<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 29, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PHYSICIANS' SPECIALTY CORP.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8011 582251438
(State or other (Primary standard industrial (I.R.S. employer
jurisdiction of incorporation) classification code number) identification number)
</TABLE>
THE MEDICAL QUARTERS
5555 PEACHTREE DUNWOODY ROAD, SUITE 235
ATLANTA, GEORGIA 30342
(404) 256-7535
(Address and telephone number of Registrant's principal executive offices)
---------------------
RAMIE A. TRITT, M.D.
CHAIRMAN AND PRESIDENT
PHYSICIANS' SPECIALTY CORP.
5555 PEACHTREE DUNWOODY ROAD, SUITE 235
ATLANTA, GEORGIA 30342
(404) 256-7535
(Name, address and telephone number of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
JILL COHEN, ESQ. THOMAS CONSTANCE, ESQ.
BACHNER, TALLY, POLEVOY & MISHER LLP KRAMER, LEVIN, NAFTALIS & FRANKEL
380 MADISON AVENUE 919 THIRD AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
(212) 687-7000 (212) 715-9100
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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, please check the following box. [X]
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
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value(2).............. 2,300,000 $10.50 $24,150,000 $7,318
- ------------------------------------------------------------------------------------------------------------------
Underwriters' Warrants(3)..................... 200,000 .001 200 --
- ------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value(4)(5)........... 200,000 12.60 2,520,000 764
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Total............................... $26,670,200 $8,082
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933, as amended.
(2) Includes 300,000 shares that may be purchased by the Underwriters from the
Company to cover over-allotments, if any.
(3) Warrants to be granted to the Underwriters (the "Underwriters' Warrants").
(4) Issuable upon exercise of the Underwriters' Warrants.
(5) Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock as may become issuable pursuant to anti-dilution provisions
of the Underwriters' Warrants.
---------------------
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.
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<PAGE> 2
PHYSICIANS' SPECIALTY CORP.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors; Financial
Statements
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution................................... Risk Factors; Dilution
7. Selling Security Holders................... *
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Outside Front Cover Page; Description of
Capital Stock
10. Interests of Named Experts and Counsel..... *
11. Information With Respect to the
Registrant............................... Prospectus Summary; Risk Factors; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Description of
Capital Stock; Shares Eligible for Future
Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
- ---------------
* Not applicable.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 29, 1996
PROSPECTUS
2,000,000 SHARES
[LOGO]
PHYSICIANS' SPECIALTY CORP.
COMMON STOCK
---------------------
Physicians' Specialty Corp. (the "Company") hereby offers 2,000,000 shares
of Common Stock, par value $.001 per share (the "Common Stock"), of the Company.
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock. The Company intends to make an application for quotation of the
Common Stock on the Nasdaq National Market under the symbol "ENTS." See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price.
---------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 9.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING DISCOUNTS COMPANY(2)
AND COMMISSIONS(1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
- ----------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $
- ----------------------------------------------------------------------------------------------------
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</TABLE>
(1) Does not include additional compensation to be received by the Underwriters
including (i) a non-accountable expense allowance of $
($ if the Over-Allotment Option (as defined below) is exercised in
full) and (ii) warrants to purchase 200,000 shares of Common Stock at a
price of $ per share (the "Underwriters' Warrants"). The Company
has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company (including
the Underwriters' non-accountable expense allowance) estimated at
$ ($ if the Over-Allotment Option is exercised in full).
(3) The Company has granted the Underwriters a 45-day option to purchase up to
300,000 additional shares of Common Stock on the same terms and conditions
as set forth herein, solely to cover over-allotments, if any (the
"Over-Allotment Option"). If the Over-Allotment Option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
---------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE OFFERED, SUBJECT TO PRIOR
SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS, AND SUBJECT
TO THE APPROVAL OF CERTAIN LEGAL MATTERS BY THEIR COUNSEL AND TO CERTAIN OTHER
CONDITIONS. THE UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY
THIS OFFERING AND TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT
DELIVERY OF THE CERTIFICATES REPRESENTING THE COMMON STOCK WILL BE MADE AT THE
OFFICES OF BARINGTON CAPITAL GROUP, L.P., 888 SEVENTH AVENUE, NEW YORK, NEW YORK
10019 ON OR ABOUT , 1997.
---------------------
BARINGTON CAPITAL GROUP, L.P.
The date of this Prospectus is , 1997
<PAGE> 4
THE MAP DEPICTS THE ATLANTA METROPOLITAN AREA
AND THE LOCATION OF THE CLINICAL OFFICES OF
ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C.,
AND INDEPENDENT PHYSICIANS PROVIDING ENT
MEDICAL AND SURGICAL SERVICES UNDER THE
ENT NETWORKS' MANAGED CARE CONTRACTS
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
2
<PAGE> 5
As used in this Prospectus, unless the context otherwise requires, the
"Company" refers to (i) Physicians' Specialty Corp., a Delaware corporation and
its wholly-owned subsidiaries, PSC Management Corp. ("PSC Management") and PSC
Acquisition Corp. ("PSC Acquisition"), (ii) the Founding Practice (as defined)
and (iii) the ENT Networks (as defined). See "The Reorganization." Unless
otherwise indicated, the information in this Prospectus (i) assumes no exercise
of the Over-Allotment Option or the Underwriters' Warrants, (ii) gives effect to
a .6875 for 1 reverse stock split effected in November 1996, and (iii) gives
effect to the completion of the Reorganization (as defined) upon the closing of
the Offering. The consummation of the Offering is conditioned upon the
simultaneous closing of the Reorganization. Investors should carefully consider
the information set forth under the heading "Risk Factors."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus and accordingly, should be read in conjunction with such
information, financial statements and notes thereto. Each prospective investor
is urged to read this Prospectus in its entirety.
THE COMPANY
Physicians' Specialty Corp. was recently organized to provide physician
practice management services to medical groups specializing in disorders and
diseases of the ear, nose and throat ("ENT"). Concurrently with the closing of
this Offering, the Company will acquire substantially all of the assets of
Atlanta Ear, Nose & Throat Associates, P.C. (the "Founding Practice"), the
largest ENT group practice in the State of Georgia, and the common stock of
three corporations (collectively, the "ENT Networks") which hold, manage and
administer capitated ENT managed care contracts covering an aggregate of
approximately 354,000 enrollees. According to the American Academy of
Otolaryngology -- Head and Neck Surgery, Inc. (the "Academy"), there were
approximately 8,400 ENT specialists in the United States as of December 31, 1995
and the Company estimates that approximately 70% of all ENT practices consist of
individual practitioners or small (less than four physician) group practices.
The Company is not aware of any other physician practice management company
focusing solely or substantially on managing ENT practices.
Increasing concern over the rising cost of health care in the United States
has led to the emergence and increasing prominence of managed care. Because
fee-for-service arrangements for compensating health care providers fail to
create incentives for the efficient utilization of resources and are generally
believed to contribute to health care cost increases, payors are selecting
alternative reimbursement methods, such as capitated arrangements, which shift
the financial risk of delivering health care from payors to providers. Under
capitated arrangements, the health care provider is typically paid by health
maintenance organizations ("HMOs") or other third-party payors a fixed amount
per enrollee per month. In return, the health care provider is responsible for
providing substantially all medical services, as set forth in the agreement with
the third-party payor, required by the payor's enrollees.
While the acceptance of greater responsibility and risk under capitated
arrangements provides physicians with the opportunity to retain and enhance
market share and operate at a more predictable level of profitability, the
acceptance of capitation carries with it significant requirements for
infrastructure, information systems, capital, network resources and management.
Individual physicians and small group practices tend to have limited
administrative capacity, limited capital to invest in new clinical equipment and
technologies and typically lack the information systems necessary to negotiate
and manage sophisticated risk-sharing contracts with payors. As a result,
individual physicians and small group practices are increasingly affiliating
with larger group practices and physician practice management companies, such as
the Company, which offer physicians clinical information and financial and
administrative management, as well as network development and payor contracting
services.
The Company's revenues to date have been derived from the provision,
through physicians at the Founding Practice, of fee-for-service medical services
and from contracts with HMOs and other managed care
3
<PAGE> 6
organizations, which compensate the Company and physicians associated with the
Company on a capitated basis. The Founding Practice, which includes 16
physicians, one dentist and 23 allied health care professionals operating 14
clinical locations in the greater Atlanta area, has provided ENT medical and
surgical services under capitated managed care contracts since 1982. At
September 30, 1996, the Founding Practice served as the primary provider panel
for the ENT Networks, providing capitated ENT medical and surgical services
required by an aggregate of approximately 354,000 enrollees of HMOs sponsored by
United HealthCare of Georgia ("United HealthCare"), Aetna Health Plans of
Georgia ("Aetna") and Cigna Health Care of Georgia ("Cigna"). The Founding
Practice, in conjunction with an independent software vendor, has developed a
comprehensive capitated network administration and utilization management system
(the "Capitated Network System") which the Company believes will enable more
effective analysis of clinical and cost data as well as management of the costs
and opportunities associated with capitated managed care arrangements, while
enabling physicians to deliver high quality medical care.
The Company's primary objective is to develop, manage and integrate ENT
practices into comprehensive networks for the provision of high quality,
cost-effective ENT medical and surgical services to capitated managed care
enrollees and fee-for-service patients. The Company's implementation strategy
includes (i) associating with additional ENT physician practices and physicians,
as well as specialists practicing in complementary fields, including audiology,
sleep medicine, allergy, plastic surgery and oral surgery, either by acquiring
assets or equity of physician practices ("affiliated practices") and entering
into management service agreements with such practices, or by contracting with
physician practices and independent physicians to provide management services;
(ii) developing multi-site ENT specialty provider networks responsive to the
demands of managed care payors seeking capitated provider relationships; (iii)
shifting to shared-risk capitated payment arrangements by acquiring the assets
of specialty practices with existing capitated contracts and negotiating new and
renewing capitated contracts with managed care organizations for such practices;
and (iv) implementing on a Company-wide basis management information systems
utilized by the Founding Practice.
The Company believes that as a result of the experience of the Company and
physicians at the Founding Practice in (i) providing ENT medical and surgical
services, (ii) negotiating, managing and administering capitated managed care
contracts and (iii) developing and utilizing sophisticated information systems,
including the Capitated Network System, the Company is well-positioned to
acquire and manage additional ENT practices, to negotiate capitated managed care
contracts and to capture a growing market share of capitated arrangements. The
Company is currently evaluating and is in various stages of discussions in
connection with the potential acquisition of assets or equity of an aggregate of
13 ENT and complementary group practices with an aggregate of approximately 30
physicians in Georgia, Alabama, New Jersey and Virginia. In addition, the
Company has reached an agreement in principle for the acquisition of the assets
of a two-physician ENT practice operating three clinical offices in the
metropolitan Atlanta area (the "Additional Acquisition"). There can be no
assurance, however, that any or all of these potential acquisitions will be
completed.
The Company was incorporated in Delaware in July 1996. The Company's
executive offices are located at The Medical Quarters, 5555 Peachtree Dunwoody
Road, Suite 235, Atlanta, Georgia 30342 and its telephone number is (404)
256-7535.
4
<PAGE> 7
THE OFFERING
Common Stock offered hereby......... 2,000,000 shares
Common Stock to be outstanding after
the Offering(1)..................... 5,328,725 shares
Use of Proceeds..................... For working capital, including future
acquisitions; to repay outstanding
indebtedness of the Founding Practice
and the Company and to expand the
Company's information systems. See "Use
of Proceeds" and "Certain
Transactions."
Proposed Nasdaq National Market
symbol.............................. ENTS
Risk factors........................ The Common Stock offered hereby
involves a high degree of risk. See
"Risk Factors."
- ---------------
(1) Excludes (i) 550,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, under which (a) options to purchase
227,500 shares of Common Stock have been granted, of which 62,500 are
immediately exercisable and (b) options to purchase 7,500 shares of Common
Stock have been granted, effective upon completion of the Offering, and
will be immediately exercisable; (ii) 275,000 shares of Common Stock
reserved for issuance under the Company's 1996 Health Care Professionals
Stock Option Plan, under which no options have been granted; (iii) shares
of Common Stock which may be issued in connection with the Additional
Acquisition and (iv) 200,000 shares of Common Stock issuable upon exercise
of the Underwriters' Warrants. See "Business -- Potential Practice
Acquisitions," "Management -- Stock Option Plans," "Description of Capital
Stock" and "Underwriting."
