolving Credit Loans shall be payable by
the Company to the Lenders on the Commitment Termination Date. Interest that
accrues at the Default Rate shall be payable upon demand by the Lenders. If any
interest on any of the Revolving Credit Loans accrues or remains payable after
the Commitment Termination Date, such interest shall be payable by the Company
upon demand by the Lenders.
(b)Except as provided in paragraphs (c) below, the Company shall be obligated to
pay interest to the Lenders on the outstanding principal balance of each
Revolving Credit Loan from the date such Revolving Credit Loan is made until
such Revolving Credit Loan is repaid in full. Subject to Section 2.03(e),
interest on all Loans outstanding during any month shall accrue at a floating
rate per annum (each such rate, a "Floating Rate") equal, at the Company's
option, to one of: (i) the Index Rate plus three and one-quarter percentage
points (3.25%), (ii) Adjusted LIBOR plus three and one-quarter percentage points
(3.25%), or (iii) the Prime Rate plus one-half of a percentage point (0.50%). On
the Closing Date, continuing through the last day of the calendar month in which
the Closing Date occurs and thereafter unless the Company shall have selected
another rate or shall be deemed to have selected another rate as provided below,
the Revolving Credit Loans shall bear interest based on the Prime Rate.
Thereafter, provided that no Default or Event of Default has occurred and is
then continuing, and subject to the terms and conditions set forth herein, the
Company may by written notice (or by telephonic notice confirmed promptly in
writing) delivered to the Agent not later than the Second Business Day preceding
the beginning of each calendar month, elect whether the Floating Rate for such
calendar month shall be based on the Prime Rate, Adjusted LIBOR or the Index
Rate (each such notice being referred to as a "Notice of Floating Rate
Election"). In the event that the Company shall fail to deliver any Notice of
Floating Rate Election on the date required above, provided that no Default or
Event of Default shall have occurred and be continuing, the Company shall be
deemed to have delivered a Notice of Floating Rate Election that elects to
continue in effect for the calendar month the Floating Rate in effect for the
previous month.
(c)The Agent shall be entitled to rely upon and shall be fully protected under
this Agreement in relying on any Notice of Floating Rate Election believed by
the Agent to be genuine and to assume that the persons giving the same on behalf
of the Company were duly authorized unless the responsible individual acting
thereon for the Agent shall have actual notice to the contrary.
(d)All computations of interest hereunder or under the other Loan Documents for
Revolving Credit Loans shall be made by the Agent on the basis of a 360 day year
for the actual number of days
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occurring in the period for which such interest is payable. Each determination
by the Agent of an interest rate hereunder shall be conclusive and binding for
all purposes, absent manifest error.
(e)So long as any Event of Default shall have occurred and be continuing, the
interest rate applicable to the Loans or other Obligations of the Company or any
of its Subsidiaries under the Financing Documents may be increased by the
Required Lenders, at their option, by up to two percentage points (2%) per annum
above the rate otherwise applicable (the "Default Rate").
SECTION 2.04. Advancing Revolving Credit Loans (a) Except as provided in the
last sentence of this Section 2.04(a), each Revolving Credit Loan shall be made
on notice by the Company to the Agent, given no later than 11:00 a.m. (New York
time) on the Business Day of the proposed Revolving Credit Loan. Such notice
(each a "Notice of Borrowing") shall be substantially in the form of Exhibit B
hereto, shall be duly completed and executed by an Authorized Signatory, and
shall specify therein the requested date and amount of such Revolving Credit
Loan, and such other information as may be required by the Agent. Each Notice of
Borrowing shall be given in writing (by telecopy, telex or cable) or by
telephone and confirmed immediately in writing. Notwithstanding the foregoing,
no Notice of Borrowing that requests an Acquisition Loan shall be effective
until the Agent notifies the Company that the Agent and the Required Lenders
have consented to the proposed Acquisition after having been provided such
information respecting the proposed Acquisition as is required to be delivered
pursuant to Section 3.02 and such time to review the same as the Agent and the
Required Lenders shall reasonably deem necessary.
(b) Not later than 1:00 P.M. (New York City time) on the date of each borrowing
specified in a Notice of Borrowing, each Lender shall make available its ratable
share of such borrowing of Working Capital Loans, in immediately available
funds, to the Company Account.
(c)The failure of any Lender to make a Loan on any date shall not relieve any
other Lender of its obligation, if any, hereunder to make its Loan on that date.
Neither the Agent nor any Lender shall be responsible for the failure of any
other Person to make any Loan hereunder on the date required therefor.
SECTION 2.05. Mandatory Repayments and Prepayments. (a) The Revolving Credit
Commitment of each Lender shall terminate at the opening of business on July 1,
2001 (the "Commitment Termination Date"), and there shall become due and the
Company shall pay on the Commitment Termination Date, the entire outstanding
principal amount of each Revolving Credit Loan, together with accrued and unpaid
interest thereon to but excluding the Termination Date.
(b)If at any time (i) the aggregate unpaid principal balance of the Working
Capital Loans exceeds the Working Capital Availability, or (ii) the aggregate
unpaid principal balance of the Acquisition Loans exceeds the Acquisition
Availability, then, on the next succeeding Business Day, the Company shall
prepay Working Capital Loans and/or Acquisition Loans in an aggregate principal
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amount equal to such excess.
(c)Commencing on July 1, 1998 (the "Amortization Commencement Date") and
continuing on each Quarterly Date thereafter, the Company shall repay the
Revolving Credit Loans in equal quarterly installments of principal equal to 5%
of the aggregate principal amount of the Revolving Credit Loan outstanding on
the Amortization Commencement Date.
(d)There shall become due and payable, and the Company shall prepay, on the 90th
day following the last day of each Fiscal Year, beginning with the Fiscal Year
ending December 31, 1998, an aggregate principal amount of Revolving Credit
Loans equal to fifty percent (50%) of the Excess Cash Flow for such Fiscal Year.
SECTION 2.06. Optional Prepayments. The Company may prepay the Revolving Credit
Loans in whole or in part (in minimum principal amounts of $100,000 or in any
larger integral multiple of $10,000, or the total remaining amount outstanding)
upon at least three Business Days' prior irrevocable written notice to the
Lenders, without premium or penalty. The aggregate principal amount of the
Revolving Credit Loans designated for prepayment in any notice of optional
prepayment given pursuant to this section shall become due and payable on the
date fixed for prepayment as specified in such notice.
SECTION 2.07. Application of Payments. Each payment or prepayment of less than
all the outstanding aggregate principal amount of the Acquisition Loans shall be
applied pro rata to the Acquisition Loans of each Lender according to their
respective outstanding principal amounts. The principal amount of each payment
on Revolving Credit Loans pursuant to Section 2.05(d) or Section 2.06 shall be
applied to reduce the remaining payments required by Section 2.05(c) (i) 50% in
inverse order of the maturity thereof and (ii) 50% in the order of maturity
thereof. Except as provided in the definition of Excess Cash Flow, no payment of
the principal amount of Acquisition Loans pursuant to Section 2.05(b), 2.05(c)
or 2.06 shall reduce the amount of any payment required by 2.05(d). Each payment
of less than all outstanding aggregate principal amount of Working Capital Loans
shall be applied pro rata to all Working Capital Loans according to their
respective outstanding principal amounts.
SECTION 2.08. Reduction of Commitments. (a) The Revolving Credit Commitment
shall reduce: (i) to the amount of the aggregate outstanding principal amount of
the Revolving Credit Loans on the Availability Termination Date, and after such
date by the amount of each payment made pursuant to Section 2.06, and (ii) by
the amount of each payment required pursuant to Section 2.05(c) or (d).
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(b)The Company shall have the right at any time to terminate in whole this
Agreement, or from time to time, irrevocably to reduce in part the amount of the
Revolving Credit Commitment, in each case without penalty or premium, upon at
least 15 days' prior written notice to the Agent. Such notice shall be
irrevocable on the part of the Company and shall specify the effective date of
such reduction or termination, whether a termination or reduction is being made,
and, in the case of any reduction, the amount thereof shall be in an amount of
Two Million Five Hundred Thousand Dollars ($2,500,000) or an integral multiple
thereof. Upon any such reduction, the Company shall simultaneously prepay any
outstanding Revolving Credit Loans to the extent necessary so that the aggregate
outstanding principal amount of the Revolving Credit Loans does not exceed the
amount of the Revolving Credit Commitment after giving effect to any partial
reduction thereof. The aforesaid prior notice requirement shall not apply to the
Agent's exercise of remedies under Section 7.01. In the event the Company
exercises its rights under this paragraph to prepay the Revolving Credit Loans
and terminate this Agreement, the Company agrees that such prepayment shall be
accompanied by the payment by the Company of all accrued and unpaid interest and
all fees and other remaining Obligations. The amount of the Revolving Credit
Commitment may not be reinstated if it is reduced or if this Agreement is
terminated by the Company.
ARTICLE III
CONDITIONS
SECTION 3.01. Conditions to Closing. The obligation of each Lender to make Loans
on the Closing Date shall be subject to the satisfaction of the following
conditions precedent:
(a)receipt by the Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other written confirmation
from such party of execution of a counterpart hereof by such party);
(b)receipt by NationsCredit of a duly executed Revolving Credit Note
for its account, in the form provided for herein;
(c)receipt by the Agent of duly executed counterparts of each Security
Document required to be effective on the Closing Date (including the
Lockbox Agreements), together with evidence satisfactory to it in its
sole good faith discretion of the effectiveness, priority and
perfection of the security contemplated thereby and the lien search
reports and any additional documents reasonably requested by the Agent;
(d)receipt by the Agent of a duly executed counterpart of the Option
Agreement, substantially in the form of Exhibit K;
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(e)receipt by the Agent of duly executed counterparts of the Subsidiary
Guaranty in the form of Exhibit E, duly executed by each Subsidiary of
the Company;
(f) receipt by the Agent of the initial Borrowing Base Certificate, in
the form of Exhibit H, duly executed and completed by the Company;
(g)receipt by the Agent of an opinion of counsel for the Company and
its Subsidiaries, substantially in the form of Exhibit I, and covering
such additional matters relating to the transactions contemplated
hereby as NationsCredit may reasonably request (by its execution and
delivery of this Agreement, the Company authorizes and directs such
counsel to deliver such opinions to the Agent);
(h)receipt by the Agent of an opinion of Kilpatrick & Cody, special
counsel for the Agent, substantially in the form of Exhibit J, and
covering such additional matters relating to the transactions
contemplated hereby as NationsCredit may reasonably request;
(i)receipt by NationsCredit, including in its capacity as Agent, of all
fees and any other amounts due and payable hereunder (including fees
and expenses payable pursuant to Section 8.04) of which the Company has
received notice;
(j)receipt by NationsCredit of any information it may request
concerning the financial condition, results of operations, liabilities
(contingent and otherwise, including with respect to environmental
liabilities and employee and retiree benefits) and prospects of, and
the financial reporting and accounting systems and the management
information systems of, the Company;
(k)satisfaction of NationsCredit in its sole good faith discretion as
to the absence of any event, act, condition or occurrence of whatever
nature that constitutes, or that is reasonably likely to result in, a
Material Adverse Effect;
(l)receipt by NationsCredit of a certificate signed by the chief
financial officer or treasurer of the Company to the effect that, both
before and immediately after the making of the Loans, and the other
transactions contemplated to take place on the Closing Date, (i) no
Default shall have occurred and be continuing and (ii) the
representations and warranties of the Company and each of its
Subsidiaries made in or pursuant to the Financing Documents executed by
such Person are true in all material respects;
(m)receipt by NationsCredit of (i) the financial statements and balance
sheet referred to in Sections 4.04(a), (b) and (c), and (ii) payment
instructions with respect to each wire transfer to be made by the Agent
on the Closing Date setting forth the amount of such transfer, the
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purpose of such transfer, the name and number of the account to which
such transfer is to be made, the name and ABA number of the bank or
other financial institution where such account is located and the name
and telephone number of an individual that can be contacted to confirm
receipt of such transfer;
(n)receipt by the Agent of evidence satisfactory to it in its sole good
faith discretion of the effectiveness of employment contracts between
the Company and the Persons listed on Schedule 3.01(n); and
(o)receipt by the Agent of all documents it may reasonably request
relating to the existence of the Company and its Subsidiaries, the
corporate authority for and the validity of the Financing Documents,
and any other matters relevant hereto, all in form and substance
satisfactory to the Agent in its sole good faith discretion.