5
<PAGE> 8
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA AND OPERATING DATA)
The Company was incorporated in July 1996 and commenced operations in
August 1996 through the acquisition of the computer hardware of the ENT Networks
and the utilization of the Capitated Network System. The following summary
unaudited pro forma combined financial data gives effect to the Reorganization
as a combination of promoter interests, at historical costs, under generally
accepted accounting principles, and should be read in conjunction with the
financial statements of the Company, the Founding Practice and the ENT Networks
and notes thereto included elsewhere herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The financial data
set forth below reflect the unaudited pro forma combined historical financial
data of the Founding Practice and the ENT Networks as of and for the periods
indicated. Unless otherwise indicated, the unaudited pro forma statement of
operations data set forth below give effect to the Reorganization, the reverse
stock split and the implementation of the management services agreement between
the Company and the Founding Practice as if such transactions had occurred on
January 1, 1993 and the Offering as if such transaction had been consummated on
September 30, 1996. The unaudited pro forma balance sheet data gives effect to
such transactions, as if such transactions had been consummated on the balance
sheet date. The summary unaudited pro forma information does not purport to
represent what the Company's financial position or results of operations
actually would have been had the Reorganization and the Offering in fact
occurred on the dates indicated, or to project the Company's financial position
or results of operations for any future date or period. The pro forma
adjustments are based on currently available information and certain assumptions
that the Company believes are reasonable under the circumstances.
<TABLE>
<CAPTION>
NINE MONTH PERIOD
FISCAL YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ -------------------
1995 1994 1993 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUMMARY STATEMENT OF OPERATIONS DATA:
Capitation and patient service revenues..... $ 12,167 $ 10,348 $ 8,376 $ 10,893 $ 9,078
Amounts retained by physician owners........ 2,675 2,328 2,270 2,178 2,099
------- ------- ------ ------- ------
Net revenues................................ 9,492 8,020 6,106 8,715 6,979
Expenses:
Salaries, wages and benefits.............. 3,922 2,929 2,277 3,719 2,768
General and administrative................ 1,907 1,486 1,435 2,026 1,439
Bad debt expense.......................... 233 110 61 229 178
Depreciation and amortization............. 281 267 262 269 211
Provider claims........................... 600 1,170 559 460 556
------- ------- ------ ------- ------
Total expenses.............................. 6,943 5,962 4,594 6,703 5,152
------- ------- ------ ------- ------
Operating income............................ $ 2,549 $ 2,058 $ 1,512 $ 2,012 $ 1,827
======= ======= ====== ======= ======
Supplemental pro forma net income(1)........ $ 1,565 $ 1,253 $ 1,133
Supplemental pro forma net income per
share(1).................................. $ .29 $ .23 $ .21
Supplemental weighted average shares
outstanding(1)............................ 5,396 5,396 5,396
OPERATING DATA AT END OF PERIOD:
Number of affiliated physicians............. 14 8 8 17 13
Number of allied health care
professionals............................. 15 12 12 21 15
Number of employees......................... 86 70 60 122 83
Number of clinical locations................ 11 8 8 14 11
Number of capitated covered lives........... 308,003 271,695 151,587 353,735 294,990
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------
PRO FORMA
PRO FORMA AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
SUMMARY BALANCE SHEET DATA:
Working capital...................................................... $ 1,135 $ 16,348
Total assets......................................................... 6,118 20,469
Total debt........................................................... 1,709 0
Stockholders' equity................................................. 2,350 18,410
</TABLE>
- ---------------
(1) For all periods presented, the Founding Practice and the ENT Networks were S
corporations for federal and state income tax purposes and, accordingly,
were not subject to corporate income taxes. The supplemental pro forma net
income and supplemental net income per share for the year ended December
31, 1995 and for the nine month period ended September 30, 1996 have been
computed as if the Company were subject to federal and state corporate
income taxes based on the corporate income taxes in effect during the
respective periods and the Offering had been completed prior to such
periods.
(2) Adjusted to reflect the sale of the 2,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $9.50 per share, the
receipt of the net proceeds therefrom, and the application of such net
proceeds to repay indebtedness of the Founding Practice and the Company.
See "Use of Proceeds" and "Certain Transactions."
7
<PAGE> 10
THE REORGANIZATION
Concurrently with the closing of the Offering, the Company will acquire (i)
substantially all of the assets of the Founding Practice and (ii) all of the
outstanding shares of common stock of ENT Center of Atlanta, Inc., Atlanta ENT
Center for Physicians, Inc. and Atlanta-AHP, Inc. (the "Reorganization"), the
three corporations comprising the ENT Networks, from Ramie A. Tritt, M.D., the
Chairman of the Board and President of the Company (the "Seller"). The ENT
Networks were formed by the Seller to enter into and administer the capitated
managed care contracts with United HealthCare, Aetna and Cigna. In connection
with the Reorganization, the Company will issue an aggregate of 2,767,500 shares
of Common Stock to the Founding Practice and to the Seller. The allocation of
such shares between the Founding Practice and the Seller will be based upon the
initial public offering price of the Common Stock, with the number of shares
issuable to the Seller to equal $7,750,000 divided by the initial public
offering price and the remaining shares of Common Stock issuable to the Founding
Practice. Based upon an assumed initial public offering price of $9.50 per
share, the Seller will receive 815,789 shares of Common Stock and the Founding
Practice will receive 1,951,711 shares of Common Stock. Upon the liquidation of
the existing professional corporation constituting the Founding Practice the
shares of Common Stock issued to it will be distributed to its stockholders,
527,938 of which shares will be distributed to Dr. Tritt, based on his
percentage ownership of the Founding Practice.
In connection with the acquisition of substantially all of the assets of
the Founding Practice, the Founding Practice will transfer the medical assets
not acquired by the Company to a newly-formed professional corporation ("New
Atlanta ENT"), which will simultaneously enter into a management services
agreement with the Company and employment agreements with its physicians. Unless
the context otherwise requires all references herein to the Founding Practice
include New Atlanta ENT. The management services agreement will provide for the
assignment to the Company by the Founding Practice of all or substantially all
of its rights and interest in the proceeds of its accounts receivable (or the
revenue it receives). The Company will retain an amount equal to operating and
non-operating expenses of the Founding Practice (which will be paid by the
Company) a portion of the Company's non-allocable overhead, and a percentage of
the excess of the revenue assigned to the Company over such expenses. The
remaining revenues will be remitted to the Founding Practice to pay physician
compensation and benefits. See "Business -- The Founding Practice and the ENT
Networks," "-- Company Operations," "Management" and "Certain Transactions."
8
<PAGE> 11
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE SUBSTANTIAL RISKS AND SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN THE LOSS OF THEIR INVESTMENT. THE
FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL DATA
SET FORTH ELSEWHERE IN THIS PROSPECTUS, SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE MAKING AN INVESTMENT IN THE
SHARES. THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS ARE NOT
INTENDED TO BE AN EXHAUSTIVE LIST OF THE GENERAL OR SPECIFIC RISKS INVOLVED, BUT
MERELY IDENTIFY CERTAIN RISKS THAT ARE NOW FORESEEN BY THE COMPANY. IT MUST BE
RECOGNIZED THAT OTHER RISKS, NOT NOW FORESEEN, MIGHT BECOME SIGNIFICANT IN THE
FUTURE AND THAT THE RISKS WHICH ARE NOW FORESEEN MIGHT AFFECT THE COMPANY TO A
GREATER EXTENT THAN IS NOW FORESEEN OR IN A MANNER NOT NOW CONTEMPLATED. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER ALL INFORMATION CONTAINED IN THIS
PROSPECTUS AND SHOULD GIVE PARTICULAR CONSIDERATION TO THE FOLLOWING RISK
FACTORS BEFORE DECIDING TO PURCHASE THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS INCLUDES FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING THOSE SET FORTH BELOW, AND ACTUAL RESULTS MAY VARY FROM
THOSE CURRENTLY ANTICIPATED.
RISKS RELATING TO ACQUISITIONS AND MANAGING GROWTH; NEED FOR ADDITIONAL FUNDS
A key element of the Company's strategy is to expand through acquisitions
of assets or equity of established specialty physician practices. Although the
Founding Practice and the ENT Networks have had substantial operations in one
geographic region, the Company has no experience in integrating multiple or
multi-state specialty physician practices. As the Company expands through
acquisitions, the Company will be required to hire and retain additional
management and administrative personnel and develop and expand operational
systems to support its growth. This growth will continue to place significant
demands on the Company's management, technical, financial and other resources.
The Company is evaluating and is in various stages of discussions in connection
with the potential acquisition of assets or equity of several ENT and
complementary group practices. However, the Company has no agreements or
arrangements with respect to the terms of any material acquisitions (other than
the agreements with the Founding Practice and the ENT Networks). Accordingly,
there can be no assurance that the Company will be able to acquire the assets or
equity of or profitably provide management services to the practices currently
being evaluated by the Company or any other specialty physician practices to be
acquired in the future. In addition, there can be no assurance that the Company
will be able to acquire additional specialty physician practices on terms
favorable to the Company, that the operations of any acquired practices can be
successfully integrated and combined efficiently into the Company's business,
that any anticipated benefits of the practice acquisitions will be realized, or
that there will not be substantial unanticipated costs associated with the
acquisition. The failure to manage growth effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Although the Company intends to use a substantial portion of the proceeds
of the Offering for certain ENT and other specialty practice acquisitions
including some which it is currently evaluating, it will require significant
additional funds for future acquisitions and integration and management of
affiliated practices. The Company also intends to issue its securities in
connection with acquisitions, which could result in the dilution of existing
equity positions. The Company may also incur indebtedness to fund future
acquisitions and has a proposal from a bank relating to a credit facility;
however, there can be no assurance that this facility or any other credit
facility will be obtained on favorable terms or at all. The Company has no
commitments for any additional financing and there can be no assurance that such
financing will be available on acceptable terms, or at all. An inability to
obtain such financing on favorable terms could limit the Company's growth. As
the Company acquires additional physician practices, the Company may incur
significant charges for depreciation and amortization and, to the extent
financed through borrowing, interest expense which could adversely affect the
Company's future results of operations and may result in net losses. See
"-- Broad Discretion In Use of
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Proceeds; Inability of Stockholders to Evaluate Future Acquisitions,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Strategy" and "Business -- Potential Practice Asset
Acquisitions."
BROAD DISCRETION IN USE OF PROCEEDS; INABILITY OF STOCKHOLDERS TO EVALUATE
FUTURE ACQUISITIONS
The Company has broad discretion with respect to the use of a substantial
portion of the net proceeds of the Offering which the Company intends to use to
acquire additional specialty practice assets. The Company is engaged in
discussions with several practices with ENT and complementary specialities and
has an agreement in principle relating to the Additional Acquisition (which
Additional Acquisition is not expected to be material to the Company's
operations); however, except with respect to the Reorganization, the Company has
no agreements or arrangements relating to any material future acquisitions and,
accordingly, it will have significant flexibility in identifying and selecting
prospective acquisition candidates. The Company does not intend to seek
stockholder approval for any acquisition, including those currently being
negotiated, unless required to do so by applicable law or regulations.
Accordingly, stockholders will not have an opportunity to review financial or
other information relating to acquisition candidates prior to consummation of an
acquisition. See "Use of Proceeds," "Business -- Strategy" and
"Business -- Potential Practice Asset Acquisitions."
DEPENDENCE ON AFFILIATED PHYSICIANS
All of the Company's revenues will initially be derived under a management
services agreement with the Founding Practice and capitated HMO contracts held
by the ENT Networks. Such revenues, and future revenues, will depend on the fees
and revenues generated by physicians practicing at physician practices, the
assets or equity of which are to be acquired by the Company, including
physicians at the Founding Practice ("affiliated physicians") and, to a lesser
extent, independent physicians contracting with the Company to participate in
the Company's provider networks ("independent physicians" and, together with
affiliated physicians, "associated physicians"). Although affiliated physicians,
including the stockholders of the Founding Practice, are expected to enter into
employment agreements with their respective practices, there can be no assurance
as to the continued services of any particular physician. In particular, Dr.
Tritt is expected to devote less time to his medical practice at the Founding
Practice as a result of his responsibilities to the Company. Associated
physicians can typically terminate their agreements to provide medical services
under managed care contracts by providing notice of such termination to the
payor. Termination of these agreements by associated physicians may result in
termination by the payor of a managed care contract between the Company and the
payor. Any material loss of revenue by affiliated physicians and, to a lesser
extent, independent physicians, whether as a result of the loss of network
physicians or the termination of managed care contracts resulting from the loss
of network physicians or otherwise, could have a material adverse effect on the
Company's business, financial condition or operating results. See
"Business -- Company Operations."
RISKS ASSOCIATED WITH CAPITATED FEE ARRANGEMENTS
During 1995 and the nine month period ended September 30, 1996,
approximately 66% and 70%, respectively, of the Company's pro forma combined net
revenues were derived from payments made on a fee-for-service basis by patients
and third-party payors (including government programs) and approximately 34% and
30%, respectively, of the Company's pro forma combined net revenues were derived
from capitated arrangements. As an increasing percentage of patients enroll in
managed care arrangements, the Company believes that its future success will
depend, in part, upon its ability to negotiate and manage, on behalf of its
associated physicians, contracts with HMOs, other managed care payors, employer
groups and other private third-party payors, pursuant to which services will be
provided on a capitated basis by some or all of the Company's associated
physicians, on terms favorable to the Company. Under these agreements, the
health care provider typically accepts a pre-determined amount per patient per
month from the payor in exchange for providing all necessary covered services to
the patients covered under the agreement. Such contracts pass much of the
financial risk of providing care, such as over-utilization, from the payor to
the provider. To the extent that patients or enrollees covered by such contracts
require more frequent or extensive care than is anticipated, operating margins
may be reduced or the revenues derived from such contracts may be insufficient
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to cover the costs of the services provided. In either event, the Company's
business, financial condition and operating results may be materially adversely
affected. As a result, the success of the Company will require effective
management of health care costs through various methods, including utilization
management and review, competitive pricing for purchased services and favorable
agreements with payors. The proliferation of such contracts in markets served by
the Company could result in increased predictability of revenues, but decreased
predictability of operating margins. There can be no assurance that the Company
will be able to negotiate, on behalf of its associated physicians, satisfactory
arrangements on a capitated basis or that such arrangements will be profitable
to the Company in the future.
DEPENDENCE ON CONTRACTS WITH MANAGED CARE ORGANIZATIONS
The Company's ability to expand is dependent in part on increasing the
number of managed care enrollees served by associated physicians, primarily
through negotiating additional and renewing existing contracts with managed care
organizations and contracting, on a favorable basis, with additional associated
physicians to provide prepaid medical services to such enrollees. Obtaining new
contracts increasingly involves a competitive bidding process. The Company will
be required to accurately anticipate the costs associated physicians will incur
in providing services under such contracts so that the Company only undertakes
contracts under which it can expect to realize adequate profit margins or
otherwise meet its objectives. There can be no assurance that the Company will
be successful in contracting with sufficient numbers of associated physicians to
meet the requirements of managed care organizations or in negotiating contracts
with managed care organization on terms favorable to the Company and its
associated physicians. Three HMOs, United HealthCare, Aetna and Cigna, together
accounted for 28%, 34%, 34% and 30% of pro forma combined net revenues of the
Company for the years ended December 31, 1993, 1994 and 1995 and the nine month
period ended September 30, 1996, respectively. Agreements with these HMOs are
generally subject to 90 to 120 day cancellation by either party, and are subject
to annual renegotiation of rates, covered benefits and other terms and
conditions. In conjunction with the recent acquisition of U.S. HealthCare by
Aetna Inc., representatives of Aetna Inc. have indicated a desire to convert the
Aetna capitated ENT managed care contract to an expanded panel (non-capitated)
modified shared risk arrangement which may be expanded to include the facility
component (inpatient and ambulatory surgery center services) as well as the
professional component (physician services) of ENT care. There can be no
assurance that such contract will remain exclusive or that such modification
will not occur and if such contract is modified, the potential economic impact
of such modification to the Company, if any, cannot be predicted. There can be
no assurance that any of these managed care agreements can be renewed or, if
renewed, that they will contain terms favorable to the Company and its
associated physicians. The loss of any of these contracts or significant
reductions in capitated reimbursement rates under these contracts could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Managed Care Agreements."
POTENTIAL REDUCTIONS IN REIMBURSEMENT BY THIRD-PARTY PAYORS
The health care industry is undergoing significant change as third-party
payors attempt to control the cost, utilization and delivery of health care
services. Substantially all of the Company's net revenues on a pro forma
combined basis have been, and are expected to continue to be, derived from HMOs,
commercial insurers, Medicare and other third-party payors. Both government and
private payment sources have instituted cost containment measures designed to
limit payments made to health care providers by reducing reimbursement rates,
limiting services covered, increasing utilization review of services,
negotiating prospective or discounted contract pricing, adopting capitation
strategies and seeking competitive bids. There can be no assurance that such
measures will not adversely affect the amounts or types of services that may be
reimbursable to the Company in the future, or the future reimbursement
(including reductions in capitated rates) for any service offered by the
Company, either of which could have a material adverse effect on the Company's
business, financial condition or operating results. The Company believes that
these trends will continue to result in a reduction from historical levels in
per patient revenues at the Founding Practice and the ENT Networks. Furthermore,
government reimbursement programs are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings and government
restrictions, all of which could
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materially decrease the range of services covered by such programs or the
reimbursement rates paid to the Company for its services. Such future reductions
or changes would have a material adverse effect on the Company's business,
financial condition or operating results. Reimbursement rates vary depending on
the type of third-party payors. Changes in the composition of third-party payors
from higher reimbursement rate payors to lower reimbursement rate payors could
have an adverse effect on the Company's operating results. See "-- Dependence on
Contracts with Managed Care Organizations."
COMPETITION
The physician practice and network management industry is highly
competitive. The restructuring of the United States health care system is
leading to rapid consolidation of the health care delivery system into larger
and more organized groups and networks of health care providers. The Company
expects competition to increase as a result of this consolidation and ongoing
cost containment pressures, among other factors. The Company will compete with
management services organizations, for-profit and nonprofit hospitals, HMOs and
other competitors seeking to form strategic alliances with or provide management
services to physicians. The Company is unable to predict the extent of future
competition because of changing competitive conditions, changes in laws and
regulations, government budgeting, technological and economic developments and
other factors. In addition, certain companies, including hospitals and insurers,
that are expanding their presence in the physician services business, are
significantly larger, provide a wider variety of services, have greater
experience in providing physician practice management services, have longer
established relationships for these services and have access to substantially
greater financial resources than the Company. See "Business -- Competition."
The Company believes that competition for fee-for-service revenue is
dependent upon, among other things, the Company's geographic coverage, the
reputation and referral patterns of its affiliated physicians, the breadth of
ENT medical and surgical services provided and the composition of the physicians
practicing at affiliated practices. The Company's ability to compete
successfully for specialty capitated managed care contracts with managed care
organizations may depend upon, among other things, the Company's ability to
increase the number of associated physicians and other health care professionals
included in its network provider panel, through asset acquisitions of additional
specialty practices and by entering into network administration agreements with
independent physicians. The Company will compete with several substantially
larger physician practice management and related companies in identifying and
acquiring or contracting with such physician practices or physicians. There can
be no assurance the Company will be able to associate with a sufficient number
of competent physicians and other health care professionals to expand its
business.
The Company's associated physicians also compete in certain markets,
including the Atlanta market, with substantial numbers of other ENT specialists
as well as general practitioners. The success of the Company is dependent upon
its ability to recruit, train and retain qualified health care professionals in
new and existing markets. The Company faces competition for these personnel from
other health care providers, research and academic institutions, government
entities and other organizations. The availability of such personnel is limited,
and the inability to recruit and maintain relationships with these individuals
in certain geographic areas could have a material adverse effect on the
Company's future growth and operations. There can be no assurance that the
Company will be successful in hiring and retaining qualified health care
professionals. The inability to retain sufficient numbers of qualified personnel
could have a material adverse effect on the Company's operations. In addition, a
shortage of skilled personnel or the delay resulting from a need to train
personnel could have a material adverse effect on the Company's business,
financial condition or operating results.
GOVERNMENT REGULATION
Various state and federal laws regulate the relationships between providers
of health care services, physicians and other clinicians. These laws, among
others, include the Medicare and Medicaid anti-kickback statute and the
so-called "Stark Law." The anti-kickback statute prohibits the offer, payment,
solicitation or receipt of any direct or indirect remuneration in return for the
referral of patients for items or services, or for the ordering or arranging for
the furnishing of items or services for which payment may be made under
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Medicare or Medicaid or other federally-funded health care programs. The "Stark
Law" imposes restrictions on physicians' referrals for certain designated health
services to entities with which they have financial relationships. Violations of
these laws may result in substantial civil or criminal penalties, denial of
payment, and/or exclusion from participation in the Medicare, Medicaid and other
federally-funded health care programs. In addition, under separate statutes,
submission of claims for payment that are "not provided as claimed" may lead to
civil or criminal penalties or exclusion from participation in the Medicare,
Medicaid and other federally-funded programs. Such exclusion if applied to the
Founding Practice or any other physician practice acquired by the Company, could
result in a significant loss of reimbursement. A determination of liability
under any such laws could have a material adverse effect on the Company's
business, financial condition and operating results.
Several states, including Georgia, have adopted laws similar to the federal
"anti-kickback" and "anti-referral" laws that cover patients in private programs
as well as government programs. The laws of many states also prohibit physicians
from splitting fees with non-physicians and prohibit non-physician entities from
practicing medicine. These laws and their interpretation vary from state to
state and are enforced by the courts and by regulatory authorities with material
discretion. A determination of liability under any such laws could have a
material adverse effect on the Company.
Although the Company believes that its operations will be in substantial
compliance with existing applicable laws, the Company's business operations have
not been the subject of judicial or regulatory interpretation. There can be no
assurance that upon review, the Company's business and its contractual
arrangements with the Founding Practice and any practices which it has
arrangements with in the future will not be successfully challenged as
constituting the unlicensed practice of medicine. There can be no assurance that
review of the Company's business and its arrangements with affiliates by courts
or regulatory authorities will not result in determinations that could adversely
affect the operations of the Company or that the health care regulatory
environment will not change so as to restrict the Company's operations or their
expansion. In addition, the regulatory requirements of certain jurisdictions may
limit the Company's expansion into, or ability to continue operations within,
such jurisdictions if the Company is unable to modify its operational structure
to conform with such regulatory requirements. Any limitation on the Company's
ability to expand could have a material adverse effect on the Company's
operations. See "Business -- Government Regulation."
HEALTH CARE REFORM
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Changes in the law,
new interpretations of existing laws, or changes in payment methodology or
amounts, may have a dramatic effect on the relative costs associated with doing
business and the amount of reimbursement provided by government and other third
party payors. In addition to specific health care legislation, both the
President and the Congress have expressed an interest in controlling the
escalation of health care expenditures and using health care reimbursement
policies to help control the federal deficit. In recent years, there have been
numerous initiatives on the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. The Company
believes that such initiatives will continue during the foreseeable future.
Aspects of certain of these reforms as proposed in the past, such as further
reductions in Medicare and Medicaid payments and additional prohibitions on
physician ownership, directly or indirectly of facilities to which they refer
patients, if adopted, could adversely affect the Company. In addition, some
states in which the Company operates or may operate in the future are also
considering various health care reform proposals. The Company anticipates that
federal and state governments will continue to review and assess alternative
health care delivery systems and payment methodologies, and that public debate
of these issues will likely continue in the future. Due to uncertainties
regarding the ultimate features of reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted, when they may be adopted or what impact they may have
on the Company, and there can be no assurance that the adoption of reform
proposals will not have a material adverse effect on the Company's business,
financial condition or operating results. In addition, the actual announcement
of reform proposals and the investment community's reaction to such proposals,
as well as
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announcements by competitors and third-party payors of their strategies to
respond to such initiatives, could produce volatility in the trading and market
price of the Common Stock of the Company.
TECHNOLOGICAL CHANGE
The health care information industry is relatively new and is experiencing
rapid technological change, changes in physician and payor needs, frequent new
product introductions and evolving industry standards. As the computer and
software industries continue to experience rapid technological change, the
Company must be able to quickly and successfully adapt its clinical information
systems so that they continue to integrate well with the computer platforms and
other software employed by associated physicians. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
successful development and introduction of system enhancements or new systems in
response to technological changes. The Company's inability to respond to
technological changes in a timely and cost-effective manner could have a
material adverse effect on the Company's business, financial condition and
results of operations and on the price of the Common Stock by reducing the
Company's ability to efficiently and accurately analyze and anticipate the costs
incurred by associated physicians under the Company's capitated managed care
contracts. See "Business -- Information Systems."
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL MANAGEMENT
The Company's success depends to a significant extent on Ramie A. Tritt,
M.D., the Company's Chairman of the Board and President, a principal stockholder
of the Company (and the principal stockholder, immediately prior to the
Reorganization, of the ENT Networks and the Founding Practice) and Richard D.
Ballard, the Company's Chief Executive Officer. The loss of Dr. Tritt or Mr.
Ballard could have a material adverse effect on the development and ultimate
likelihood of success of the Company's business. Although the Company has
entered into a five year and a three year employment agreement with Dr. Tritt
and Mr. Ballard, respectively, there can be no assurance that the Company will
be able to retain their services. The Company intends to obtain "key-man"
insurance coverage on both Dr. Tritt and Mr. Ballard. The Company is actively
seeking to hire a chief financial officer and following completion of the
Offering, anticipates recruiting additional executive officers and believes that
its future success will depend in part upon its ability to attract and retain
additional qualified management personnel. Competition for such personnel is
intense and the Company will compete for qualified personnel with numerous other
employers, some of whom have greater financial and other resources than the
Company. There can be no assurance that the Company will be successful in
attracting or retaining such personnel. See "Business -- Employees" and
"Management."
BENEFITS OF THE OFFERING TO INSIDERS
The Company intends to use a portion of the net proceeds of the Offering to
repay loans made to the Company by Gerald R. Benjamin, Vice Chairman of the
Board and a principal stockholder of the Company, the Founding Practice, Dr.
Tritt, and two entities whose principal stockholders were former directors of
the Company in the aggregate principal amount of $485,000 (the "Founders'
Loans") and to repay outstanding indebtedness of the Founding Practice
aggregating approximately $1.2 million. In connection with the repayment of the
outstanding indebtedness of the Founding Practice, guarantees with respect to
such indebtedness made by stockholders of the Founding Practice, including Dr.