The documents referred to in this Section shall be delivered to the Agent no
later than the Closing Date. The certificates and opinions referred to in this
Section shall be dated the Closing Date.
SECTION 3.02. Conditions to Acquisition Loans. The obligation of any Lender to
make an Acquisition Loan on the occasion of any borrowing is subject to the
satisfaction of the following additional conditions:
(a)receipt by the Agent of a Notice of Borrowing in accordance with
Section 2.04;
(b)receipt by the Agent of all documents, instruments and agreements
to be delivered in connection with the Acquisition and/or any financing
therefor;
(c)completion of, and satisfaction of the Agent and the Lenders with,
such legal and/or business due diligence review of the Acquisition, the
terms thereof, and the target thereof as the Agent and the Lenders
reasonably shall deem relevant;
(d)evidence satisfactory to the Agent that all property to be acquired
in the Acquisition, including all property of any Person that,
following such Acquisition, is to become a Subsidiary, will be pledged
to the Agent and the Lenders as security for the Obligations and that
the Liens granted pursuant thereto will constitute perfected Liens,
subject only to Permitted Liens, and that any Person that will become a
Subsidiary as a result of such Acquisition has executed a guaranty of
the Obligations in form and substance satisfactory to the Agent and the
Required Lenders and otherwise complied with the requirements of
Section 6.07;
(e)receipt by the Agent and the Lenders of such historical financial
statements and information and such market information respecting the
target of the Acquisition as the
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Agent and the Lenders reasonably shall deem relevant;
(f)receipt by the Agent and the Lenders of pro forma financial
statements showing the target and the Company on a consolidated basis
after giving effect to such Acquisition as of the date of the closing
thereof and a certificate of the chief financial officer or treasurer
of the Company demonstrating that the Company, both before and after
giving effect to the Acquisition, will be in compliance with the
financial and other covenants contained herein and in the other Loan
Documents; and
(g)such other information respecting the Acquisition, the target or the
Company as the Agent and the Lenders reasonably shall deem relevant.
SECTION 3.03. Conditions to Each Loan. The obligation of any Lender to make a
Loan on the occasion of any borrowing thereof (including on the Closing Date) is
subject to the satisfaction of the following additional conditions:
(a)receipt by the Agent of a Notice of Borrowing in accordance with
Section 2.04 and, in the case of a Working Capital Loan, a Borrowing
Base Certificate as of the close of business on the Business Day
immediately preceding the date of such borrowing;
(b)the fact that, immediately before and after such borrowing, no
Default shall have occurred and be continuing; and
(c)the fact that the representations and warranties of the Company
contained in the Financing Documents shall be true in all material
respects on and as of the date of such borrowing, except for such
changes therein as are expressly permitted by the terms of this
Agreement.
Each borrowing hereunder shall be deemed to be a representation and warranty by
the Company on the date of such borrowing as to the facts specified in clauses
(b) and (c) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants as to itself and each of its Subsidiaries
that:
SECTION 4.01. Corporate Existence and Power. The Company and each Subsidiary is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of its organization, and the Company and each other Credit
Party has all corporate powers, if applicable, and all material governmental
licenses, authorizations, consents and approvals required to carry on
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its business as now conducted and as will be conducted (including, without
limitation, accreditations and certifications as a provider of health care
services eligible to receive payment and compensation and to participate under
Medicare, Medicaid, CHAMPUS or CHAMPVA). The Company and each Subsidiary is
qualified to do business as a foreign corporation in each jurisdiction in which
the failure of the Company or such Subsidiary to be so qualified could
reasonably be expected to have a Material Adverse Effect.
SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The
execution, delivery and performance by the Company and each of its Subsidiaries
of the Financing Documents to which it is a party are within the Company's or
such Subsidiary's (as the case may be) corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with, any governmental body, agency or official (other than the
filing of UCC-1 financing statements, which have been made and are in full force
and effect) and do not contravene, or constitute a default under, any provision
of applicable law or regulation (including specifically any applicable rule or
regulation relating to the eligibility of any Credit Party to receive payment
and to participate as an accredited and certified provider of health care
services under Medicare, Medicaid, CHAMPUS, CHAMPVA or any Blue Cross/Blue
Shield or equivalent program or relating to the licenses and permits required
therein or in connection therewith) or of the certificate of incorporation or
by-laws of the Company or any of its Subsidiaries or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Company or any of
its Subsidiaries or result in the creation or imposition of any Lien (other than
the Liens created by the Security Documents) on any asset of the Company or any
of its Subsidiaries.
SECTION 4.03. Binding Effect; Liens of Security Documents. (a) Each of the
Financing Documents to which the Company is a party (other than the Notes,)
constitutes a valid and binding agreement of the Company, and each of the Notes,
when executed and delivered in accordance with this Agreement, will constitute
valid and binding obligations of the Company, in each case enforceable in
accordance with its respective terms, subject to: (i) the effect of any
applicable bankruptcy, fraudulent transfer, moratorium, insolvency,
reorganization or other similar laws affecting the rights of creditors
generally; and (ii) the effect of general principles of equity whether applied
by a court of equity or law.
(b)Each of the Financing Documents to which any Subsidiary of the Company is a
party constitutes a valid and binding agreement of such Subsidiary enforceable
in accordance with its terms, subject to: (i) the effect of any applicable
bankruptcy, fraudulent transfer, moratorium, insolvency, reorganization or other
similar laws affecting the rights of creditors generally; and (ii) the effect of
general principles of equity whether applied by a court of equity or law.
(c)The Security Documents create valid security interests in, the Collateral
purported to be covered thereby, which security interests are and will remain
perfected security interests, prior to all other Liens other than Permitted
Liens. Each of the representations and warranties made by the Company
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or any of its Subsidiaries in the Security Documents is true and correct.
SECTION 4.04. Financial Information.
(a)(i) The unaudited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of June 30, 1995 and the related unaudited
consolidated statements of operations and cash flows for the fiscal year then
ended, (ii) the unaudited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of December 31, 1995 and the related unaudited
consolidated statements of operations and cash flows for the 6 months then
ended, and (iii) the unaudited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of April 30, 1996 and the related unaudited
consolidated statements of operations and cash flows for the four (4) months
then ended, copies of each of which ((i), (ii) and (iii)) have been delivered to
each of the Lenders, fairly present, in conformity with GAAP applied on a
consistent basis the consolidated financial position of the Company and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for the periods then ended (subject to normal year-end
adjustments). As of the date of the latest such balance sheet and the date
hereof, neither the Company nor any of its Subsidiaries had or has any material
liabilities, contingent or otherwise, including liabilities for taxes, long-term
leases or forward or long-term commitments, which are not properly reflected on
such balance sheet.
(b)The information contained in the most recently delivered Borrowing Base
Certificate is complete and correct and the amounts shown therein as "Eligible
Receivables" have been determined as provided in the Financing Documents.
(c)Since April 30, 1996, there has been no event, act, condition or occurrence
of whatever nature that constitutes, or that could reasonably be expected to
result in, a Material Adverse Effect.
SECTION 4.05. Litigation. There is no action, suit or proceeding pending
against, or to the knowledge of the Company threatened against or affecting, the
Company or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect. There is no action,
suit or proceeding pending against, or to the knowledge of the Company
threatened against or affecting, any party to any of the Financing Documents
before any court or arbitrator or any governmental body, agency or official
which in any manner draws into question the validity of any of the Financing
Documents. There is no pending investigation of any Credit Party by HCFA or any
other governmental authority, which investigation is not otherwise conducted in
the ordinary course of business and no criminal, civil or administrative action,
audit, or investigation by a fiscal intermediary or by or on behalf of any
governmental authority exists or, to the best knowledge of the Company, is
threatened with respect to any Credit Party which could reasonably be expected
to materially and adversely affect such Credit Party's right to receive
Medicare, Medicaid, CHAMPUS or CHAMPVA reimbursement to which such Credit Party
would otherwise be entitled, or right to
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participate in the Medicare, Medicaid, CHAMPUS or CHAMPVA programs, or otherwise
have a Material Adverse Effect on the receipt of Medicare, Medicaid, CHAMPUS or
CHAMPVA reimbursement by such Credit Party, and, to the best knowledge of the
Company, no Credit Party is subject to any pending but unassessed Medicare,
Medicaid, CHAMPUS or CHAMPVA claim payment adjustments, except to the extent
that such Credit Party is contesting such assessment in good faith by
appropriate proceedings diligently pursued and has established and will maintain
adequate reserves for such adjustments in accordance with GAAP.
SECTION 4.06. Ownership of Property, Liens. On and as of the Closing Date, the
Company and each Subsidiary is the lawful owner of, has good and marketable
title to and is in lawful possession of, or has valid leasehold interests in,
all properties and other assets (real or personal, tangible, intangible or
mixed) purported to be owned or leased (as the case may be) by such Person on
the balance sheet referred to in Section 4.04(a), and none of such Person's
properties and assets is subject to any Liens, except Permitted Liens. The
Company and its Subsidiaries conduct their business without infringement or
claim of infringement of any material license, patent, trademark, trade name,
service mark, copyright, trade secret or other intellectual property right of
others and there is no infringement or claim of infringement by others of any
material license, patent, trademark, trade name, service mark, copyright, trade
secret or other intellectual property right of the Company or any of its
Subsidiaries.
SECTION 4.07. No Default. No Default has occurred and is continuing and neither
the Company nor any of its Subsidiaries is in default under or with respect to
any material contract, agreement, lease or other material instrument to which it
is a party or by which its property is bound or affected. Neither the Company
nor any other Credit Party has received notification from any governmental
authority that any such governmental authority has taken or intends to take
action to revoke, terminate or adversely amend any license, certificate,
accreditation or permit of such Person to operate a healthcare facility or to
participate under Medicare, Medicaid, CHAMPUS or CHAMPVA.
SECTION 4.08. No Burdensome Restrictions. No contract, lease, agreement or other
instrument to which the Company or any of its Subsidiaries is a party or by
which any of its property is bound or affected, no charge, corporate
restriction, judgment, decree or order and no provision of applicable law or
governmental regulation is reasonably likely to have or result in a Material
Adverse Effect.
SECTION 4.09. Labor Matters. There are no strikes or other labor disputes
pending or, to the best knowledge of the Company, threatened, against the
Company or any of its Subsidiaries. Hours worked and payments made to the
employees of the Company and its Subsidiaries have not been in violation of the
Fair Labor Standards Act or any other applicable law dealing with such matters.
All payments due from the Company or any of its Subsidiaries, or for which any
claim may be made against any of them, on account of wages and employee and
retiree health and welfare insurance and other benefits have been paid or
accrued as a liability on their books, as the case may be. The consummation of
the transactions contemplated by the Financing Documents will not give rise to
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a right of termination or right of renegotiation on the part of any union under
any collective bargaining agreement to which it is a party or by which it is
bound.
SECTION 4.10. Subsidiaries; Other Equity Investments. Other than as set forth on
Schedule 4.10, the Company has no Subsidiaries on the date hereof. Each such
Subsidiary is, and, in the case of any additional corporate Subsidiaries formed
after the Closing Date, each of such additional corporate Subsidiaries will be
at each time that this representation is made or deemed to be made after the
Closing Date, a wholly-owned Subsidiary that is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as then conducted. Neither the Company nor any of its Subsidiaries is
engaged in any joint venture or partnership with any other Person.
SECTION 4.11. Investment Company Act. The Company is not an "investment company"
as defined in the Investment Company Act of 1940, as amended. The consummation
of the transactions contemplated by the Financing Documents do not and will not
violate any provision of such Act or any rule, regulation or order issued by the
Securities and Exchange Commission thereunder.
SECTION 4.12. Margin Regulations. None of the proceeds from the Loans have been
or will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any Margin Stock
or for any other purpose which might cause any of the loans under this Agreement
to be considered a "purpose credit" within the meaning of Regulation G, U or X
of the Board of Governors of the Federal Reserve Board.
SECTION 4.13. Taxes. The Company's federal tax identification number is
75-2529809 and the federal tax identification number for each Subsidiary is
accurately listed for such Subsidiary on Schedule 4.10. All Federal, state and
local tax returns, reports and statements required to be filed by or on behalf
of the Company and its Subsidiaries have been filed with the appropriate
governmental agencies in all jurisdictions in which such returns, reports and
statements are required to be filed, and all taxes (including real property
taxes) and other charges shown to be due and payable have been timely paid prior
to the date on which any fine, penalty, interest, late charge or loss may be
added thereto for nonpayment thereof, except any of the foregoing as may be
subject to a Permitted Contest. All state and local sales and use taxes required
to be paid by the Company or any of its Subsidiaries have been paid, except any
of the foregoing as may be subject to a Permitted Contest. All Federal and state
returns have been filed by the Company and its Subsidiaries for all periods for
which returns were due with respect to employee income tax withholding, social
security and unemployment taxes, and the amounts shown thereon to be due and
payable have been paid in full or adequate provisions therefor have been made.
SECTION 4.14. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its
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obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code with respect to each Plan.
No member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or Multiemployer Plan or in respect
of any Benefit Arrangement, or made any amendment to any Plan or Benefit
Arrangement, which has resulted or could reasonably be expected to result in the
imposition of a Lien or the posting of a bond or other security under ERISA or
the Code or (iii) incurred any liability under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.15. Brokers. No broker, finder or other intermediary has brought about
the obtaining, making or closing of the transactions contemplated by the
Financing Documents, and the Company has and will have no obligation to any
Person in respect of any finder's or brokerage fees in connection herewith or
therewith.
SECTION 4.16. Employment, Shareholders and Subscription Agreements. Except for
the agreements described in Schedule 4.16 (which schedule may be updated from
time to time by the Company with the consent of the Agent which consent shall
not be unreasonably withheld), true and complete copies of which have been
delivered to the Lenders, there are no (i) employment agreements covering the
management of the Company or any of its Subsidiaries, (ii) collective bargaining
agreements or other labor agreements covering any group of employees of the
Company or its Subsidiaries, or (iii) agreements regarding the Company or any of
its Subsidiaries, their respective assets or operations or any investment
therein to which any of its stockholders is a party.
SECTION 4.17. Full Disclosure. None of the information (financial or otherwise)
furnished by or on behalf of the Company to the Agent or any Lender in
connection with the consummation of the transactions contemplated by any of the
Financing Documents contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading in the light of the circumstances under which such
statements were made. All financial projections delivered to the Lenders have
been prepared on the basis of the assumptions stated therein. Except as
previously disclosed to the Agent in writing, such projections represent the
Company's best estimate of the Company's future financial performance and such
assumptions are believed by the Company to be fair in light of current business
conditions at the time such projections were delivered to the Agent.
SECTION 4.18. Private Offering. Neither the Company nor any Person acting on its
behalf has offered the Notes or any similar securities for sale to, or solicited
any offer to buy any of the same from, or otherwise approached or negotiated in
respect thereof with, any Person other than the Lenders and not more than five
other institutional investors. Neither the Company nor any Person acting on its
behalf has taken, or will take, any action which would subject the issuance or
sale of the Notes to Section 5 of the Securities Act.
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SECTION 4.19. Compliance with Environmental Requirements; No Hazardous
Materials. Except as provided on Schedule 4.19:
(a)Other than generation in compliance with all applicable
Environmental Laws, no Hazardous Materials are located on any
properties now or previously owned, leased or operated by the Company
or any of its Subsidiaries or have been released into the environment,
or deposited, discharged, placed or disposed of at, on, under or near
any of such properties except such of the foregoing as could not
reasonably be expected to have a Material Adverse Effect. No portion of
any such property is being used in, or has been used at any previous
time, for the disposal, storage, treatment, processing or other
handling of Hazardous Materials (other than processing or handling
incidental to the generation of Hazardous Materials in compliance with
all applicable Environmental Laws), nor is any such property affected
by any Hazardous Materials Contamination except for such of the
foregoing as could not reasonably be expected to have a Material
Adverse Effect.
(b)No asbestos or asbestos-containing materials are present on any of
the properties now or previously owned, leased or operated by the
Company or any of its Subsidiaries except such of the foregoing as
could not reasonably be expected to have a Material Adverse Effect.
(c)No polychlorinated biphenyls are located on or in any properties now
or previously owned, leased or operated by the Company or any of its
Subsidiaries, in the form of electrical transformers, fluorescent light
fixtures with ballasts, cooling oils or any other device or form except
such of the foregoing as could not reasonably be expected to have a
Material Adverse Effect.
(d)No underground storage tanks are located on any properties now or
previously owned, leased or operated by the Company or any of its
Subsidiaries, or were located on any such property and subsequently
removed or filled except such of the foregoing as could not reasonably
be expected to have a Material Adverse Effect.
(e)Except as disclosed on Schedule 4.19 (as such schedule may be
updated from time to time by the Company with the consent of the Agent
which consent shall not be unreasonably withheld), no notice,
notification, demand, request for information, complaint, citation,
summons, investigation, administrative order, consent order and
agreement, litigation or settlement with respect to Hazardous Materials
or Hazardous Materials Contamination is in existence or, to the
Company's knowledge, proposed, threatened or anticipated with respect
to or in connection with the operation of any properties now or
previously owned, leased or operated by the Company or any of its
Subsidiaries. All such properties and their existing and prior uses
comply and at all times have complied with any applicable governmental
requirements relating to environmental matters or Hazardous Materials
except for such noncompliances as could not reasonably be expected to
have a Material Adverse Effect.
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Except as disclosed on Schedule 4.19 there is no condition on any of
such properties which is in violation of any applicable governmental
requirements relating to Hazardous Materials, and neither the Company
nor any of its Subsidiaries has received any communication from or on
behalf of any governmental authority that any such condition exists.
Except disclosed on Schedule 4.19 (as such schedule may be updated from
time to time by the Company with the consent of the Agent which consent
shall not be unreasonably withheld), none of such properties nor any
property to which the Company has, directly or indirectly, transported
or arranged for the transportation of any material is listed or, to the
Company's knowledge, proposed for listing on the National Priorities
List promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA)
or on any similar federal, state or foreign list of sites requiring
investigation or cleanup, nor, to the knowledge of the Company, is any
such property anticipated or threatened to be placed on any such list.
(f)There has been no environmental investigation, study, audit, test,
review or other analysis conducted of which the Company has knowledge
in relation to the current or prior business of the Company or any
property or facility now or previously owned, leased or operated by the
Company or any of its Subsidiaries which has not been delivered to the
Lenders at least five days prior to the date hereof.
(g)For purposes of this Section 4.19, the terms "Company" and
"Subsidiary" shall include any business or business entity (including a
corporation) which is, in whole or in part, a predecessor of the
Company or any Subsidiary.
SECTION 4.20. Real Property Interests. Except for the ownership, leasehold or
other interests set forth in Schedule 4.20, the Company and its Subsidiaries
have, as of the Closing Date, no ownership, leasehold or other interest in real
property.
SECTION 4.21. Third Party Reimbursement . If any Credit Party is or has been
audited by Medicare, Medicaid, CHAMPUS, CHAMPVA or similar governmental Third
Party Payors, (i) none of such audits provides for adjustments in reimbursable
costs or asserts claims for reimbursement or repayment by such Credit Party of
costs and/or payments theretofore made by such governmental Third Party Payor
that, if adversely determined, could reasonably be expected to have or result in
a Material Adverse Effect and (ii) none of the Credit Parties have had requests
or assertions of claims for reimbursement or repayment by it of costs and/or
payments heretofore made by any other Third Party Payor that, if adversely
determined, could reasonably be expected to have or result in a Material Adverse
Effect, except in either case to the extent described on Schedule 4.21.
SECTION 4.22Additional Representations; Schedules. All certifications,
information, statements, conclusions and the like contained in any Borrowing
Base Certificate, Receivable Report, certificate, financial statement or other
instrument delivered by or on behalf of the Company or any Subsidiary pursuant
to any of the Financing Documents (including but not limited to any such made in
or in
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connection with any amendment to any of such documents) shall constitute
representations and warranties made under this Agreement. Wherever a
representation and warranty made under this Agreement refers to a schedule or an
amended schedule, it shall be deemed to refer to the schedule attached hereto
or, if one or more amended schedules have been furnished, the amended schedule
most recently so furnished prior to the date as of which the representation and
warranty is made, and the later delivery of an amended schedule shall not
retroactively effect a correction of any representation and warranty which was
incorrect or untrue when made.