Tritt and Michael J. Pickford, M.D. and Keith R. Jackson, M.D., principal
stockholders of the Company upon consummation of the Reorganization, will be
cancelled. The Company will also use $250,000 of the net proceeds of the
Offering to pay a consulting fee to an affiliate of Mr. Benjamin. In addition,
the Company has entered into employment agreements with each of Dr. Tritt, Mr.
Ballard and Mr. Benjamin providing for annual salaries of $350,000, $150,000 and
$60,000, respectively, plus bonuses. Each of Dr. Tritt and Mr. Benjamin will
devote only a portion of their time as executive officers of the Company. See
"Use of Proceeds," "Management -- Employment Agreements" and "Certain
Transactions."
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RISKS RELATING TO PROPOSED CREDIT FACILITY; CONSEQUENCES OF DEFAULT AND
COVENANTS EXPECTED UNDER PROPOSED CREDIT FACILITY
The Company has received a proposal from a bank to provide a $20 million
credit facility (the "Proposed Credit Facility"), subject to satisfaction by the
Company of certain conditions including completion of the Offering and repayment
of all indebtedness of the Founding Practice. There can be no assurance that the
Proposed Credit Facility will be obtained or, if obtained, that sufficient
borrowings (which will be governed by, among other factors, the Company's
earnings before interest, taxes, depreciation and amortization ("EBITDA")) will
be available to fund future proposed acquisitions. Advances under the Proposed
Credit Facility would bear interest at a variable rate. Accordingly, increases
in interest rates would increase the Company's interest expense and would
adversely affect the Company's cash flow and results of operations. If the
Proposed Credit Facility is obtained, the Company will be required to grant to
the bank a security interest in the capital stock of the Company's subsidiaries.
Therefore, in the event of a default under the credit agreement or a bankruptcy,
liquidation or reorganization of the Company, such stock would be available to
the bank to satisfy the Company's obligations to the bank before any payment
could be made to the Company's stockholders and, in such event, it is likely
that the Company's stockholders would forfeit all or a substantial portion of
their investment in the Company. The Company's ability to generate sufficient
cash flow to meet obligations incurred under the Proposed Credit Facility will
depend on the Company's future operations, which will in turn, be subject to
prevailing industry, economic, regulatory, and other factors, many of which are
beyond the Company's control. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
POTENTIAL CONFLICTS OF INTEREST
There have been and are currently agreements by and among the Company, the
Founding Practice and the ENT Networks and each of their respective officers,
directors and affiliates, and entities controlled by such officers, directors
and affiliates. In addition, Dr. Tritt, the Company's Chairman of the Board and
President, continues as a physician at the Founding Practice and will be subject
to competing demands on his time. Any future transactions and agreements between
the Company and such individuals and entities are subject to approval by a
majority of the Board of Directors, including a majority of the independent
directors. See "Management -- Employment Agreements" and "Certain Transactions."
POTENTIAL LIABILITY AND INSURANCE; LEGAL PROCEEDINGS
The provision of health care services entails the substantial risk of
potential claims of medical malpractice and similar claims. The Company does
not, itself, engage in the practice of medicine or assume responsibility for
compliance with regulatory requirements directly applicable to physicians and
will require associated physicians to maintain medical malpractice insurance.
Nevertheless, there can be no assurance that claims will not be asserted against
the Company in the event that services provided at the Founding Practice or any
affiliated practice are alleged to have resulted in injury or other adverse
effects. Although the Company expects to obtain liability insurance effective
upon the closing of the Offering that it believes will be adequate as to both
risk and amounts, successful malpractice claims could exceed the limits of the
Company's insurance and could have a material adverse effect on the Company's
business, financial condition or operating results. Moreover, there can be no
assurance that the Company will be able to obtain such insurance on commercially
reasonable terms or that any such insurance will provide adequate coverage
against potential claims. In addition, a malpractice claim asserted against the
Company could be costly to defend, could consume management resources and could
adversely affect the Company's reputation and business, regardless of the merit
or eventual outcome of such claim. In addition, in connection with the
acquisition of the assets of the Founding Practice, the Company is assuming many
of the stated liabilities of such practice. Additionally, claims may be asserted
against the Company for events related to the Founding Practice that occurred
prior to the Reorganization. The Company expects to obtain insurance coverage
effective upon the closing of the Offering related to those risks that it
believes is adequate as to the risks and amounts, although there can be no
assurance that any successful claims will not exceed applicable policy limits or
that the Company will be able to obtain such insurance on commercially
reasonable terms. In addition, the Company is negotiating liability
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insurance, on behalf of the Founding Practice, that will become effective on the
closing of the Reorganization and the Offering and will name the Company as an
additional insured. See "Business -- Liability and Insurance" and "-- Legal
Proceedings."
ABSENCE OF PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there is no assurance that an active market for the Common Stock will
develop or be sustained after the Offering. The initial public offering price
will be determined by negotiation between the Company and the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
completion of the Offering. See "Underwriting" for factors to be considered in
determining such offering price. The market price of the Common Stock following
the Offering could be subject to significant fluctuations in response to a
number of factors, including variations in the Company's quarterly operating
results, changes in estimates of the Company's earnings, perceptions about
market conditions in the health care industry or the impact of various health
care reform proposals and general economic conditions, some of which are
unrelated to the Company's operating performance. In addition, the stock market
generally has experienced significant price and volume fluctuations. These
market fluctuations could have an adverse effect on the market price or
liquidity of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Future sales of shares of Common Stock by existing stockholders pursuant to
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"),
through the exercise of outstanding registration rights or through the issuance
of shares of Common Stock upon exercise of options, warrants or otherwise, could
have an adverse effect on the price of the Company's Common Stock. The 2,000,000
shares of Common Stock offered hereby will be freely tradeable without
restriction under the Securities Act, except if any shares are purchased by
"affiliates" as defined under Rule 144. The remaining 3,328,725 shares
outstanding upon completion of the Offering (including the shares of Common
Stock issued in connection with the Reorganization) are "restricted securities"
as that term is defined under Rule 144 and may not be sold publicly unless they
are registered under the Securities Act or are sold pursuant to Rule 144 or
another exemption from registration. Of the restricted securities, 550,000
shares issued in connection with the formation of the Company will become
eligible for sale pursuant to Rule 144 commencing July 1998. An additional
62,500 shares of Common Stock issuable upon the exercise of vested options will
also become eligible for sale in the public market pursuant to Rule 701 and Rule
144 under the Securities Act beginning 90 days from the date of this Prospectus.
Holders of all of such shares have agreed not to sell, transfer or otherwise
dispose of any of their shares for a period of 12 months from the date of this
Prospectus without the prior written consent of Barington Capital Group, L.P.,
on behalf of the Underwriters. In addition, the holders of the Underwriters'
Warrants have certain demand and "piggyback" registration rights with respect to
their securities and all existing holders of the Common Stock (the "Existing
Stockholders") and all stockholders acquiring shares of Common Stock in
connection with the Reorganization (the "Acquisition Stockholders") will have
"piggyback" registration rights with respect to their shares of Common Stock.
The sale of a substantial number of shares of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the Common Stock and impair the Company's ability to raise additional
capital in the future. See "Management -- Stock Option Plans," "Shares Eligible
for Future Sale" and "Underwriting."
DILUTION; RECENT SALES OF COMMON STOCK AT A PRICE SUBSTANTIALLY BELOW INITIAL
PUBLIC OFFERING PRICE
In connection with the formation of the Company in July 1996, Bock Benjamin
& Co., Partners, a partnership of which Gerald R. Benjamin, the Company's Vice
Chairman and Secretary, is a partner, and Ramie A. Tritt, M.D., the Company's
Chairman of the Board and President, were each issued 275,000 shares of Common
Stock, at a purchase price of approximately $.0018 per share. In November 1996,
Dr. Tritt purchased an additional 11,225 shares of Common Stock at a purchase
price of approximately $.0042 per share. In connection with the Reorganization,
the Company will issue an aggregate of 2,767,500 shares of Common Stock, of
which Dr. Tritt, as the owner of the ENT Networks and as a shareholder of the
Founding
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Practice, will receive an aggregate of 1,343,727 shares of Common Stock, based
upon an assumed initial public offering price of $9.50 per share. See "The
Reorganization." Investors purchasing shares of Common Stock in the Offering
will incur immediate and substantial net tangible book value dilution of
approximately $6.05 per share, or 63.7%, assuming an initial public offering
price of $9.50 per share. This dilution will be increased to the extent that
holders of outstanding options to purchase Common Stock at prices below the
initial public offering price exercise such options. See "Dilution," "Principal
Stockholders" and "Certain Transactions."
CONTROL OF COMPANY; POTENTIAL ANTI-TAKEOVER PROVISIONS
Upon the completion of the Offering, the officers and directors of the
Company will own or control approximately 35.7% of the outstanding shares of
Common Stock of the Company (33.8% if the Over-Allotment Option is exercised in
full). As a result, such individuals will generally be able to influence
significantly the outcome of corporate transactions or other matters submitted
for stockholder approval. Such influence by principal stockholders could
preclude any unsolicited acquisition of the Company and consequently adversely
affect the market price of the Common Stock. In addition, the Company's Board of
Directors is authorized to issue from time to time, without stockholder
authorization, shares of preferred stock with such terms and conditions as the
Board of Directors may determine in its sole discretion. The Company is also
subject to a Delaware statute regulating business combinations. Any of these
provisions could discourage, hinder or preclude an unsolicited acquisition of
the Company and could make it less likely that stockholders receive a premium
for their shares as a result of any such attempt. In addition, upon the
occurrence of certain events, including the merger of the Company and a sale of
all or substantially all of the assets of the Company, all outstanding options
under the Company's 1996 Stock Option Plan will become immediately exercisable.
The employment agreements with Dr. Tritt, Mr. Ballard and Mr. Benjamin provide
for termination by the executives and the payment of severance compensation to
the executives upon a change of control of the Company. See "Management,"
"Principal Stockholders" and "Description of Capital Stock."
ABSENCE OF DIVIDENDS.
The Company has never paid any cash dividends on its Common Stock and does
not intend to pay cash dividends in the foreseeable future. The Company
currently intends to retain all earnings, if any, for the development of its
business. The Proposed Credit Facility contemplates restrictions on the payment
of dividends. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
17
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$9.50 per share and after deducting underwriting discounts and the estimated
expenses payable by the Company, are estimated to be approximately $16,060,000
($18,596,500 if the Over-Allotment Option is exercised in full).
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
EXPECTED APPLICATION AMOUNT NET PROCEEDS
- ------------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Working capital................................................... $13,991,000 87.1%
Repayment of indebtedness of Founding Practice.................... 1,204,000 7.5
Repayment of Company indebtedness................................. 515,000 3.2
Information systems............................................... 350,000 2.2
----------- -----
$16,060,000 100%
=========== =====
</TABLE>
The Company intends to use approximately $13,991,000 of the net proceeds to
fund future Company acquisitions of physician practice assets and for general
corporate purposes, including general and administrative expenses and the
payment of a consulting fee incurred in connection with the formation of the
Company, the Offering and the Reorganization. An integral part of the Company's
business strategy is to grow through acquisitions. Although the Company is
evaluating and is engaged in discussions in connection with the potential
acquisitions of the assets or equity of an aggregate of 13 ENT and complementary
group practices, except with respect to the Reorganization, the Company has no
agreements relating to any material acquisition and there can be no assurance
that any such acquisitions will be consummated. See "Risk Factors -- Risks
Relating to Acquisitions and Managing Growth; Need for Additional Funds,"
"Business -- Potential Practice Acquisitions and "Certain Transactions."
The Company intends to repay outstanding indebtedness of the Founding
Practice in the principal amount of $1,196,000, plus accrued interest ($8,000 at
September 30, 1996), of which 45%, 15% and 15%, respectively, is guaranteed by
Dr. Tritt and Michael J. Pickford, M.D. and Keith R. Jackson, M.D., principal
stockholders of the Company upon consummation of the Reorganization. This
indebtedness was incurred in connection with equipment leases and matures on
July 10, 2001 and accrues annual interest at the prime rate less 0.25%.
The Company will also repay Company indebtedness in the principal amount of
$505,000, plus accrued interest ($10,000 at September 30, 1996), owed to the
Founding Practice, officers and principal stockholders of the Company and two
entities whose principal stockholders were former directors of the Company, (i)
$485,000 of which was incurred to pay legal, accounting and other fees in
connection with the formation of the Company, the Reorganization and the
Offering and is evidenced by promissory notes maturing on the earlier of
completion of the Offering or June 30, 1997 and bearing simple interest at a
prime rate as announced by NationsBank of Georgia, N.A. ("NationsBank") and (ii)
$20,000 of which was incurred in connection with the acquisition of certain
assets (primarily computer hardware) of the ENT Networks and is evidenced by a
promissory note maturing on the earlier of completion of the Offering or June
30, 1997 and bearing simple interest at a prime rate as announced by
NationsBank. See "Certain Transactions."
The Company intends to use approximately $350,000 of the net proceeds to
expand its information systems.
Pending such uses, the Company intends to invest the net proceeds of this
Offering in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company expects that it will retain all earnings, if any, generated by
its operations for the development and growth of its business and does not
anticipate paying any cash dividends to its stockholders in the foreseeable
future. Any future determination as to dividend policy will be made by the Board
of Directors of the Company in its discretion, and will depend on a number of
factors, including the future earnings, if any, capital requirements, financial
condition and business prospectus of the Company and such other factors as the
Board of Directors may deem relevant. In addition, the terms of the Proposed
Credit Facility would restrict the payment of cash dividends. See "Risk
Factors -- Absence of Dividends" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
18
<PAGE> 21
CAPITALIZATION
The following table sets forth at September 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization giving effect
to the consummation of the Reorganization and the related issuance of an
aggregate of 2,767,500 shares of Common Stock and (iii) the pro forma
capitalization as adjusted to give effect to the sale of the 2,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of $9.50
per share, the receipt of the estimated net proceeds therefrom and the
application of the net proceeds to repay the Company indebtedness and the
outstanding indebtedness of the Founding Practice. See "Use of Proceeds." This
table should be read in conjunction with the Financial Statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- -----------
<S> <C> <C> <C>
Total debt(1)............................................ $505,000 $1,709,274 $ 0
Stockholders' Equity:
Preferred Stock, $1.00 par value; 10,000 authorized; no
shares issued and outstanding....................... -- -- --
Common Stock, $.001 par value; 50,000,000 shares
authorized; 550,000 shares issued and outstanding
actual; 3,328,725 shares issued and outstanding pro
forma and 5,328,725 shares issued and outstanding
pro forma as adjusted(2)............................ 550 3,329 5,329
Additional paid-in capital............................... 450 1,963,884(3) 18,021,884(3)
Retained Earnings........................................ (4,911) 382,451 382,451
-------- ---------- -----------
Total stockholders' equity..................... (3,911) 2,349,664 18,409,664
-------- ---------- -----------
Total capitalization........................... $501,089 $4,058,938 $18,409,664
======== ========== ===========
</TABLE>
- ---------------
(1) Excludes capital lease obligations. See Note 7 of Notes to Financial
Statements of the Founding Practice.
(2) Excludes (i) 550,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, under which (a) options to purchase
227,500 shares of Common Stock have been granted, of which 62,500 are
immediately exercisable and (b) options to purchase 7,500 shares of Common
Stock have been granted, effective upon completion of the Offering, and
will be immediately exercisable; (ii) 275,000 shares of Common Stock
reserved for issuance under the Company's 1996 Health Care Professionals
Stock Option Plan, under which no options have been granted; (iii) shares
of Common Stock which may be issued in connection with the Additional
Acquisition and (iv) 200,000 shares of Common Stock issuable upon exercise
of the Underwriters' Warrants. See "Management -- Stock Option Plans,"
"Description of Capital Stock" and "Underwriting."
(3) See Note 7 to the Unaudited Pro Forma Combined Financial Statements of the
Company.
19
<PAGE> 22
DILUTION
The Company had a pro forma combined net tangible book value as of
September 30, 1996 of approximately $(3,900), or approximately $(.01) per share
giving effect to the sale of 550,000 shares in connection with the formation of
the Company. Net tangible book value per share is equal to the Company's total
tangible assets less its total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the Reorganization the pro
forma net tangible book value at September 30, 1996 would have been
approximately $2,350,000 or $.72 per share. After giving further effect to the
sale of the 2,000,000 shares of Common Stock in the Offering at an assumed
initial public offering price of $9.50 per share and receipt and application of
the estimated net proceeds therefrom to repay indebtedness, the pro forma net
tangible book value at September 30, 1996 would have been approximately
$18,410,000, or approximately $3.45 per share. This represents an immediate
increase in such net tangible book value of approximately $3.45 per share to
existing stockholders and an immediate dilution in net tangible book value of
approximately $6.05 per share to new investors purchasing shares in the
Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $9.50
Net tangible book value before the Reorganization and the Offering... $(.01)
Increase per share attributable to the Reorganization................ .72
Increase per share attributable to the Offering...................... 2.74
-----
Pro forma net tangible book value per share after the Reorganization
and the Offering..................................................... 3.45
-----
Dilution of net tangible book value per share to new investors......... $6.05
=====
</TABLE>
The following table sets forth, giving effect to the completion of the
Reorganization and the Offering, the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average price per share
paid by the Existing Stockholders, by the Acquisition Stockholders, and by new
investors in the Offering (assuming an initial public offering price of $9.50
per share and before deducting the underwriting discount and estimated offering
expenses):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.............. 561,225 10.5% $ 1,048 0.0% $ .0019
Acquisition Stockholders........... 2,767,500 51.9 2,504,000(1) 11.6 .90
New Investors...................... 2,000,000 37.6 19,000,000 88.4 9.50
--------- ------- ----------- ------ -
Total.................... 5,328,725 100.0% $21,505,048 100.0%
========= ======= =========== =======
</TABLE>
- ---------------
(1) Represents the pro forma combined net tangible book value of the assets of
the Founding Practice and the ENT Networks acquired by the Company in
exchange for 2,767,500 shares of Common Stock in connection with the
Reorganization. See Notes 6 and 7 to the Unaudited Pro Forma Combined
Financial Statements of the Company.
The foregoing tables do not give effect to the exercise of options and the
Underwriters' Warrants. To the extent that such options and warrants are
exercised, there will be additional dilution to new investors. See
"Management -- Stock Option Plans" and "Underwriting."
20
<PAGE> 23
SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The following information for the Founding Practice, the ENT Networks and
the Company has been derived from the financial statements of the respective
entities. The Company was incorporated in July 1996 and commenced operations in
August 1996 through the acquisition of the computer hardware of the ENT Networks
and utilization of the Capitated Network System. The selected financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements of the Company, the Founding Practice and the ENT Networks
and notes thereto included elsewhere in this Prospectus. The information for the
nine month periods ended September 30, 1996 and 1995, respectively, has been
derived from the unaudited financial statements of the Founding Practice, the
ENT Networks and the Company which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments necessary for a
fair statement of the results of operations for unaudited statements.
ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C.
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ---------------
1995 1994 1993 1992 1991 1996 1995
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient service revenue......... $10,291 $8,124 $7,195 $5,505 $3,971 $9,522 $7,627
Expenses:
Physician owner compensation...... 3,961 3,344 3,170 2,887 2,143 3,339 3,030
Salaries, wages and benefits...... 3,922 2,929 2,277 1,253 1,226 3,705 2,768
General and administrative........ 1,885 1,474 1,386 1,151 525 2,009 1,431
Bad debt expense.................. 233 110 61 51 40 229 178
Depreciation and amortization..... 275 259 262 148 37 263 206
Other expense (income), net....... 15 8 39 15 0 (23) 14
------- ------ ------ ------ ------ ------ ------
Total expenses...................... 10,291 8,124 7,195 5,505 3,971 9,522 7,627
------- ------ ------ ------ ------ ------ ------
Operating income.................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
======= ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 402 $ 455
Total assets.................................................... 3,436 4,656
Total debt...................................................... 980 1,204
</TABLE>
ENT NETWORKS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
---------------------------------------- ---------------
1995 1994 1993 1992 1991 1996 1995
------ ------ ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................ $4,168 $3,510 $2,315 $1,743 $818 $3,286 $3,044
Operating expenses..................... 3,134 2,629 1,869 1,364 695 2,530 2,322
Operating income....................... 1,034 881 446 379 123 756 722
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 302 $ 771
Total assets................................................. 306 776
Owner's equity............................................... (129) 388
</TABLE>
PHYSICIANS' SPECIALTY CORP.
<TABLE>
<CAPTION>
FROM INCEPTION
(JULY 31, 1996)
THROUGH
SEPTEMBER 30, 1996
------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................................. $ 15
Expenses:
Salaries, wages and benefits.............................................. 13
Depreciation and amortization............................................. 1
Other expenses............................................................ 6
---
Total expenses.............................................................. 20
---
Operating loss.............................................................. $ (5)
==============
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $322
Total assets................................................................ 686
Total debt.................................................................. 505
Stockholders' equity........................................................ (4)
</TABLE>
22
<PAGE> 25
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA AND OPERATING DATA)
The following unaudited pro forma combined statements of operations give
effect to the Reorganization of the Company, the Founding Practice and the ENT
Networks. The unaudited pro forma financial information and notes thereto do not
purport to represent what the Company's results of operations or financial
position would actually have been if such transactions had occurred on such
dates or project the Company's results of operations or financial position for
future periods or dates. The pro forma adjustments are based upon current
available information and upon certain assumptions that management of the
Company believes are reasonable in the circumstances. The following unaudited
pro forma financial statements and related notes should be read in conjunction
with the Unaudited Pro Forma Combined Financial Statements and other financial
information pertaining to the Company, including "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTH PERIOD
FISCAL YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ -------------------
1995 1994 1993 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Capitation and patient service revenues..... $ 12,167 $ 10,348 $ 8,376 $ 10,893 $ 9,078
Amounts retained by physician owners........ 2,675 2,328 2,270 2,178 2,099
------- ------- ------- ------- -------
Net revenues................................ 9,492 8,020 6,106 8,715 6,979
Expenses:
Salaries, wages and benefits.............. 3,922 2,929 2,277 3,719 2,768
General and administrative................ 1,907 1,486 1,435 2,026 1,439
Bad debt expense.......................... 233 110 61 229 178
Depreciation and amortization............. 281 267 262 269 211
Provider claims........................... 600 1,170 559 460 556
------- ------- ------- ------- -------
Total expenses.............................. 6,943 5,962 4,594 6,703 5,152
------- ------- ------- ------- -------
Operating income............................ $ 2,549 $ 2,058 $ 1,512 $ 2,012 $ 1,827
======= ======= ======= ======= =======
Supplemental pro forma net income(1)........ $ 1,565 $ 1,253 $ 1,133
Supplemental pro forma net income per
share(1).................................. $ .29 $ .23 $ .21
Supplemental weighted average shares
outstanding(1)............................ 5,396 5,396 5,396
OPERATING DATA AT END OF PERIOD:
Number of affiliated physicians........... 14 8 8 17 13
Number of allied health care
professionals.......................... 15 12 12 21 15
Number of employees....................... 86 70 60 122 83
Number of clinical locations.............. 11 8 8 14 11
Number of capitated covered lives ........ 308,003 271,695 151,587 353,735 294,990
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $1,549
Total assets................................................................ 6,118
Total debt.................................................................. 1,709
Stockholders' equity........................................................ 2,350
</TABLE>
- ---------------
(1) For all periods presented, the Founding Practice and the ENT Networks were S
corporations for federal and state income tax purposes and, accordingly,
were not subject to corporate income taxes. The supplemental pro forma net
income and supplemental pro forma net income per share for the year ended
December 31, 1995 and for the nine month periods ended September 30, 1996
and 1995 have been computed as if the Company were subject to federal and
state corporate income taxes based on the corporate income taxes in effect
during the respective periods and the Offering had been completed.
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion has been divided into two sections, the first
relating to the pro forma combined operations of the Company and the second
relating to the historical operations of the Founding Practice, the ENT Networks
and the Company, the entity whose Common Stock is being issued in connection
with the Reorganization and the Offering. The following discussion of the pro
forma combined results of operations and financial position of the Company and
the historical results of operations and financial position of the Founding
Practice, the ENT Networks and the Company should be read in conjunction with
the Company unaudited pro forma combined financial statements and the audited
and unaudited financial statements of the Founding Practice, the ENT Networks,
and the Company, and the notes thereto, appearing elsewhere in this Prospectus.
OVERVIEW
Physicians' Specialty Corp. is a physician practice management company
organized to provide comprehensive management services to physician practices
specializing in diseases and disorders of the ear, nose and throat and
complementary specialties. Concurrently with the closing of this Offering, the
Company will effect the Reorganization in which the Company will acquire all of
the common stock of the ENT Networks and substantially all of the assets of the
Founding Practice. See "The Reorganization." The Company's revenues are derived
from the provision, through affiliated physicians, of fee-for-service medical
services and from contracts with HMOs and other managed care organizations which
compensate the Company and its affiliated physicians on a capitated basis. In
the capitated arrangements, the Company is typically paid by the HMO or other
third party payor on behalf of the associated physicians a fixed amount per
enrollee per month. In return, the Company, through associated physicians, is
responsible for the provision of substantially all of the ENT medical and
surgical services, as set forth in the agreement with the third-party payor,
required by enrollees. In addition, the Company is responsible for the
compensation of associated physicians.