ARTICLE V
AFFIRMATIVE COVENANTS
The Company agrees that, so long as any Lender has any Commitment hereunder or
any amount payable under any Note remains unpaid:
SECTION 5.01. Financial Statements and Other Reports. The Company will maintain
a system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in accordance
with GAAP, and will deliver to each of the Lenders:
(a)as soon as practicable and in any event within 45 days after the end
of each month, a consolidated balance sheet of the Company and its
Consolidated Subsidiaries as at the end of such month and the related
consolidated statements of operations and cash flows for such month,
and for the portion of the Fiscal Year ended at the end of such month
setting forth in each case in comparative form the figures for the
corresponding periods of the previous Fiscal Year and the figures for
such month and for such portion of the Fiscal Year ended at the end of
such month that are set forth in the annual operating and capital
expenditure budgets and cash flow forecast delivered pursuant to
Section 5.01(j), all in reasonable detail and certified by the chief
financial officer of the Company as fairly presenting the financial
condition and results of operations of the Company and its Consolidated
Subsidiaries and as having been prepared in accordance with GAAP
applied on a basis consistent with the audited financial statements of
the Company, subject to changes resulting from audit and normal
year-end adjustments;
(b)as soon as available and in any event within 100 days after the end
of each Fiscal Year, a consolidated balance sheet of the Company and
its Consolidated Subsidiaries as of the end of such Fiscal Year and the
related consolidated statements of operations, stockholders' equity and
cash flows for such Fiscal Year, setting forth in each case in
comparative form the figures for the previous Fiscal Year and the
figures for such Fiscal Year that are set forth in the annual operating
and capital expenditure budgets and cash flow forecast delivered
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pursuant to Section 5.01(j), certified (solely with respect to such
consolidated statements) without qualification by Arthur, Andersen &
Co. or other independent public accountants of nationally recognized
standing;
(c)(i) together with each delivery of financial statements pursuant to
(a) and (b) above, an Officers' Certificate of the Company stating that
the officers executing such certificate have reviewed the terms of this
Agreement and have made, or caused to be made under their supervision,
a review in reasonable detail of the transactions and condition of the
Company during the accounting period covered by such financial
statements and that such review has not disclosed the existence during
or at the end of such accounting period, and that such officers do not
have knowledge of the existence as at the date of such Officers'
Certificate, of any Default, or, if any such Default existed or exists,
specifying the nature and period of existence thereof and what action
the Company has taken or is taking or proposes to take with respect
thereto; (ii) together with each delivery of financial statements for
each month and Fiscal Year, a compliance certificate of the chief
financial officer or treasurer of the Company (x) providing details of
all transactions between the Company and any Person referred to in
Section 6.08, (y) demonstrating in reasonable detail compliance during
and at the end of such accounting period with the covenants contained
in Sections 6.11 through 6.18, provided, however, that such Officers'
Certificate shall be required to calculate compliance with Sections
6.12, 6.14, 6.16 and 6.17 only quarterly and (z) if not specified in
the financial statements delivered pursuant to (a) or (b) above, as the
case may be, specifying the aggregate amount of interest paid or
accrued and the aggregate amount of depreciation and amortization
charged, during such accounting period; and (iii) beginning with the
delivery of the fiscal year end 1998 financial statements, together
with each delivery of financial statements pursuant to (b) above, a
statement setting forth in reasonable detail the computation of Excess
Cash Flow, if any, for such Fiscal Year, certified by the chief
financial officer or treasurer of the Company as having been prepared
from such financial statements in accordance with this Agreement;
(d)together with each delivery of financial statements pursuant to (b)
above, a written statement by the independent public accountants giving
the report thereon (i) stating that their audit examination has
included a review of the terms of this Agreement as it relates to
accounting matters, (ii) stating whether, in connection with their
audit examination, any Default has come to their attention, and if such
a condition or event has come to their attention, specifying the nature
and period of existence thereof, and (iii) stating that based on their
audit examination nothing has come to their attention which causes them
to believe that the information contained in the certificates delivered
therewith pursuant to (c) above is not correct and that the matters set
forth in the compliance certificate delivered therewith pursuant to
clause (ii) of (c) above for the applicable Fiscal Year are not stated
in accordance with the terms of this Agreement;
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(e)promptly upon receipt thereof, copies of all reports submitted to
the Company by independent public accountants in connection with each
annual, interim or special audit of the financial statements of the
Company made by such accountants, including the comment letter
submitted by such accountants to management in connection with their
annual audit;
(f)promptly upon their becoming available, copies of (i) all financial
statements, reports, notices and proxy statements sent or made
available generally by the Company to its security holders, (ii) all
regular and periodic reports and all registration statements and
prospectuses filed by the Company with any securities exchange or with
the Securities and Exchange Commission or any governmental authority
succeeding to any of its functions and (iii) all press releases and
other statements made available generally by the Company to the public
concerning material developments in the business of the Company;
(g)promptly upon any officer of the Company obtaining knowledge (i) of
the existence of any Default, or becoming aware that the holder of any
Debt of the Company or any Subsidiary that singly, or when aggregated
with all other Debt of the Company or its Subsidiaries the holders of
which have taken similar action, equals or exceeds $50,000 in principal
amount outstanding has given any notice or taken any other action with
respect to a claimed default thereunder, (ii) of any change in the
Company's certified accountant or any resignation, or decision not to
stand for re-election, by any member of the Company's board of
directors, (iii) that any Person has given any notice to the Company or
any Subsidiary or taken any other action with respect to a claimed
default under any agreement or instrument (other than the Financing
Documents) to which the Company or any of its Subsidiaries is a party
or by which any of their assets are bound the indebtedness or
obligation under which either singly or when aggregated with all other
claims of Persons taking similar action, is equal to or greater than
$50,000 or (iv) of the institution of any litigation or arbitration
involving an alleged liability of the Company or any of its
Subsidiaries equal to or greater than $50,000 or any adverse
determination in any litigation or arbitration proceedings that singly
or when aggregated with all other outstanding litigation or arbitration
claims involve a potential liability of the Company or any of its
Subsidiaries equal to or greater than $50,000, an Officers' Certificate
of the Company specifying the nature and period of existence of any
such condition or event, or specifying the notice given or action taken
by such holder or Person and the nature of such claimed default
(including any Default), event or condition, and what action the
Company or any affected Subsidiary has taken, is taking or proposes to
take with respect thereto;
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(h)if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute
grounds for a termination of such Plan under Title IV of ERISA, or
knows that the plan administrator of any Plan has given or is required
to give notice of any such reportable event, a copy of the notice of
such reportable event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal liability under Title
IV of ERISA or notice that any Multiemployer Plan is in reorganization,
is insolvent or has been terminated, a copy of such notice; (iii)
receives notice from the PBGC under Title IV of ERISA of an intent to
terminate, impose liability (other than for premiums under Section 4007
of ERISA) in respect of, or appoint a trustee to administer any Plan, a
copy of such notice; (iv) applies for a waiver of the minimum funding
standard under Section 412 of the Code, a copy of such application; (v)
gives notice of intent to terminate any Plan under Section 4041(c) of
ERISA, a copy of such notice and other information filed with the PBGC;
(vi) gives notice of withdrawal from any Plan pursuant to Section 4063
of ERISA, a copy of such notice; or (vii) fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement or makes any amendment to any Plan or Benefit
Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the
chief financial officer or the chief accounting officer of the Company
setting forth details as to such occurrence and action, if any, which
the Company or applicable member of the ERISA Group is required or
proposes to take;
(i)copies of any material reports or notices (but excluding tax
returns) related to taxes and any other material reports or notices
received by the Company from, or filed by the Company with, any
Federal, state or local governmental agency or body regulating the
activities of the Company;
(j)within 30 days prior to the conclusion of each Fiscal Year, the
Company's annual operating and capital expenditure budgets and cash
flow forecast for the following Fiscal Year presented on a monthly
basis, which shall be in a format reasonably consistent with
projections, budgets and forecasts theretofore provided to the Lenders;
(k)together with each Notice of Borrowing and on the seventh Business
Day of each month, a Borrowing Base Certificate as of the close of
business of the last Business Day of the preceding month;
(l)within five Business Days after any request therefor, such
information in such detail concerning the amount, composition and
manner of calculation of the Borrowing Base as any Lender may
reasonably request;
(m)within twenty days after the end of each month, a report, in form
and substance
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acceptable to the Required Lenders, as to all accounts receivable of
the Company outstanding as of the last day of such month (a
"Receivables Report"), which shall set forth in summary form an aging
of such Receivables and such other information as the Agent shall
reasonably request;
(n)together with the next delivery of a Receivables Report after the
Company becomes aware thereof, notice of any dispute between any Third
Party Payor and the Company, any Subsidiary or any other Credit Party,
with respect to any amounts due and owing that singly, or when
aggregated with all other similar disputes with other Third Party
Payors of the Company, the Subsidiaries and the other Credit Parties,
equals or exceeds $100,000, with an explanation in reasonable detail of
the reason for the dispute, all claims related thereto and the amount
in controversy; and
(o)with reasonable promptness, such other information and data with
respect to the Company or any of its Subsidiaries or any other Credit
Party as from time to time may be reasonably requested by any Lender.
SECTION 5.02. Payment of Obligations. The Company (i) shall pay and discharge,
and cause each of its Subsidiaries to pay and discharge, at or before maturity,
all of their respective material obligations and liabilities, including tax
liabilities, except where the same may be the subject of a Permitted Contest,
(ii) shall maintain, and cause each of its Subsidiaries to maintain, in
accordance with GAAP, appropriate reserves for the accrual of any of the same
and (iii) shall not breach or permit any of its Subsidiaries to breach, in any
material respect, or permit to exist any default under, the terms of any
material lease, commitment, contract, instrument or obligation to which it is a
party, or by which its properties or assets are bound, subject to Permitted
Contests.
SECTION 5.03. Conduct of Business and Maintenance of Existence. The Company will
continue, and will cause each of its Subsidiaries to continue, to engage in
business of the same general type as now conducted by the Company and its
Subsidiaries, and will preserve, renew and keep in full force and effect, and
will cause each Subsidiary to preserve, renew and keep in full force and effect
their respective corporate existence and their respective rights, privileges and
franchises necessary or desirable in the normal conduct of business; provided
that nothing contained in this Section shall be deemed to prohibit any merger or
consolidation that is otherwise permitted under Section 6.06.
SECTION 5.04. Maintenance of Property; Insurance. (a) The Company will keep, and
will cause each of its Subsidiaries to keep, all property necessary in its
business in good working order and condition, ordinary wear and tear excepted.
(b)The Company will maintain, and will cause each of its Subsidiaries to
maintain, (i) physical damage insurance on all real and personal property on an
all risks basis (including the perils of flood and quake where reasonably
required and available at a reasonable cost), covering the repair and
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replacement of all such property and consequential loss coverage for business
interruption and extra expense, covering such risks, for amounts not less than
those, and with deductible amounts not greater than those, set forth in Part I
of Schedule 5.04, (ii) public liability insurance (including products/completed
operations liability and professional injury liability coverage) covering such
risks, for amounts not less than those, and with deductible amounts not greater
than those, set forth in Part II of Schedule 5.04 and (iii) such other insurance
coverage in such amounts and with respect to such risks as the Required Lenders
may reasonably request. All such insurance shall be provided by insurers having
an A.M. Best policyholders rating of not less than B+ or such other insurers as
the Required Lenders may approve in writing. The Company and each of its
Subsidiaries will cause each other Credit Party to comply with the insurance
requirements specified in the Service Agreement to which such Credit Party is a
party.
(c)On or prior to the Closing Date, the Company shall cause the Agent to be
named as an additional insured and loss payee on each insurance policy required
to be maintained pursuant to this Section 5.04. The Company will deliver to the
Lenders (i) on the Closing Date, a certificate from the Company's insurance
broker dated such date showing the amount of coverage as of such date, and
certifying that, in the opinion of such broker, such amounts are reasonable and
customary for companies of established repute engaged in the same or a similar
business, that such policies will include effective waivers (whether under the
terms of any such policy or otherwise) by the insurer of all claims for
insurance premiums against all loss payees and additional insureds and all
rights of subrogation against all loss payees and additional insureds, and that
if all or any part of such policy is cancelled, terminated or expires, the
insurer will forthwith give notice thereof to each additional insured and loss
payee and that no cancellation, reduction in amount or material change in
coverage thereof shall be effective until at least 30 days after receipt by each
additional insured and loss payee of written notice thereof, (ii) upon the
request of the Agent from time to time full information as to the insurance
carried, (iii) within five days of receipt of notice from any insurer, a copy of
any notice of cancellation, nonrenewal or material change in coverage from that
existing on the date of this Agreement and (iv) forthwith, notice of any
cancellation or nonrenewal of coverage by the Company or any of its
Subsidiaries.
SECTION 5.05. Compliance with Laws. The Company will comply, and cause each of
its Subsidiaries to comply with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities (including
Environmental Laws and ERISA and the rules and regulations thereunder), except
for such noncompliances that, individually or when aggregated with all other
noncompliances, could not reasonably be expected to have a Material Adverse
Effect.
SECTION 5.06. Inspection of Property, Books and Records. The Company will keep,
and will cause each of its Subsidiaries and the other Credit Parties to keep,
proper books of record and account in which full, true and correct entries shall
be made of all dealings and transactions in relation to its business and
activities; and will permit, and will cause each of its Subsidiaries and the
other Credit Parties to permit, representatives of any Lender, at the Lenders'
expense, to visit and inspect any of
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their respective properties, to examine and make abstracts or copies from any of
their respective books and records, to conduct a collateral audit and analysis
of their respective inventories and accounts receivable and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
SECTION 5.07. Use of Proceeds. The proceeds of Working Capital Loans shall be
used by the Company solely for working capital needs of the Company and its
Subsidiaries. The proceeds of Acquisition Loans shall be used by the Company
solely to fund Acquisitions consented to by the Agent and the Lenders in their
sole good faith discretion. None of such proceeds will be used in violation of
any applicable law or regulation.