The Company's relationship with its affiliated physicians is set forth in
asset purchase and management services agreements. Through the asset purchase
agreement, the Company typically acquires for fair value substantially all of
the non-medical assets of a physician practice. The management services
agreement, typically having a term of 40 years, delineates the responsibilities
and obligations of each party. Under the management services agreement, the
affiliated physician practice assigns to the Company substantially all of its
right and interest in the proceeds of its accounts receivable (or the revenue it
receives). The Company retains an amount equal to operating and non-operating
expenses of the affiliated physician practice (which are paid directly by the
Company), a portion of the Company's non-allocable overhead, and a percentage of
the excess of the revenue assigned to the Company over such expenses. The
remaining revenues are remitted to the affiliated practice to pay physician
compensation and benefits pursuant to employment agreements between the practice
and each physician.
The unaudited pro forma combined financial statements of the Company for
the years ended December 31, 1995, 1994, and 1993 and for the nine month periods
ended September 30, 1996 and September 30, 1995 have been prepared to reflect a
combination of promoter interests, at historical costs, under generally accepted
accounting principles. Pro forma combined net revenues include fees earned
pursuant to management services agreements along with capitation revenues
received directly by the Company from payors.
24
<PAGE> 27
RESULTS OF OPERATIONS
The following tables set forth certain unaudited pro forma combined results
of operations of the Company for the periods indicated giving effect to the
Reorganization as if it had occurred on January 1, 1993. The information set
forth below is based upon the historical audited and unaudited financial
statements of the Company, the Founding Practice and the ENT Networks and gives
effect to the assumptions and adjustments in the accompanying notes thereto. The
Founding Practice and the ENT Networks are S corporations, and accordingly, do
not pay or provide for income taxes at the entity level. Therefore, the
following information is provided on a pre-tax basis. Following the consummation
of the Reorganization, the Company estimates that its effective tax rate will be
approximately 38% to 40%. See the Unaudited Pro Forma Combined Financial
Statements of the Company and the notes thereto. This pro forma information may
not be indicative of the results of operations or financial position that would
have occurred or existed if the transactions described above had been
consummated on the date assumed and do not purport to project the Company's
results of operations for any future date or period.
<TABLE>
<CAPTION>
NINE MONTH PERIOD
FISCAL YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ -------------------
1995 1994 1993 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS, EXCEPT OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Capitation and patient service revenues..... $ 12,167 $ 10,348 $ 8,376 $ 10,893 $ 9,078
Amounts retained by physician owners........ 2,675 2,328 2,270 2,178 2,099
-------- -------- -------- -------- --------
Net revenues................................ $ 9,492 $ 8,020 $ 6,106 $ 8,715 $ 6,979
Expenses:
Salaries, wages and benefits.............. $ 3,922 $ 2,929 $ 2,277 $ 3,719 $ 2,768
General and administrative................ 1,907 1,486 1,435 2,026 1,439
Bad debt expense.......................... 233 110 61 229 178
Depreciation and amortization............. 281 267 262 269 211
Provider claims........................... 600 1,170 559 460 556
-------- -------- -------- -------- --------
Total expenses.............................. 6,943 5,962 4,594 6,703 5,152
-------- -------- -------- -------- --------
Operating income............................ $ 2,549 $ 2,058 $ 1,512 $ 2,012 $ 1,827
======== ======== ======== ======== ========
OPERATING DATA AT END OF PERIOD:
Number of affiliated physicians............. 14 8 8 17 13
Number of allied health care
professionals............................. 15 12 12 21 15
Number of employees......................... 86 70 60 122 83
Number of clinical locations................ 11 8 8 14 11
Number of capitated covered lives........... 308,003 271,695 151,587 353,735 294,990
</TABLE>
25
<PAGE> 28
The following table sets forth, as a percentage of pro forma combined net
revenues, certain pro forma combined statement of operations data for the
periods indicated giving effect to the Reorganization as if it had occurred on
January 1, 1993:
<TABLE>
<CAPTION>
NINE MONTH
FISCAL YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1995 1994 1993 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Capitation and patient service revenues.... 128.2% 129.0% 137.2% 125.0% 130.1%
Amounts retained by physician owners....... 28.2% 29.0% 37.2% 25.0% 30.1%
----- ----- ----- ----- -----
Net revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries, wages and benefits............. 41.3% 36.5% 37.3% 42.7% 39.7%
General and administrative............... 20.1% 18.5% 23.5% 23.2% 20.6%
Bad debt expense......................... 2.5% 1.4% 1.0% 2.6% 2.6%
Depreciation and amortization............ 3.0% 3.3% 4.3% 3.1% 3.0%
Provider claims.......................... 6.3% 14.6% 9.2% 5.3% 8.0%
----- ----- ----- ----- -----
Total expenses............................. 73.2% 74.3% 75.3% 76.9% 73.9%
----- ----- ----- ----- -----
Operating income........................... 26.8% 25.7% 24.7% 23.1% 26.1%
===== ===== ===== ===== =====
</TABLE>
PRO FORMA COMBINED RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 as Compared to Nine Months Ended September
30, 1995
Capitation and patient service revenues increased by $1,815,000 or 20.0% to
$10,893,000 for the nine month period ended September 30, 1996 from $9,078,000
for the nine month period ended September 30, 1995. Of this increase,
$1,573,000, or approximately 86.7%, was attributable to an increase in
fee-for-service revenues realized by the Company associated with the opening of
three additional clinic office locations and the addition of four affiliated
physicians. The remainder, $242,000, or approximately 13.3%, was attributable to
increased revenues received from HMO payors under capitated arrangements.
The number of lives covered under capitated plans increased by 19.9% to
353,735 at September 30, 1996 from 294,990 at September 30, 1995.
Amounts retained by physician owners of $2,178,000 and $2,099,000 for the
nine month period ended September 30, 1996 and 1995, respectively, includes all
compensation and benefits paid or payable to physician owners during the period.
The physician owners determined such payments based on cash earnings available
for distribution, including cash to be realized from the collection of accounts
receivable.
Salaries, wages and benefits increased by $951,000 or 34.4% to $3,719,000
for the nine month period ended September 30, 1996 from $2,768,000 for the nine
month period ended September 30, 1995. This increase resulted primarily from the
addition of 39 full-time employees during the nine month period ended September
30, 1996 in conjunction with the opening of three additional clinic office
locations.
General and administrative expenses increased by $587,000 or 40.8% to
$2,026,000 for the nine month period ended September 30, 1996 from $1,439,000
for the nine month period ended September 30, 1995 . The increase related to the
opening of additional clinic office locations and the expansion of
administrative infrastructure required to support anticipated practice growth.
The Company typically incurs expenses related to the opening of new facilities
prior to generating revenues.
Bad debt expense increased by $51,000 or 28.7% to $229,000 for the nine
month period ended September 30, 1996 from $178,000 for the nine month period
ended September 30, 1995. This increase was attributable largely to
uncollectible patient self-pay and per visit co-payment amounts.
26
<PAGE> 29
Provider claim expense decreased by $96,000 or 17.3% to $460,000 for the
nine month period ended September 30, 1996 from $556,000 for the nine month
period ended September 30, 1995 due to the increase in the number of affiliated
physicians staffing the capitated contracts held by the ENT Networks (which
reduced the frequency by which claims were paid to unaffiliated physician
providers).
Year Ended December 31, 1995 as Compared to Year Ended December 31, 1994
Capitation and patient service revenues increased by $1,819,000 or 17.6% to
$12,167,000 for the year ended December 31, 1995 from $10,348,000 for the year
ended December 31, 1994. Of this increase, $1,161,000, or approximately 63.8%,
was attributable to an increase in fee-for-service revenues realized by the
Company in connection with the opening of three additional clinic office
locations and the addition of six affiliated physicians. The remainder,
$658,000, or approximately 36.2%, was attributable to increased revenues
received from HMO payors under capitated arrangements.
The number of lives covered under capitated plans increased by 13.4% to
308,003 at December 31, 1995 from 271,695 at December 31, 1994.
Amounts retained by physician owners of $2,675,000 and $2,328,000 for the
year ended December 31, 1995 and 1994, respectively, includes all compensation
and benefits paid or payable to physician owners during the period. The
physician owners determined such payments based on cash earnings available for
distribution, including cash realized from the collection of accounts
receivable.
Salaries, wages and benefits increased by $993,000 or 33.9% to $3,922,000
for the year ended December 31, 1995 from $2,929,000 for the year ended December
31, 1994. This increase resulted primarily from the addition of six employee
physicians and 10 support staff in 1995 in conjunction with the opening of three
additional clinic office locations.
General and administrative expenses increased by $421,000 or 28.3% to
$1,907,000 for the year ended December 31, 1995 from $1,486,000 for the year
ended December 31, 1994 . The increase related to the opening of three clinic
office locations and the expansion of administrative infrastructure required to
support anticipated practice growth.
Bad debt expense increased by $123,000 or 112.0% to $233,000 for the year
ended December 31, 1995 from $110,000 for the year ended December 31, 1994. This
increase was attributable largely to uncollectible patient self-pay and per
visit co-payment amounts.
Depreciation and amortization expense increased by $14,000 or 5.2% to
$281,000 for the year ended December 31, 1995 from $267,000 for the year ended
December 31, 1994, reflecting no material changes in the composition of the
Company's fixed assets or depreciation methods.
Provider claim expense decreased by $570,000 or 48.7% to $600,000 for the
year ended December 31, 1995 from $1,170,000 for the year ended December 31,
1994 due to the addition of six affiliated physicians staffing the capitated
contracts held by the ENT Networks in 1995 (which reduced the frequency by which
claims were paid to unaffiliated physician providers).
Year Ended December 31, 1994 as Compared to Year Ended December 31, 1993
Capitation and patient service revenues increased by $1,972,000 or 23.5% to
$10,348,000 for the year ended December 31, 1994 from $8,376,000 for the year
ended December 31, 1993. Of this increase, $1,196,000, or approximately 60.6%,
was attributable to increased revenues received from HMO payors under capitated
arrangements. The remainder, $776,000, or approximately 39.4%, was attributable
to an increase in fee-for-service revenues.
The number of lives covered under capitated plans increased by 79.2% to
271,695 at December 31, 1994 from 151,587 at December 31, 1993.
Amounts retained by physician owners of $2,328,000 and $2,270,000 for the
years ended December 31, 1994 and 1993, respectively, includes all compensation
and benefits paid or payable to physician owners during
27
<PAGE> 30
the period. The physician owners determined such payments based on cash earnings
available for distribution, including cash realized from the collection of
accounts receivable.
Salaries, wages and benefits increased by $652,000 or 28.6% to $2,929,000
for the year ended December 31, 1994 from $2,277,000 for the year ended December
31, 1993. This increase resulted primarily from the addition in 1994 of 10
non-physician clinical employees and support staff.
General and administrative expenses increased by $51,000 or 0.1% to
$1,486,000 for the year ended December 31, 1994 from $1,435,000 for the year
ended December 31, 1993.
Bad debt expense increased by $49,000 or 80.3% to $110,000 for the year
ended December 31, 1994 from $61,000 for the year ended December 31, 1993. This
increase was attributable largely to uncollectible patient self-pay and per
visit co-payment amounts.
Depreciation and amortization expense increased by $5,000 or 1.9% to
$267,000 for the year ended December 31, 1994 from $262,000 for the year ended
December 31, 1993, reflecting that there were no material changes in the
composition of the Company's fixed assets or depreciation methods.
Provider claim expense increased by $611,000 or 109.3% to $1,170,000 for
the year ended December 31, 1994 from $559,000 for the year ended December 31,
1993 due to a 79.2% increase in the number of capitated lives covered by the ENT
Networks.
HISTORICAL RESULTS OF OPERATIONS
Physicians' Specialty Corp.
Physicians' Specialty Corp. was incorporated in July 1996 and has conducted
only limited activities to date, primarily consisting of acquiring computer
hardware of the ENT Networks and negotiating the agreements relating to the
Reorganization, and will not conduct significant operations until the closing of
the Reorganization and the Offering. The Company has incurred and will continue
to incur various legal, accounting, and auditing costs in connection with the
Reorganization and the Offering, $485,000 of which have been funded by loans and
the remainder of which are expected to be paid with the proceeds of the
Offering. The loans were provided by the Founding Practice, officers of the
Company and affiliates of former directors of the Company, a portion of which
will be repaid from the proceeds of the Offering. See "Use of Proceeds".
The ENT Networks and The Founding Practice
The ENT Networks were formed exclusively to hold and administer capitated
ENT managed care contracts with three HMO payors covering managed care enrollees
in the metropolitan Atlanta marketplace. The ENT Networks have incurred general
and administrative expenses of approximately $148,000, $124,000 and $75,000 for
the years ended December 31, 1995, 1994 and 1993, respectively, related to the
payment of medical director fees in connection with the administration and
management of managed care contracts, a majority of which fees will terminate
upon consummation of the Reorganization. The only other material operating
expense incurred by the ENT Networks was payment of provider claims to
compensate associated physicians. Accordingly, with the exception of references
to capitation revenues and these expenses, the discussion and analysis of the
pro forma combined results of operations set forth above relates solely to the
Founding Practice.