SECTION 5.08. Further Assurances. The Company will, and the Company will cause
each of its Subsidiaries and each other Credit Party to, at the Company's cost
and expense, cause to be promptly and duly taken, executed, acknowledged and
delivered all such further acts, documents and assurances (x) as may from time
to time be necessary or as the Required Lenders may from time to time reasonably
request in order to carry out the intent and purposes of the Financing Documents
and the transactions contemplated thereby, including all such actions to
establish, preserve, protect and perfect the estate, right, title and interest
of the Lenders to the Collateral (including Collateral acquired after the date
hereof), including first priority Liens thereon, subject only to Permitted Liens
and (y) as the Lenders may from time to time reasonably request, to establish,
preserve, protect and perfect first priority Liens in favor of the Lenders on
any and all assets of the Company and its Subsidiaries and on the Receivables of
the other Credit Parties, now owned or hereafter acquired, that are not
Collateral on the date hereof. The Company shall promptly give notice to the
Agent of the acquisition after the Closing Date by the Company or any Subsidiary
of any real property (including leaseholds in respect of real property),
trademark, copyright or patent.
SECTION 5.09. Lenders' Meetings. Within 45 days after the end of each fiscal
year, the Company will conduct a meeting of the Lenders to discuss such fiscal
year's results and the financial condition of the Company at which shall be
present the chief executive officer and the chief financial officer of the
Company and such other officers of the Company as the Company's chief executive
officer shall designate. Such meetings shall be held at a time and place
convenient to the Lenders and to the Company.
SECTION 5.10. Hedging Facilities. If the aggregate principal amount of Revolving
Credit Loans outstanding reaches at any time an amount equal to or greater than
$15,000,000, the Lenders may require that the Company, at its sole cost and
expense, enter into and thereafter maintain in full force and effect interest
rate cap agreements in such amounts and on such terms as shall reasonably be
requested by the Agent.
SECTION 5.11. Hazardous Materials; Remediation. The Company will (i) promptly
give notice to
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the Lenders in writing of any complaint, order, citation, notice or other
written communication from any Person with respect to, or if the Company becomes
aware of, (x) the existence or alleged existence of a violation of any
applicable Environmental Law or the incurrence of any liability, obligation,
loss, damage, cost, expense, fine, penalty or sanction or the requirement to
commence any remedial action resulting from or in connection with any air
emission, water discharge, noise emission, Hazardous Material or any other
environmental, health or safety matter at, upon, under or within any of the
properties now or previously owned, leased or operated by the Company or any of
its Subsidiaries, or due to the operations or activities of the Company, any
Subsidiary or any other Person on or in connection with any such property or any
part thereof or (y) any release on any of such properties of Hazardous Materials
in a quantity that is reportable under any applicable Environmental Law; (ii)
promptly comply, subject to Permitted Contests, with any governmental
requirements requiring the removal, treatment or disposal of such Hazardous
Materials or Hazardous Materials Contamination and provide evidence satisfactory
to the Required Lenders of such compliance; and (iii) provide the Lenders,
within 30 days after demand therefor by the Required Lenders, with a bond,
letter of credit or similar financial assurance evidencing to the satisfaction
of the Required Lenders that sufficient funds are available to pay the cost of
removing, treating and disposing of such Hazardous Materials or Hazardous
Materials Contamination and discharging any assessment which may be established
on any such property as a result thereof where the projected cost thereof
exceeds $100,000.
SECTION 5.12. Collateral Reports. The Company shall keep, and shall cause each
of its Subsidiaries and the other Credit Parties to keep, accurate and complete
records of its accounts receivable in at least so much detail as to enable the
Company to provide the Receivables Reports and other information described in
Section 5.01.
SECTION 5.13. Collections; Right to Notify Account Debtors. At any time
following the occurrence of an Event of Default and during the continuance
thereof, in addition to the Lenders' rights under the Security Documents, the
Company hereby authorizes the Agent, at any time, to (i) notify any or all
account debtors that the accounts receivable of the Company and its Subsidiaries
and the other Credit Parties have been assigned to the Agent and that the Agent
has a security interest therein and (ii) direct such account debtors to make all
payments due from them to the Company upon such accounts receivable directly to
the Agent or to a lockbox designated by the Agent. The Agent shall promptly
furnish the Company with a copy of any such notice sent. Any such notice, in the
Agent's sole discretion, may be sent on the Company's, such Subsidiaries' or
such other Credit Parties' stationery, in which event the Company shall, or
shall cause such Subsidiary or other Credit Party to, if requested by the Agent,
co-sign such notice with the Agent. At any subsequent time that no Events of
Default are continuing, the Agent will withdraw such notice at the Company's
request.
SECTION 5.14. Enforcement of Covenants Not to Compete. The Company and each of
its Subsidiary shall preserve, protect and defend, to the extent permitted by
applicable law, all of its rights, if any, with respect to any covenant not to
compete contained in any of the material contracts
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of such Person or contained in any employment agreement with any employee whose
annual salary and other compensation payable by the Company and any Subsidiary
of either thereof is $100,000 or more.
SECTION 5.15. Landlord and Warehouseman Waivers. Upon the request of the Agent,
the Company shall use its best efforts to deliver to the Agent waivers of
contractual and statutory landlord's, landlord's mortgagee's and warehouseman's
Liens in form and substance satisfactory to the Agent under each existing lease,
warehouse agreement or similar agreement to which the Company or any Subsidiary
is a party; provided that such waivers will in any event be incorporated when
the existing lease, warehouse agreement or similar agreement is amended, renewed
or extended and the Company will obtain waivers of both contractual and
statutory landlord's, landlord's mortgagee's and warehouseman's Liens in form
and substance satisfactory to the Agent in connection with each new lease,
warehouse agreement or similar agreement entered into by the Company or any
Subsidiary.
SECTION 5.16. Additional Subsidiaries. Promptly after the creation or
acquisition of any Subsidiary by the Company, the Company shall execute and
deliver or cause to be executed and delivered, (i) a Subsidiary Guaranty
Agreement and a Subsidiary Security Agreement from such Subsidiary, (ii) one or
more Professional Service Provider Security Agreements, and (iii) such other
related documents as the Lender may request, all in form and substance
reasonably satisfactory to the Agent.
SECTION 5.17. Accreditation and Licensing. The Company shall, and shall cause
each other Credit Party to, keep itself fully licensed with all licenses
required to operate such Person's business under applicable law and maintain
such Person's qualification for participation in, and payment under, Medicare,
Medicaid, CHAMPUS, CHAMPVA and any other federal, state or local governmental
program or private program providing for payment or reimbursement for services
rendered by such Person, except to the extent that the loss or relinquishment of
such qualification would not or could not reasonably be expected to have or
result in a Material Adverse Effect; provided, however, that nothing in this
Agreement shall require the Company or any other Credit Party to participate in
the CHAMPUS or CHAMPVA programs if it elects not to accept patients covered by
such programs. The Company will promptly furnish the Agent with copies of all
reports and correspondence relating to any loss or revocation (or threatened
loss or revocation) of any qualification described in this Section.
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ARTICLE VI
NEGATIVE COVENANTS
The Company agrees that, so long as any Lender has any Commitment hereunder or
any amount payable under any Note remains unpaid:
SECTION 6.01. Debt. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee or
otherwise become or remain directly or indirectly liable with respect to, any
Debt, except for:
(a)Debt of the Company outstanding on the date of this Agreement as
set forth in Schedule 6.01 and any Permitted Refinancing thereof;
(b)The Existing Additional Acquisition Liabilities;
(c)Debt of the Company under the Financing Documents;
(d)Debt of the Company or any of its Subsidiaries incurred or assumed
for the purpose of financing all or any part of the cost of acquiring
any fixed asset (including through Capital Leases), in an aggregate
principal amount at any time outstanding not greater than $500,000;
(e)Debt of the Company or any of its Subsidiaries to a wholly-owned
Subsidiary of the Company, or of any Subsidiary of the Company
to the Company;
(f)Purchase money Debt of the Company incurred in connection with an
acquisition in accordance with terms and conditions of Section 6.07,
which Debt shall be subordinated in all respects to any and all Debt of
the Company to the Agent and the Lenders, upon terms and conditions
satisfactory to the Lenders and the incurrence of which Debt does not
result in a Default or an Event of Default.
(g)Debt constituting liabilities under letters of credit, surety bonds
or similar instruments issued in the ordinary course of business to
secure bids, purchase orders, statutory obligations such as workers
compensation insurance or sales tax bonds, operating leases and similar
obligations (but not Debt), provided that the aggregate outstanding
obligation (whether fixed or contingent, drawn or undrawn) of the
Company and its Subsidiaries under all such instruments shall not at
any time exceed $50,000; and
(h)Other Debt of the Company and its Subsidiaries in an aggregate
principal amount (whether fixed or contingent, drawn or undrawn) not to
exceed at any time $50,000.
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SECTION 6.02. Negative Pledge. Neither the Company nor any Subsidiary will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except:
(a)any Lien on any asset securing Debt permitted under Section 6.01(d)
incurred or assumed for the purpose of financing all or any part of the
cost of acquiring such asset, provided that such Lien attaches to such
asset concurrently with or within 90 days after the acquisition
thereof, and provided further that the principal amount of the Debt
secured shall not be less than 70% of the value of the asset subject to
such Lien;
(b)Liens existing on the date of this Agreement securing Debt
permitted by Section 6.01(a);
(c)Liens arising in the ordinary course of its business which (i) do
not secure Debt, (ii) do not secure any obligation in an amount
exceeding $50,000 and (iii) do not in the aggregate materially detract
from the value of its assets or materially impair the use thereof in
the operation of its business;
(d)Liens arising in connection with Debt incurred pursuant to Section
6.07; provided, however such Lien shall be subordinate to any Lien
under paragraph (e) below upon terms and conditions satisfactory to the
Lenders; and
(e)Liens created by the Security Documents.
SECTION 6.03. Capital Stock. The Company will not permit any Subsidiary to,
issue any shares of capital stock except shares of capital stock issued by any
Subsidiary to the Company which are delivered to the Agent in pledge for the
benefit of the Agent and the Lenders.
SECTION 6.04. Restricted Payments. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, declare, order, pay, make or set apart
any sum for any Restricted Payment or make any payment in respect of any
Additional Acquisition Liabilities; provided that the foregoing shall not
restrict or prohibit:
(i)dividends or distributions by the Company at such times or in such
amounts as are necessary to permit purchases of shares of (or options
to purchase shares of) Common Stock from employees of the Company or of
any Subsidiary upon their death, termination or retirement, so long as,
(x) before and after giving effect to any such dividend or distribution
for such purpose, no Default shall have occurred and be continuing and
(y) such purchases or payments after the date hereof do not exceed in
any one Fiscal Year $75,000; and
(ii)payments of Additional Acquisition Liabilities, so long as, at the
time of such payment, no Default shall have occurred and be continuing,
and prior to making such payment, the Company shall have delivered to
the Agent a certificate showing that, after giving effect to
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such proposed payment, no Default will exist.
SECTION 6.05. ERISA. The Company will not, and will not permit any of its
Subsidiaries to:
(a)engage in any transaction in connection with which the Company or
any of its Subsidiaries could be subject to any material liability
arising from either a civil penalty assessed pursuant to Section 502(i)
of ERISA or a tax imposed by Section 4975 of the Code;
(b)terminate any Plan in a manner, or take any other action, which
could result in any material liability of any member of the ERISA Group
to the PBGC;
(c)fail to make full payment when due of all amounts which, under the
provisions of any Plan, it is required to pay as contributions thereto,
or permit to exist any accumulated funding deficiency, whether or not
waived, with respect to any Plan;
(d)permit the present value of all benefit liabilities under all Plans
to exceed the fair market value of the assets of such Plans; or
(e)fail to make any payments to any Multiemployer Plan that it may be
required to make under any agreement relating to such Multiemployer
Plan or any law pertaining thereto.