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<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth a summary of the significant components of
historical cash flows for the Founding Practice and the ENT Networks for the
periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTH
DECEMBER 31, PERIOD ENDED
------------------------- SEPTEMBER 30,
1995 1994 1993 1996
------ ------- ------ -------------
<S> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Cash Flows From Operating Activities
The Founding Practice......................... $ 455 $ 378 $ 410 $ 609
The ENT Networks.............................. 960 1,190 464 731
------ ------ ------ ------
$1,415 $ 1,568 $ 874 $ 1,340
------ ------ ------ ------
Cash Flows From Investing Activities
The Founding Practice......................... $ (541) $ (162) $ (322) $ (780)
The ENT Networks.............................. (6) (11) (2) (6)
------ ------ ------ ------
$ (547) $ (173) $ (324) $ (786)
------ ------ ------ ------
Cash Flows From Financing Activities
The Founding Practice......................... $ 464 $ (242) $ (52) $ 224
The ENT Networks.............................. (943) (1,000) (485) (255)
------ ------ ------ ------
$ (479) $(1,242) $ (537) $ (31)
------ ------ ------ ------
</TABLE>
During the nine month period ended September 30, 1996, net cash provided by
operating activities of the Founding Practice and the ENT Networks was $609,000
and $731,000, respectively. Cash utilized for investing activities in the nine
month period ended September 30, 1996 by the Founding Practice and the ENT
Networks was $780,000 and $6,000, respectively, in each case, consisting
entirely of capital expenditures. Borrowings, net of repayments, in the nine
month period ended September 30, 1996 by the Founding Practice was $224,000.
Cash distributions in the nine month period ended September 30, 1996 by the ENT
Networks to the owner was $255,000.
During 1995, net cash provided by operating activities of the Founding
Practice and the ENT Networks was $517,000 and $960,000, respectively. Cash
utilized for investing activities in 1995 by the Founding Practice and the ENT
Networks was $541,000 and $6,000, respectively, in each case, consisting
entirely of capital expenditures. Borrowings, net of repayments, in 1995 by the
Founding Practice was $464,000. Cash distributions by the ENT Networks to the
owner in 1995 was $943,000.
During 1994, net cash provided by operating activities of the Founding
Practice and the ENT Networks was $378,000 and $1,190,000, respectively. Cash
utilized for investing activities in 1994 by the Founding Practice and the ENT
Networks was $162,000 and $11,000, respectively, in each case, consisting
entirely of capital expenditures. Net repayments of borrowings in 1994 by the
Founding Practice was $242,000. Cash distributions by the ENT Networks to the
owner in 1994 was $1,000,000.
During 1993, net cash provided by operating activities of the Founding
Practice and the ENT Networks was $411,000 and $464,000, respectively. Cash
utilized for investing activities in 1993 by the Founding Practice and the ENT
Networks was $322,000 and $2,000, respectively, in each case, consisting
entirely of capital expenditures. Net repayments of borrowings in 1993 by the
Founding Practice was $52,000. Cash distributions by the ENT Networks to the
owner in 1993 was $485,000.
Upon consummation of the Reorganization, the operating cash flows generated
by the Founding Practice will no longer be suppressed by the payment of bonus
compensation to physician owners in amounts sufficient to eliminate operating
income as has historically been the practice of the Founding Practice. In
addition, the
29
<PAGE> 32
payment of S corporation distributions to the stockholder of the ENT Networks
will cease upon consummation of the Reorganization.
The Company has received a proposal from a bank to provide a credit
facility of $20,000,000 (the "Proposed Credit Facility") primarily to provide
financing for the acquisition of assets of physician practices. The Proposed
Credit Facility would be secured by the assignment of the Company's stock in all
its subsidiaries, would be guaranteed by all subsidiaries (including future
subsidiaries) and would restrict the Company from pledging its assets to any
other party. Advances for working capital would be governed by a borrowing base
related primarily to the Company's EBITDA. Based on the borrowing base at
September 30, 1996 after giving effect to the Offering and the Reorganization,
the maximum availability under the Proposed Credit Facility would be $7,900,000.
Advances would bear interest at the Company's option of either a prime-based
rate or a LIBOR-based rate and interest-only payments would be required for the
first two years from the date of the closing of the Proposed Credit Facility,
with maturity in five years from the advance date.
The Proposed Credit Facility would contain affirmative and negative
covenants which would, among other things, require the Company to maintain
certain financial ratios (including maximum indebtedness to pro forma EBITDA
ratio, maximum indebtedness to capital ratio, minimum net worth, minimum current
ratio, and minimum fixed charges coverage), limit the amounts of additional
indebtedness, dividends, advances to officers, shareholders and physicians,
investments and advances to subsidiaries and restrict changes in management and
the Company's business.
The Company intends to acquire the assets of additional ENT and
complementary specialty practices and to fund this growth in part with the net
proceeds of this Offering and borrowings under the Proposed Credit Facility, if
obtained, as well as through equity issuances. The Company is currently
evaluating and is in various stages of discussions in connection with the
potential acquisition of assets or equity of an aggregate of 13 ENT and
complementary group practices with an aggregate of approximately 30 physicians
in Georgia, Alabama, New Jersey and Virginia. In addition, the Company has
reached an agreement in principle for the Additional Acquisition, the completion
of which is conditioned upon the execution of a definitive purchase agreement.
The Additional Acquisition is expected to close following the closing of the
Offering and is not expected to be material to the Company's operations. In
consideration for the assets of this practice, the two physicians will receive
shares of Common Stock. In addition, concurrently with the closing of such
acquisition, the two physicians are expected to enter into employment agreements
with the Founding Practice and the practice will become a party to the
management services agreement between the Company and the Founding Practice. The
Company has no other agreements or arrangements with respect to the terms of any
other material acquisitions (other than the agreements with the Founding
Practice and the ENT Networks) and, accordingly, there can be no assurance that
any of the acquisitions under evaluation will be completed, as to the terms of
any such acquisition or as to the Company's ability to complete future
acquisitions. See "Risk Factors -- Risks Related to Acquisitions and Managing
Growth; Need for Additional Funds" and "Business -- Potential Practice
Acquisitions."
The Company believes that the net proceeds of the Offering, together with
cash flow expected to be generated from operations, will be sufficient to fund
the Company's anticipated acquisition, expansion and working capital needs for
approximately the next 12 months (24 months if the Proposed Credit Facility is
obtained). There can be no assurance that borrowings under the Proposed Credit
Facility will be available or that alternative financing will be available for
future acquisitions or expansion of the Company's business.
Upon completion of the Offering, the Company will be a party to employment
agreements with three executive officers providing for aggregate annual salaries
of $560,000, plus bonuses.
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<PAGE> 33
SEASONALITY
The Company's business is subject to seasonal patient visits and
fee-for-service revenues are typically lower during the third quarter of the
Company's fiscal year. This lower level of patient visits is attributable to
physician vacations, patients returning to school and seasonal illness patterns.
Capitated revenues, however, are not susceptible to seasonal influences.
Quarterly results also may be materially affected by the timing of acquisitions
and the timing and magnitude of costs related to acquisitions. Results for any
quarter, therefore, may not necessarily be indicative of the results that the
Company may achieve for any subsequent fiscal quarter or for a full fiscal year.
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<PAGE> 34
BUSINESS
GENERAL
The Company was recently organized to provide physician practice management
services to medical groups specializing in ENT disorders and diseases.
Concurrently with the closing of this Offering, the Company will acquire
substantially all of the assets of the Founding Practice, the largest ENT group
practice in the State of Georgia, and the common stock of the ENT Networks which
hold, manage and administer capitated ENT managed care contracts covering an
aggregate of approximately 354,000 enrollees. According to the Academy, there
were approximately 8,400 ENT specialists in the United States as of December 31,
1995 and the Company estimates that approximately 70% of all ENT practices
consist of individual practitioners or small (less than four physician) group
practices. The Company is not aware of any other physician practice management
company focusing solely or substantially on managing ENT practices.
Increasing concern over the rising cost of health care in the United States
has led to the emergence and increasing prominence of managed care. Because
fee-for-service arrangements for compensating health care providers fail to
create incentives for the efficient utilization of resources and are generally
believed to contribute to health care cost increases, payors are selecting
alternative reimbursement methods, such as capitated arrangements, which shift
the financial risk of delivering health care from payors to providers. Under
capitated arrangements, the health care provider is typically paid by HMOs or
other third-party payors a fixed amount per enrollee per month. In return, the
health care provider is responsible for providing substantially all medical
services, as set forth in the agreement with the third-party payor, required by
the payor's enrollees.
While the acceptance of greater responsibility and risk under capitated
arrangements provides physicians with the opportunity to retain and enhance
market share and operate at a more predictable level of profitability, the
acceptance of capitation carries with it significant requirements for
infrastructure, information systems, capital, network resources and management.
Individual physicians and small group practices tend to have limited
administrative capacity, limited capital to invest in new clinical equipment and
technologies and typically lack the information systems necessary to negotiate
and manage sophisticated risk-sharing contracts with payors. As a result,
individual physicians and small group practices are increasingly affiliating
with larger group practices and physician practice management companies, such as
the Company, which offer physicians clinical information and financial and
administrative management, as well as network development and payor contracting
services.
The Company's revenues to date have been derived from the provision,
through physicians at the Founding Practice, of fee-for-service medical services
and from contracts with HMOs and other managed care organizations, which
compensate the Company and physicians associated with the Company on a capitated
basis. The Founding Practice, which includes 16 physicians, one dentist and 23
allied health care professionals operating 14 clinical locations in the greater
Atlanta area, has provided ENT medical and surgical services under capitated
managed care contracts since 1982. At September 30, 1996, the Founding Practice
served as the primary provider panel for the ENT Networks, providing capitated
ENT medical and surgical services required by an aggregate of approximately
354,000 enrollees of HMOs sponsored by United HealthCare, Aetna and Cigna. The
Founding Practice, in conjunction with an independent software vendor, has
developed the Capitated Network System which the Company believes will enable
more effective analysis of clinical and cost data as well as management of the
costs and opportunities associated with capitated managed care arrangements,
while enabling physicians to deliver high quality medical care.
The Company believes that as a result of the experience of the Company and
the physicians at the Founding Practice in (i) providing ENT medical and
surgical services, (ii) negotiating, managing and administering capitated
managed care contracts and (iii) developing and utilizing sophisticated
information systems, including the Capitated Network System, the Company is
well-positioned to acquire and manage additional ENT practices, to negotiate
capitated managed care contracts and to capture a growing market share of
capitated arrangements. The Company is currently evaluating and is in various
stages of discussions in connection with the potential acquisition of the assets
or equity of an aggregate of 13 ENT and complementary group practices with an
aggregate of approximately 30 physicians in Georgia, Alabama, New Jersey and
Virginia. In addition, the Company has reached an agreement in principle for the
acquisition of a two
32
<PAGE> 35
physician ENT practice operating three clinical offices in the metropolitan
Atlanta area. There can be no assurance, however, that any or all of these
potential aquisitions will be completed.
HEALTH CARE INDUSTRY OVERVIEW
General
Health care is one of the largest industries in the United States,
representing total expenditures exceeding $900 billion in 1994, with
approximately $180 billion directly attributable to physician services,
according to the Federal Health Care Financing Administration. Health care in
the United States historically has been delivered by a fragmented system of
health care providers, including hospitals, individual physicians and small
groups of specialist and primary care physicians. A 1996 American Medical
Association study estimates that there are over 110,000 physicians practicing in
4,300 multi-specialty group practices of three or more physicians and over
86,000 physicians practicing in 13,600 single specialty group practices in the
United States.
The Company believes that significant opportunities exist to assist ENT
specialty physicians and specialists practicing in complementary fields, such as
audiology, sleep medicine, allergy, plastic surgery and oral surgery, in
managing and administering group practices and networks. More importantly, since
clinical decisions made by physicians impact overall health care expenditures,
the Company believes that opportunities exist to reduce practice costs by
assisting physicians in managing the clinical aspects of ENT and related group
practices and networks. The Company believes its physician practice and network
management services and clinical information systems will enable ENT and related
physicians to control more effectively both the quality and cost of health care
and provide them with the resources necessary to function effectively in a
managed care environment.
Trends in the Health Care Industry
Increasing concern over the rising cost of health care in the United States
has led to the emergence and increasing prominence of managed care. Because
fee-for-service arrangements for compensating health care providers fail to
create incentives for the efficient utilization of resources and are therefore
generally believed to contribute to health care cost increases at rates
significantly higher than inflation, payors are rapidly moving to replace
fee-for-service reimbursement with alternative reimbursement methods, including
capitated and other fixed-fee arrangements. The growth in enrollment in programs
provided by payors using these new reimbursement methods is shifting the
financial risk of delivering health care from payors to providers.