SECTION 6.06. Consolidations, Mergers and Sales of Assets. The Company will not,
and will not permit any of its Subsidiaries to, (i) consolidate or merge with or
into any other Person or (ii) sell, lease or otherwise transfer, directly or
indirectly, any of its or their assets, other than (w) sales of any asset or
group of related assets, the value of which does not exceed $20,000, (x) sales
of inventory in the ordinary course of their respective businesses, (y)
dispositions of Temporary Cash Investments and (z) other dispositions for cash
and fair value of assets that the board of directors of the Company determines
in good faith are no longer used or useful in the business of the Company and
its Subsidiaries, provided that immediately after any such disposition, the
aggregate fair market value of all such assets disposed of pursuant to this
clause (z) after the date hereof does not exceed $250,000 and the aggregate fair
market value of all such assets disposed of during the Fiscal Year in which such
disposition is made does not exceed $100,000.
SECTION 6.07. Purchase of Assets, Investments. The Company will not, and will
not permit any Subsidiary to, acquire any assets other than in the ordinary
course of business, or to make, acquire or own any Investment in any Person
other than (a) Temporary Cash Investments, (b) Investments in Subsidiaries, and
(c) (i) acquisitions of a physician practice or physician practice group or the
assets of a physician practice or physician practice group or an Investment in a
physician practice or physician practice group which acquisition or Investment
the chief financial officer or treasurer shall certify to the Agent meets the
following criteria:
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(t)the percentage of primary care physicians involved in such practice
is not less than 40% of all physicians involved therein,
(u) the health maintenance organization presence in the market of such
physician practice or group does not exceed 25%,
(v)the physician practice or group to be acquired will not represent
more than 33% of the pro forma consolidated revenues of the Company,
(w)the purchase price is not more than seven (7) times greater than any
first year management fees reasonably projected to be paid by the
physician practice to the Company or any of its Subsidiaries,
(x) the sole consideration for such purchase is (1) the issuance of
Common Stock and/or a seller note that is subordinate to the
Obligations on terms and conditions satisfactory to the Lenders and/or
(2) cash on hand of the Company, provided that the aggregate amount of
cash on hand used in such acquisitions shall not exceed $3,000,000 in
any Fiscal Year,
(y)the Service Agreement and other agreements executed in connection
with such acquisition contain terms that are substantially similar
(except for price and payment terms) to the terms of acquisitions made
by the Company through the Closing Date, and
(z)the Company shall provide to the Agent a certificate immediately
prior to such Acquisition demonstrating to the Agent's reasonable
satisfactions that both before and after giving effect to such
acquisition no Default will have occurred and be continuing,
or (ii) Acquisitions approved by the Required Lenders in their sole good faith
discretion. Without limiting the generality of the foregoing, the Company will
not, and will not permit any Subsidiary to, (i) acquire or create any Subsidiary
without the consent of the Required Lenders (except that such consent shall not
be required to create a corporate subsidiary that is wholly owned by the Company
and that is formed solely for the purpose of an acquisition permitted pursuant
to the preceding sentence) and arrangements satisfactory to the Required Lenders
for (w) a pledge of the stock of such Subsidiary to the Agent for the benefit of
the Lenders, (x) such Subsidiary to execute a joinder to the Subsidiary Guaranty
Agreement, (y) such Subsidiary to execute a joinder to the Subsidiary Security
Agreement and all financing statements and other documents and instruments
required thereunder, and (z) cause each professional association party to a
Service Agreement with such Subsidiary to execute a Professional Service
Provider Security Agreement and all financing statements, documents and
instruments required in connection therewith, or (ii) engage in any joint
venture or partnership with any other Person.
SECTION 6.08. Transactions with Affiliates. The Company will not, and will not
permit any
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Subsidiary to, directly or indirectly, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate of the Company, on terms that
are less favorable to the Company or such Subsidiary, as the case may be, than
those which might be obtained at the time from a Person who is not an Affiliate
of the Company.
SECTION 6.09. Amendments or Waivers. Without the prior written consent of the
Required Lenders, the Company will not, nor will it permit any Subsidiary to,
agree to (i) any amendment to or waiver of or in respect of the certificate of
incorporation or Bylaws of the Company or any Financing Document or (ii) any
other material amendment to or waiver of any material contract constituting a
part of the Collateral.
SECTION 6.10. Fiscal Year. The Company shall not change its fiscal year from a
fiscal year ending December 31.
SECTION 6.11. Management Compensation. The Company shall not, and shall not
permit any Subsidiary to, directly or indirectly, pay or become obligated to
pay, any compensation for services in any form to or for the account of any
Person listed on Schedule 4.16, except as expressly provided in the Employment
Contracts. In addition to the foregoing, the aggregate amount of bonuses paid to
such Persons in any Fiscal Year shall not exceed $1,000,000 and the aggregate
outstanding amount of any deferred compensation payable to any such Person or
any other employee shall not at any time exceed $500,000. The limitation set
forth in the preceding sentence shall not apply to payments in the form of stock
or stock options.
SECTION 6.12. Interest Coverage. The Company shall not permit the ratio,
calculated on the last day of any fiscal quarter for the number of consecutive
fiscal quarters then most recently ended since the Closing Date (considered as a
single account period, but not to exceed four quarters), of (i) Consolidated
Free Cash Flow to (ii) Total Interest Expense to be less than the ratio set
forth below opposite the period in which such last day shall fall:
PeriodRatio
from the Closing Date through1.75
and including June 30, 1997
July 1, 1997 through and including2.00
June 30, 1999
July 1, 1999 and thereafter2.25
SECTION 6.13. Capital Expenditures. The aggregate amount of Consolidated Capital
Expenditures
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for any period of four consecutive fiscal quarters shall not exceed 1.5% of net
revenues for such period through and including March 31, 1998, and thereafter
0.50% of such net revenues. Any amounts permitted to be spent for Capital
Expenditures for any such period in excess of the amounts actually expended
during such period may be carried forward to the next period of four fiscal
quarters as permitted Capital Expenditures during such period.
SECTION 6.14. Total Debt Service Coverage Ratio. The Company shall not permit
the ratio, calculated on the last day of any fiscal quarter for the number of
consecutive fiscal quarters then most recently ended since the Closing Date
(considered as a single account period, but not to exceed four quarters), of (i)
Consolidated Free Cash Flow to (ii) Total Debt Service, to be less than
1.20:1.00.
SECTION 6.15. Debt to Capitalization. At no time while this Agreement is in
effect or there are any obligations of the Company or any of its Subsidiaries to
the Lenders outstanding shall the ratio of (i) Consolidated Total Debt at such
time to (ii) Consolidated Capitalization exceed 70%.
SECTION 6.16. Senior Debt to EBITDA. At no time while this Agreement is in
effect or there are any obligations of the Company or any of its Subsidiaries to
the Lenders outstanding shall the ratio of (i) Consolidated Senior Debt at such
time to (ii) EBITDA for the four consecutive fiscal quarters then most recently
ended (considered as a single accounting period), exceed the ratio 3.50:1.00.
SECTION 6.17. [Reserved]
SECTION 6.18. Minimum Net Worth. At no time shall Consolidated Net Worth be less
than the sum of:
(i)$3,300,000, plus
(ii)75% of the positive amount of Consolidated Net Income for
each fiscal period ended after the Closing Date, plus
(iii)100% of the Net Proceeds of Capital Stock received
following the Agreement Date.
SECTION 6.19. Transition Rules. Except as otherwise specifically provided
herein, in calculating compliance with the financial covenants for the period
from the Closing Date through the first anniversary thereof, compliance will be
measured from the Closing Date to the date that such compliance shall be
required to be measured. For any test that requires measurement over an entire
year, results for the period from the Closing Date through such date shall be
annualized. In delivering pro forma covenant calculations for or including any
entity that is the target of an
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acquisition (whether such information is required pursuant to Section 3.02,
Section 6.04 or Section 6.07 or otherwise) or when including an acquisition
target that has not been under management by the Company or one of its
Subsidiaries for an entire fiscal quarter in calculating financial covenant
compliance, the Company shall use the actual EBITDA for the target over the
relevant period, as if such target had been a Subsidiary of the Company during
such period. To the extent such target has been under management by the Company
or one of its Subsidiaries for one or more entire fiscal quarters but less than
one year, the Company shall calculate EBITDA and net revenues with respect to
the target based on the annualized actual performance of the target during the
most recently ended number of complete quarters that such target has been under
management of the Company or one of its Subsidiaries. For the purposes of
calculating compliance with Sections 6.14, 6.15 and 6.16, Existing Additional
Acquisition Liabilities shall be excluded from:
(i)in the case of Section 6.14, Total Debt Service,
(ii)in the case of Section 6.15, Consolidated Total Debt and
Consolidated Total Capitalization (to the extent that such
amounts would otherwise be included in Consolidated Total
Debt), and
(iii)in the case of Section 6.16, Consolidated Senior Debt.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default. If any one or more of the following events
(each an "Event of Default") shall occur and be continuing for any reason
whatsoever (whether voluntary or involuntary, by operation of law or otherwise):
(a)the Company shall fail to pay any principal amount due hereunder
when due, or shall fail to pay any interest or premium on any Note, or
any fees or any other amount payable hereunder within 3 days following
the due date therefor;
(b)the Company shall fail to observe or perform any covenant contained
in Section 5.13 or Article VI hereof, or Section 3(B) of the Pledge
Agreement or the Company, or any of its Subsidiaries shall fail to
perform or observe any covenant contained in Section 5 or Sections
4(A), (E) or (I) of the Security Agreements;
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(c)the Company or any of its Subsidiaries shall fail to observe or
perform any covenant or agreement contained in the Financing Documents
(other than those covered by clause (a) or (b) above) for 30 days after
notice thereof has been given to the Company by the Agent;
(d)any representation, warranty, certification or statement made by the
Company or any of its Subsidiaries in any Financing Document or in any
certificate, financial statement or other document delivered pursuant
to the Financing Documents shall prove to have been incorrect in any
respect (or in any material respect if such representation, warranty,
certification or statement is not by its terms already qualified as to
materiality) when made (or deemed made);
(e)the Company or any of its Subsidiaries shall fail to make any
payment in respect of any Debt (other than the Notes) the aggregate
outstanding principal amount of which Debt, either singly or when
aggregated with all other Debt with respect to which the Company or any
of its Subsidiaries has failed to make a payment equals or exceeds
$100,000 (such Debt, hereinafter "Material Debt");
(f)any event or condition shall occur which (i) results in the
acceleration of the maturity of any Material Debt of the Company or any
of its Subsidiaries, or (ii) enables (or, with the giving of notice or
lapse of time or both, would enable) the holder of such Debt or any
Person acting on such holder's behalf to accelerate the maturity
thereof, or (iii) results in a violation of, or a default under, any
provision of the certificate of incorporation of the Company;
(g)Company or any of its Subsidiaries shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidation, custodian or other similar
official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as
they become due, or shall take any corporate action to authorize any of
the foregoing;
(h)an involuntary case or other proceeding shall be commenced against
the Company or any of its Subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 90 days; or an order
for relief shall be entered against the Company or any of its
Subsidiaries under the federal bankruptcy laws
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as now or hereafter in effect;
(i)any one or more members of the ERISA Group shall fail to pay when
due an amount or amounts aggregating in excess of $100,000 which it
shall have become liable to pay under Title IV of ERISA; or notice of
intent to terminate a Material Plan shall be filed under Title IV of
ERISA by any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within
the meaning of Section 4219(c)(5) of ERISA, with respect to, one or
more Multiemployer Plans which could cause one or more members of the
ERISA Group to incur a current payment obligation in excess of
$100,000;
(j)a judgment or order for the payment of money which when aggregated
with other such judgments or orders equals or exceeds $100,000, shall
be rendered against, the Company or any of its Subsidiaries and such
judgment or order shall continue unsatisfied and unstayed for a period
of 10 days or any judgment shall be rendered against the Company or any
Subsidiary that exceeds by more than $2,000,000 any insurance coverage
applicable thereto;
(k)except as the result of any transfer made pursuant to the Pledge
Agreement, the Company shall fail at any time to be the record and
beneficial owner of 100% of the issued and outstanding capital stock
any Subsidiary, free and clear of any Lien other than inchoate tax
Liens and Liens in favor of the Agent and the Lenders; any person or
group of persons (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchanges Commission under the Securities Exchange Act
of 1934, as amended), other than the current owners, other employees
and other than doctors who acquire Common Stock as consideration for
acquisitions, shall have acquired beneficial ownership (within the
meaning of such Rule 13d-3) of 5% or more of the Common Stock of the
Company; or both Wayne Posey and Richard D'Antoni shall cease to
perform the functions of Chief Executive Officer and Chief Operating
Officer, respectively, of the Company and a successor shall not have
been appointed by the Company and approved by the Required Lenders
within 90 days thereafter; or the Persons listed on Schedule 7.01(k),
in the aggregate, shall cease to own beneficially at least 51% of the
shares (determined assuming the exercise of all options or warrants to
purchase Common Stock and adjusted for stock splits, combinations and
similar events) of each class of Common Stock; or, during any period of
twelve consecutive calendar months, individuals who were directors of
the Company on the first day of such period shall cease to constitute a
majority of the board of directors of the Company;
(l)(i) the auditor's report or reports on the audited statements
delivered pursuant to Section
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5.01 shall include any material qualification (including with respect
to the scope of audit) or exception, or (ii) the Company shall fail to
deliver to the Agent on or prior to July 30, 1996, either (A)
consolidated financial statements for the Company for the fiscal period
ended June 30,1996, with an audit report thereon without qualification
as to opinion or scope of review by Arthur Andersen & Co. or other
nationally recognized accounting firm, or (B) a financial due diligence
review performed by such accountants, in each case (A) or (B), which
financial statements, audit, report and/or due diligence review
(including the results thereof) shall be satisfactory to the Agent and
the Lenders in their sole good faith discretion;
(m)the Lien created by any of the Security Documents shall at any time
fail to constitute a valid and perfected Lien on any portion of the
Collateral purported to be secured thereby which is deemed material by
the Agent, subject to no prior or equal Lien except Permitted Liens, or
the Company or any of its Subsidiaries shall so assert in writing;
(n)the Company or any of its Subsidiaries shall be prohibited or
otherwise materially restrained from conducting the business
theretofore conducted by it by virtue of any determination, ruling,
decision, decree or order of any court or governmental authority of
competent jurisdiction and such determination, ruling, decision, decree
or order remains unstayed and in effect for any period of 10 days
beyond any period for which any business interruption insurance policy
of the Company and its Subsidiary shall provide full coverage to the
such person of any losses and lost profits; or
(o)any of the Financing Documents shall for any reason fail to
constitute the valid and binding agreement of any party thereto to the
extent described in Section 4.03, or any such party shall so assert in
writing;
then, and in every such event and at any time thereafter during the continuance
of such event, the Agent shall if requested by the Required Lenders, (i) by
notice to the Company terminate the Commitments and they shall thereupon
terminate and/or (ii) by notice to the Company declare the Note (together with
accrued interest thereon) to be, and the Note shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company; provided that in the
case of any of the Events of Default specified in clause (g) or (h) above with
respect to the Company, without any notice to the Company or any other act by
the Agent or the Lenders, the Commitments shall thereupon terminate and the Note
(together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Company.
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ARTICLE VIII
FEES, EXPENSES AND INDEMNITIES;
GENERAL PROVISIONS RELATING TO PAYMENTS
SECTION 8.01. Fees. (a) Participation Fees. On the earlier of: (i) the Closing
Date and (ii) July 15, 1996, the Company shall pay to each Lender a fee in an
amount equal to 2.0% of the sum of such Lender's Revolving Credit Commitment.
Such fee shall be fully earned and nonrefundable on the date of the execution
hereof, whether or not any funding hereunder shall occur.
(b)Unused Commitment Fee. During the period from the Agreement Date through the
Availability Termination Date, the Company shall pay to each Lender a fee at the
rate of 1/2 of 1% per annum on the daily average amount by which the amount of
such Lender's Revolving Credit Commitment exceeds the aggregate outstanding
principal amount of its Loans. Accrued fees under this Section shall be payable
quarterly in arrears on each Quarterly Date prior to the Availability
Termination Date and on such date.
SECTION 8.02. Computation of Interest and Fees. Commitment fees pursuant to
Section 8.01(b) and all interest hereunder and under the Notes shall be
calculated on the basis of a 360-day year for the actual number of days elapsed.
SECTION 8.03. General Provisions Regarding Payments. All payments (including
prepayments) to be made by the Company under any Financing Document, including
payments of principal of and premium and interest on the Notes, fees, expenses
and indemnities, shall be made without set-off or counterclaim and in
immediately available funds. If any payment hereunder becomes due and payable on
a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension. The
Company shall make all payments in immediately available funds to each Lender's
Payment Account before 11:00 A.M. (New York City time) on the date when due.
Each payment (including prepayments) by the Company on account of principal of
and interest on any Loans shall be made pro rata according to the respective
outstanding principal amounts of Loans held by each Lender. All amounts payable
by the Company hereunder or under any other Financing Document not paid within 5
days of the date when due (other than payments of principal and interest on the
Notes, which shall bear interest as set forth therein) shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the
Default Rate.
SECTION 8.04. Expenses. Whether or not the transactions contemplated hereby
shall be consummated, the Company agrees to pay on demand (i) all costs and
expenses of preparation of this Agreement, the other Financing Documents and of
the Company's performance of and compliance with all agreements and conditions
contained herein and therein, (ii) the fees, expenses and disbursements of
counsel to, and independent appraisers and consultants retained by, the
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Lenders in connection with the negotiation, preparation, execution and
administration of this Agreement, the other Financing Documents and any
amendments hereto or thereto and waivers hereof and thereof, (iii) all
reasonable costs and expenses of creating, perfecting and/or maintaining the
Liens pursuant to the Financing Documents, including filing and recording fees
and expenses, the costs of any bonds required to be posted in respect of future
filing and recording fees and expenses, title investigations and fees and
expenses of such local counsel as the Agent shall request (iv) the fees,
expenses and disbursements of independent accountants or other experts retained
by the Agent in connection with accounting and collateral audits or reviews of
the Company, its Subsidiaries and its and their affairs, provided that, in the
absence of the occurrence and continuance of an Event of Default such audits
and/or reviews shall be limited to one per year (it being expressly agreed that
audits and/or reviews conducted during an Event of Default shall not be limited)
and (v) if an Event of Default occurs, all out-of-pocket expenses incurred by
the Agent and each Lender, including fees and disbursements of counsel based
upon time spent), in connection with such Event of Default and collection,
bankruptcy, insolvency and other enforcement proceedings resulting therefrom.
Notwithstanding the foregoing, the fees, expenses and disbursements of
accountants, appraisers, attorney's and consultants, and the costs of lien and
title searches, in each case, to the extent (but only to the extent) incurred in
connection with the initial funding of the Loan, shall not exceed $40,000.
SECTION 8.05. Indemnity. Whether or not the transactions contemplated hereby
shall be consummated, the Company agrees to indemnify, pay and hold harmless the
Agent and each Lender and any subsequent holder of any of the Notes, and the
officers, directors, employees and agents of the Agent, each Lender and such
holders (collectively called the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including the fees and disbursements of counsel for such Indemnitee) in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitee shall be designated a party thereto and including
any such proceeding initiated by or on behalf of the Company or any Subsidiary,
and the expenses of investigation by engineers, environmental consultants and
similar technical personnel and any commission, fee or compensation claimed by
any broker (other than any broker retained by NationsCredit) asserting any right
to payment for the transactions contemplated hereby, which may be imposed on,
incurred by or asserted against such Indemnitee as a result of or in connection
with the transactions contemplated hereby or by the other Financing Documents
(including (i)(A) as a direct or indirect result of the presence on or under, or
escape, seepage, leakage, spillage, discharge, emission or release from, any
property now or previously owned, leased or operated by the Company or any of
its Subsidiaries of any Hazardous Materials or any Hazardous Materials
Contamination, (B) arising out of or relating to the offsite disposal of any
materials generated or present on any such property or (C) arising out of or
resulting from the environmental condition of any such property or the
applicability of any governmental requirements relating to Hazardous Materials,
whether or not occasioned wholly or in part by any condition, accident or event
caused by any act or omission of the Company or any of its Subsidiaries, and
(ii) proposed and actual
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extensions of credit under this Agreement) and the use or intended use of the
proceeds of the Notes, except that the Company shall have no obligation
hereunder to an Indemnitee with respect to any liability resulting from the
gross negligence or willful misconduct of such Indemnitee. To the extent that
the undertaking set forth in the immediately preceding sentence may be
unenforceable, the Company shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all such indemnified liabilities incurred by the Indemnitees or
any of them. Without limiting the generality of any provision of this Section,
to the fullest extent permitted by law, the Company hereby waives all rights for
contribution or any other rights of recovery with respect to liabilities,
losses, damages, costs and expenses arising under or relating to Environmental
Laws that it might have by statute or otherwise against any Indemnitee; except
to the extent that any thereof are finally determined by a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
SECTION 8.06. Taxes. The Company agrees to pay all governmental assessments,
charges or taxes (except income or other similar taxes imposed on any Lender or
any holder of a Note), including any interest or penalties thereon, at any time
payable or ruled to be payable in respect of the existence, execution or
delivery of this Agreement, the other Financing Documents, or the issuance of
the Notes, and to indemnify and hold each Lender and each and every holder of
the Notes harmless against liability in connection with any such assessments,
charges or taxes.
SECTION 8.07. Funding Losses. If the Company fails to borrow any Loans after
notice has been given to any Lender in accordance with Section 2.04 or make any
payment when due (including pursuant to a notice of optional prepayment), the
Company shall reimburse each Lender within 15 days after demand for any
resulting loss or expense incurred by it (or by an existing or prospective
participant in the related Loan), including any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after any such payment or failure to borrow; provided that
such Lender shall have delivered to the Company a certificate calculating in
reasonable detail the amount of such loss or expense, which certificate shall be
conclusive in the absence of manifest error.
SECTION 8.08. Maximum Interest. (a) In no event shall the interest charged with
respect to the Note or any other obligations of the Company or any Subsidiary
under the Financing Documents exceed the maximum amount permitted under the laws
of the State of Georgia or of any other applicable jurisdiction.
(b)Notwithstanding anything to the contrary herein or elsewhere, if at any time
the rate of interest payable for the account of any Lender hereunder or under
the Note or other Financing Document (the "Stated Rate") would exceed the
highest rate of interest permitted under any applicable law to be charged by
such Lender (the "Maximum Lawful Rate"), then for so long as the Maximum Lawful
Rate would be so exceeded, the rate of interest payable for the account of such
Lender shall be equal to the Maximum Lawful Rate; provided, that if at any time
thereafter the Stated Rate is less
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than the Maximum Lawful Rate, the Company shall, to the extent permitted by law,
continue to pay interest for the account of such Lender at the Maximum Lawful
Rate until such time as the total interest received by such Lender is equal to
the total interest which such Lender would have received had the Stated Rate
been (but for the operation of this provision) the interest rate payable.
Thereafter, the interest rate payable for the account of such Lender shall be
the Stated Rate unless and until the Stated Rate again would exceed the Maximum
Lawful Rate, in which event this provision shall again apply.
(c)In no event shall the total interest received by any Lender exceed the amount
which such Lender could lawfully have received had the interest been calculated
for the full term hereof at the Maximum Lawful Rate with respect to such Lender.
(d)In computing interest payable with reference to the Maximum Lawful Rate
applicable to any Lender, such interest shall be calculated at a daily rate
equal to the Maximum Lawful Rate divided by the number of days in the year in
which such calculation is made.
(e)If any Lender has received interest hereunder in excess of the Maximum Lawful
Rate with respect to such Lender, such excess amount shall be applied to the
reduction of the principal balance of its Loans or to other amounts (other than
interest) payable hereunder, and if no such principal or other amounts are then
outstanding, such excess or part thereof remaining shall be paid to the Company.
ARTICLE IX
THE AGENT
SECTION 9.01. Appointment and Authorization. Each Lender irrevocably appoints
and authorizes the Agent to enter into each of the Security Documents on its
behalf and to take such action as agent on its behalf and to exercise such
powers under the Financing Documents as are delegated to the Agent by the terms
thereof, together with all such powers as are reasonably incidental thereto.
SECTION 9.02. Agent and Affiliates. NationsCredit shall have the same rights and
powers under the Financing Documents as any other Lender and may exercise or
refrain from exercising the same as though it were not the Agent, and
NationsCredit and its affiliates may lend money to and generally engage in any
kind of business with the Company or any Subsidiary or affiliate of the Company
as if it were not the Agent hereunder.
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SECTION 9.03. Action by Agent. The obligations of the Agent hereunder are only
those expressly set forth herein and under the other Financing Documents.
Without limiting the generality of the foregoing, the Agent shall not be
required to take any action with respect to any Default, except as expressly
provided in Article VII.
SECTION 9.04. Consultation with Experts. The Agent may consult with legal
counsel (who may be counsel for the Company), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
SECTION 9.05. Liability of Agent. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or not taken
by it in connection with the Financing Documents (i) with the consent or at the
request of the Required Lenders or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any statement, warranty or representation
made in connection with any Financing Document or any borrowing hereunder; (ii)
the performance or observance of any of the covenants or agreements of the
Company; (iii) the satisfaction of any condition specified in Article III,
except receipt of items required to be delivered to the Agent; or (iv) the
validity, effectiveness, sufficiency or genuineness of any Financing Document or
any other instrument or writing furnished in connection therewith. The Agent
shall not incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex,
facsimile transmission or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
SECTION 9.06. Indemnification. Each Lender shall, ratably in accordance with its
Revolving Credit Commitment (whether or not the Revolving Credit Commitments
have been terminated), indemnify the Agent (to the extent not reimbursed by the
Company) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from the Agent's
gross negligence or willful misconduct) that the Agent may suffer or incur in
connection with the Financing Documents or any action taken or omitted by the
Agent hereunder or thereunder.
SECTION 9.07. Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under the Financing Documents.
SECTION 9.08. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Company. Upon any such
resignation, the Required Lenders shall have the
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right to appoint a successor Agent which, absent the occurrence and continuance
of a Default, must be reasonably acceptable to the Company. If no successor
Agent shall have been so appointed by the Required Lenders, and shall have
accepted such appointment, within 30 days after the retiring Agent gives notice
of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be an institution organized or licensed under the
laws of the United States of America or of any State thereof. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Survival. All agreements, representations and warranties made
herein shall survive the execution and delivery of this Agreement and the other
Financing Documents and the execution, sale and delivery of the Notes. The
indemnities and agreements set forth in Articles VIII and IX shall survive the
payment of the Notes and the termination of this Agreement.
SECTION 10.02. No Waivers. No failure or delay by the Agent or any Lender in
exercising any right, power or privilege under any Financing Document shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein and therein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 10.03. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including prepaid overnight courier, telex,
facsimile transmission or similar writing) and shall be given to such party at
its address or telecopy or telex number set forth on the signature pages hereof
(or, in the case of any such Lender who becomes a Lender after the date hereof,
in a notice delivered to the Company and the Agent by the assignee Lender
forthwith upon such assignment) or at such other address or telecopy or telex
number as such party may hereafter specify for the purpose by notice to the
Agent and the Company. Each such notice, request or other communication shall be
effective (i) if given by telex or telecopy, when such telex or telecopy is
transmitted to the telex or telecopy number specified in this Section and the
appropriate answerback is received (in the case of telex) or telephonic
confirmation of receipt thereof is obtained (in the case of telecopy) or (ii) if
given by mail, prepaid overnight courier or any other means, when received at
the address specified in this Section or when delivery at such address is
refused.
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SECTION 10.04. Severability. In case any provision of or obligation under this
Agreement or the Notes or any other Financing Document shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality and enforceability
of the remaining provisions or obligations, or of such provision or obligation
in any other jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 10.05. Amendments and Waivers. Any provision of this Agreement or the
Notes may be amended or waived if, but only if, such amendment or waiver is in
writing and is signed by the Company and the Required Lenders (and, if the
rights or duties of the Agent are affected thereby, by the Agent); provided that
no such amendment or waiver shall, unless signed by all the Lenders, (i)
increase or decrease any Revolving Credit Commitment of any Lender (except for a
ratable decrease in the Revolving Credit Commitments of all Lenders) or subject
any Lender to any additional obligation, (ii) reduce the principal of or rate of
interest on any Loan or fees hereunder, (iii) postpone the date fixed for any
payment of principal of any Loan, or of interest on any Loan or any fees
hereunder or for any termination of any Commitment or (iv) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the Notes
which shall be required for the Lenders or any of them to take any action under
this Section or any other provision of this Agreement.
SECTION 10.06. Successors and Assigns; Registration. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns (including any transferee of any
Note), except that the Company may not assign or otherwise transfer any of its
rights under this Agreement without the prior written consent of all Lenders.
(b)The terms and provisions of this Agreement shall inure to the benefit of any
transferee or assignee of any Note to which the Company, in the absence of the
occurrence and continuance of an Event of Default (in which case no consent
shall be required), shall have consented (such consent not to be unreasonably
withheld) and, in the event of such transfer or assignment, the rights and
privileges herein conferred upon the assigning Lender shall automatically extend
to and be vested in such transferee or assignee, all subject to the terms and
conditions hereof. Any assignment shall be for an equal percentage of such
assignor Lender's Loans and its Revolving Credit Commitment, and any such
assignee Lender shall, upon its registration in the Note Register referred to
below, become a "Lender" for all purposes hereunder. Upon any such assignment,
the assignor Lender shall be released from its Revolving Credit Commitment to
the extent assigned to and assumed by the assignee Lender. Notwithstanding the
foregoing, in the absence of the occurrence and continuance of an Event of
Default, NationsCredit covenants for the benefit of the Company that it will not
assign its Revolving Credit Commitment below $15,000,000 except that
NationsCredit retains the unrestricted right to transfer, sell or assign any or
all of its interest and obligations in the Revolving Credit Commitment and the
Obligations without respect to this sentence in the following cases: the
transfer, sale or assignment to any Affiliate of NationsCredit, (ii) any
transfer, sale or assignment to any Person to the extent required to comply with
any order, directive or request from any
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regulating authority, or (iii) any transfer, sale or assignment to any Person in
connection with the sale by NationsCredit of all or any substantial portion of
its corporate finance portfolio.
(c)Upon any assignment of any Note(s), the assigning Lender shall surrender its
Note(s) to the Company for exchange or registration of transfer, and the Company
will promptly execute and deliver in exchange therefor a new Note or Note(s) of
the same tenor and registered in the name of the assignor Lender (if less than
all of such Lender's Notes are assigned) and the name of the assignee Lender.
(d)The Company shall maintain a register (the "Note Register") of the Lenders
and all assignee Lenders that are the holders of all the Notes issued pursuant
to this Agreement. The Company will allow any Lender to inspect and copy such
list at the Company's principal place of business during normal business hours.
Prior to the due presentment for registration of transfer of any Note, the
Company may deem and treat the Person in whose name a Note is registered as the
absolute owner of such Note for the purpose of receiving payment of principal of
and premium and interest on such Note and for all other purposes whatsoever, and
the Company shall not be affected by notice to the contrary.
(e)Each Lender (including any assignee Lender at the time of such assignment)
represents that it (i) is acquiring its Note solely for investment purposes and
not with a view toward, or for sale in connection with, any distribution
thereof, (ii) has received and reviewed such information as it deems necessary
to evaluate the merits and risks of its investment in the Note, (iii) is an
"accredited investor" within the meaning of Rule 501(a) under the Securities Act
and (iv) has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its investment in the Note,
including a complete loss of its investment.
(f)Each Lender understands that the Note is being offered only in a transaction
not involving any public offering within the meaning of the Securities Act, and
that, if in the future such Lender decides to resell, pledge or otherwise
transfer the Note, the Note may be resold, pledged or transferred only (i) to
the Company, (ii) to a person who such Lender reasonably believes is a qualified
institutional buyer that purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that such resale, pledge
or transfer is being made in reliance on Rule 144A under the Securities Act or
(iii) pursuant to an exemption from registration under the Securities Act.
(g)Each Lender understands that the Note will, unless otherwise agreed by the
Company and the holder thereof, bear a legend to the following effect:
THIS SECURITY IS NOT BEING REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT
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<PAGE>
THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)
TO THE COMPANY, (2) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER THAT IS AWARE THAT THE RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (3) PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.
(h)If the Note becomes mutilated and is surrendered by the Lender with respect
thereto to the Company, or if any Lender claims that its Note has been lost,
destroyed or wrongfully taken, the Company shall execute and deliver to such
Lender a replacement Note, upon the affidavit of such Lender attesting to such
loss, destruction or wrongful taking with respect to such Note and such lost,
destroyed, mutilated, surrendered or wrongfully taken Note shall be deemed to be
canceled for all purposes hereof. Such affidavit shall be accepted as
satisfactory evidence of the loss, wrongful taking or destruction thereof and no
indemnity shall be required as a condition of the execution and delivery of a
replacement Note. Any costs and expenses of the Company in replacing any such
Note shall be for the account of such Lender.
SECTION 10.07. Collateral. Each of the Lenders represents to the Agent and each
of the other Lenders that it in good faith is not relying upon any Margin Stock
as collateral in the extension or maintenance of the credit provided for in this
Agreement.
SECTION 10.08. Headings. Headings and captions used in the Financing Documents
(including the Exhibits and Schedules hereto and thereto) are included herein
and therein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose or be given any substantive effect.
SECTION 10.09. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT AND
EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF GEORGIA. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF
THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA AND OF ANY
GEORGIA COURT SITTING IN THE CITY OF ATLANTA, GEORGIA FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH OF THE PARTIES HERETO IRREVOCABLY
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CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION
10.03. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS
AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 10.10. Notice of Breach by Agent or Lender. The Company agrees to give
the Agent and the Lenders notice of any action or inaction by the Agent or any
Lender or any agent or attorney of the Agent or any Lender in connection with
this Agreement or any other Financing Document or the obligations of the Company
under this Agreement or any other Financing Document that may be actionable
against the Agent or any Lender or any agent or attorney of the Agent or any
Lender or a defense to payment of any obligations of the Company under this
Agreement or any other Financing Document for any reason, including commission
of a tort or violation of any contractual duty or duty implied by law. The
Company agrees, to the fullest extent that it may lawfully do so, that unless
such notice is given promptly (and in any event within ten (10) days after the
Company has knowledge, or with the exercise of reasonable diligence could have
had knowledge, of any such action or inaction), the Company shall not assert,
and the Company shall be deemed to have waived, any claim or defense arising
therefrom to the extent that the Agent or any Lender could have mitigated such
claim or defense after receipt of such notice.
SECTION 10.11. WAIVER OF JURY TRIAL. THE COMPANY, THE AGENT AND THE LENDERS
HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY AND TO THE FULLEST EXTENT PERMITTED BY LAW
WAIVES ANY RIGHTS THAT IT MAY HAVE TO CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL
DAMAGES IN CONNECTION WITH ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
SECTION 10.12. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement and
the other Financing Documents constitute the entire agreement and understanding
among the parties hereto and supersede any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
BORROWER:
PROMEDCO, INC.
By:
Name:
Title:
LENDERS:
NATIONSCREDIT COMMERCIAL
CORPORATION
By:
Name:
Title:
AGENT:
NATIONSCREDIT COMMERCIAL
CORPORATION
By:
Name:
Title:
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