Health care cost containment pressures have increased physician management
responsibilities while lowering reimbursement rates to physicians. While the
acceptance of greater responsibility and risk under capitated arrangements
provides physicians with the opportunity to retain and enhance market share and
operate at a more predictable level of profitability, the acceptance of
capitation also carries with it significant requirements for infrastructure,
information systems, capital, network resources and financial and medical
management. Because most physicians practice individually or in two-person
groups, their negotiating leverage with payors and access to economies of scale
are limited. Individual physicians and small group practices also tend to have
limited administrative capacity, limited ties to other health care providers
(restricting their ability to coordinate care across a variety of specialties),
limited capital to invest in new clinical equipment and technologies and limited
purchasing power with vendors of medical supplies. In addition, individual
physicians and small group practices typically lack the information systems
necessary to manage sophisticated risk-sharing contracts with payors and to
efficiently implement disease management programs.
In response to the foregoing factors, individual physicians and small group
practices are increasingly affiliating with larger group practices and physician
practice management companies. Physician practice management companies offer
physicians access to information and management systems, leverage with vendors
and payors and capital resources. In addition, many payors and their
intermediaries, including governmental entities and HMOs, are increasingly
looking to outside providers of physician services to develop and maintain
quality outcomes, management programs and patient care data. Such payors and
intermediaries
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<PAGE> 36
seek to share the risk of providing health care services through capitation
arrangements which provide for fixed payments for patient care over a specified
period of time.
STRATEGY
The Company's strategy is to consolidate and manage ENT and related
specialty physician practices and provider networks which provide high quality,
cost-effective medical and surgical services in select geographic markets. The
key elements of this strategy are to:
Acquire and Affiliate with ENT and Complementary Physician
Practices. The Company intends to develop significant market presence by
acquiring assets or equity of practices of, or contracting with,
established specialty physicians with established reputations in select
markets for providing quality medical care in ENT and complementary fields,
such as audiology, sleep medicine, allergy, plastic surgery and oral
surgery. The Company believes this will increase its market share in target
regions while ensuring appropriate quality treatment and maintaining
patient satisfaction. As the Company acquires the practices of, and
affiliates with, additional ENT and related specialists, the Company will
be able to provide a wide range of support and ancillary services
frequently unavailable to independent specialty practitioners.
Develop Provider Networks. The Company intends to integrate its
associated physicians into multi-site ENT and related specialty provider
networks. In addition to physicians employed by practices whose assets are
acquired by the Company, the Company intends to enter into network
administration agreements with independent ENT and other specialty
physicians providing for their inclusion in managed care provider panels in
targeted geographic markets. By employing sophisticated demographic,
utilization and economic analysis tools, the Company believes it can
effectively develop specialty provider networks responsive to the demands
and desires of managed care payors seeking capitated provider
relationships. In addition, the Company believes that the managed care
arrangements in place at the Founding Practice or at future practices
managed by the Company will be attractive to newly-affiliating physicians
joining the Company's affiliated provider panels.
Shift to Capitated Payment Arrangements. The Company believes that in
the future, the primary opportunity for profitability on a sustained basis
in the management of ENT specialty practices lies in capitated payor
arrangements which address the administrative demands of managed care. The
Company believes that the current ENT market presence of the Founding
Practice and the ENT Networks, as well as their experience in capitated
managed care arrangements and the development of the Capitated Network
System, will enhance the Company's ability to market the services of the
Founding Practice, as well as future practices affiliating with the
Company, and negotiate favorable risk sharing arrangements with additional
managed care payors. In addition, the Company intends to expand and
diversify its network provider panels by affiliating with additional ENT
physicians and specialists practicing in complementary fields, thereby
enhancing the marketability of the Company's network provider panels to
managed care payors.
Implement and Expand Information Systems. The Company believes that
access to clinical patient data is critical to cost containment and quality
outcomes, which are fundamental to negotiating appropriate capitation
contracts. The Company intends to use the management information systems
developed and maintained by the Founding Practice and intends to expand
these systems so as to effectively manage capitated contracts for
additional ENT physicians and physicians practicing in fields complementary
to ENT. These systems collect and analyze clinical and administrative data,
facilitating automation of many routine clinical functions, and provide
access to the clinical and financial data necessary to perform outcome
studies, cost analyses, utilization management and utilization reviews. The
Company believes that the Capitated Network System will enable it to
effectively manage the utilization of medical services provided to managed
care enrollees.
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<PAGE> 37
OTOLARYNGOLOGY
Otolaryngology, the management of diseases of the ear, nose, nasal
passages, sinuses, larynx, mouth and throat, as well as structures of the neck
and face, is the oldest medical specialty in the United States. An
otolaryngologist, a physician trained in the medical and surgical fields of ear,
nose and throat disorders, is commonly referred to as an Ear, Nose and Throat
(ENT) Specialist. According to the Academy, more than 50% of all U.S. physician
office visits are directly related to ENT problems frequently treated by primary
care physicians, pediatricians, allergists and otolaryngologists. Based upon a
1994 American Group Practice Association study, the Company estimates that 1994
revenues generated by ENTs in the United States exceeded $6 billion. ENT
services in the United States are delivered largely through individual and small
single specialty group practices and multi-specialty clinics. In the early
1900s, ENT and eye care specialists generally practiced jointly in group
practices. While a select number of large, combined eye, ear, nose and throat
practices exist, most ENT and eye care professionals migrated toward single
specialty group practices as specialization occurred. The Academy reports that
there were approximately 8,400 ENT specialists in the United States as of
December 31, 1995 and, based upon membership in the Academy, the Company
estimates that approximately 70% of all ENT practices consist of individual
practitioners or small (less than four physician) group practices.
Otolaryngology subspecialties include the following:
Pediatric Otolaryngology which includes the medical and surgical
treatment of diseases of the ear, nose and throat in children.
Head and Neck Surgery which includes the surgical and medical
treatment of cancerous and noncancerous tumors in the head and neck,
including thyroid and parathyroid surgery.
Rhinology which includes the medical and surgical treatment of
disorders of the nose and sinuses.
Allergy which includes the medical treatment of inhalant allergies
affecting the upper respiratory system.
Facial Plastics and Reconstructive Surgery which includes the
treatment of cosmetic, functional and reconstructive abnormalities of the
face and neck.
Otology/Neurotology which includes the medical and surgical treatment
of diseases of the ear, including traumatic and cancerous disorders of the
external, middle and inner ear, as well as the nerve pathways which affect
hearing and balance.
Laryngology which includes medical and surgical treatment of disorders
of the throat, including the voice.
THE FOUNDING PRACTICE AND THE ENT NETWORKS
The Founding Practice is the largest otolaryngology group practice in the
State of Georgia. Founded in 1979, the practice has grown to include 16
physicians, one dentist, 15 audiologists, seven physician assistants and one
clinical esthetician. The practice offers a wide range of ENT subspecialty
services, including pediatric otolaryngology, head and neck surgery, rhinology,
facial plastics, otology and neurotology and laryngology. Additionally, the
practice provides audiology services, hearing aid sales, TMJ diagnostics and
laser snoring and sleep apnea surgical services. Serving infants, children and
adults, the practice has 14 clinical locations and its affiliated physicians
maintain privileges at 18 hospitals and two ambulatory surgical centers
throughout metropolitan Atlanta. Ramie A. Tritt, M.D., Chairman of the Board and
President and a principal stockholder of the Company, is the President and a
principal stockholder of the Founding Practice. See "Certain Transactions."
The Founding Practice began providing ENT medical and surgical services
under a capitated managed care contract in 1982 covering approximately 50,000
enrollees. At September 30, 1996, the Founding Practice served as the primary
ENT provider panel for three capitated managed care contracts covering an
aggregate of approximately 354,000 enrollees. Each managed care contract is
administered by separate corporations owned
35
<PAGE> 38
by Dr. Tritt and formed solely for the purpose of holding, managing and
administering such contract, which corporations together comprise the ENT
Networks. The ENT Networks, through affiliated physicians at the Founding
Practice and 20 independent physicians, provide all of the ENT medical and
surgical services required by enrollees of HMOs sponsored by United HealthCare,
Cigna and Aetna in the greater Atlanta market, through capitated arrangements.
The three capitated managed care contracts administered by the ENT Networks
covered the following respective number of enrollees, or covered lives, at
September 30, 1996:
<TABLE>
<CAPTION>
CAPITATED COVERED LIVES
-----------------------
<S> <C>
United HealthCare of Georgia..................................... 149,050
Cigna Health Care of Georgia..................................... 163,758
Aetna Health Plans of Georgia.................................... 40,927
-------
353,735
=======
</TABLE>
The following chart illustrates the increase from December 31, 1991, to
December 31 of each year from 1992 through 1995 and at September 30, 1996 in the
number of enrollees covered under capitated managed care contracts pursuant to
which the Founding Practice provided ENT medical and surgical services:
BAR GRAPH
For the years ended December 31, 1993, 1994 and 1995 and the nine month
period ended September 30, 1996, approximately 16%, 16%, 22% and 20%,
respectively, of the net revenues of the Founding Practice were attributable to
ENT services rendered pursuant to the managed care contracts of the ENT
Networks.
In conjunction with the recent acquisition of U.S. HealthCare by Aetna
Inc., representatives of Aetna Inc. have indicated a desire to convert the Aetna
capitated ENT managed care contract to an expanded panel (non-capitated)
modified shared risk arrangement which may be expanded to include the facility
component (inpatient and ambulatory surgery center services) as well as the
professional component (physician services) of ENT care. There can be no
assurance that such contract will remain exclusive or that such modification
will not occur and if such contract is modified, the potential economic impact
of such modification to the Company, if any, cannot be predicted. See "Risk
Factors -- Dependence on Contracts with Managed Care Organizations."
Affiliated physicians at the founding practice and independent physicians
provide ENT medical and surgical services to enrollees under the capitated
managed care contracts held by the ENT Networks pursuant to a participation
agreement with each of the ENT Networks. Pursuant to the participation
agreements, the physicians must follow established administrative procedures,
such as referring enrollees to participating providers and obtaining prior
authorization for certain medical procedures, and must participate in
utilization management and quality management programs. Each of the ENT Networks
compensate the physicians
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providing ENT medical and surgical services to enrollees under their capitated
managed care contract. Under the participation agreements, the physicians are
required to procure and maintain medical malpractice and general liability
insurance. The participation agreements may be terminated (i) by the respective
ENT Network without cause upon 60 days notice or with cause upon 30 days notice
and (ii) by a physician, with or without cause, upon 60 days notice. In
addition, the participation agreements automatically terminate upon the
termination of the relevant capitated managed care contract.
Based on its experience in providing ENT services on a capitated basis, the
Founding Practice, in conjunction with an independent software vendor, developed
the Capitated Network System, a comprehensive capitated administration and
utilization management system which the Company believes will enable it to
effectively analyze clinical and cost data necessary to manage capitated
arrangements and assist associated physicians in improving quality outcomes. See
"-- Information Systems."
POTENTIAL PRACTICE ACQUISITIONS
The Company is evaluating and is in various stages of discussion in
connection with the potential acquisition of assets or equity of 13 ENT and
complementary group practices, certain of which, if consummated could have a
material impact on the Company's results of operations. The 13 practices under
evaluation are located in the States of Georgia, Alabama, New Jersey and
Virginia have the following characteristics:
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF
STATE SPECIALTY PRACTICES PHYSICIANS
- ----------- ------------------- ----------
<S> <C> <C>
Georgia ENT/Sleep Medicine 8
Alabama ENT 9
New Jersey ENT 8
Virginia ENT/Allergy 5
</TABLE>
In addition, the Company has reached an agreement in principle for the
acquisition of the assets of a two physician ENT practice operating three
clinical sites in the metropolitan Atlanta area which is conditioned on the
execution of a definitive purchase agreement and, if completed, is expected to
close following the Offering and is not expected to be material to the Company's
operations. In consideration for the assets of this practice, the two physicians
will receive shares of Common Stock and will receive "piggyback" registration
rights with respect to these shares of Common Stock. Concurrently with the
closing of this acquisition, the two physicians are expected to enter into
employment agreements with the Founding Practice and the practice will become a
party to the management services agreement between the Company and the Founding
Practice.
The Company has no other agreements or arrangements with respect to the
terms of any other material acquisitions (other than the agreements with the
Founding Practice and the ENT Networks) and, accordingly, there can be no
assurance that any of the acquisitions under evaluation will be completed, as to
the terms of any such acquisition or as to the Company's ability to integrate
any additional acquisitions into its business. See "Risk Factors -- Risks
Related to Acquisitions and Managing Growth; Need for Additional Funds."
MANAGED CARE CONTRACTS
The ENT Networks entered into capitated managed care contracts with United
HealthCare, Cigna and Aetna in 1991, 1992 and 1994, respectively. The current
contract with United HealthCare is a renewal of an earlier contract and expires
in May 1998. The current contracts with Cigna and Aetna are the original
contracts and provide for automatic annual renewals. Pursuant to its capitated
managed care agreements, the ENT Networks are paid a fixed amount per enrollee
per month by the respective payors in exchange for agreeing to provide ENT
medical services required by enrollees. The contracts with Cigna and Aetna
provide for an annual renegotiation of the capitation rates and the contract
with United HealthCare provides for an annual increase in such rates based on
the percentage change of a consumer index identified in the contract. In
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addition, under the Cigna and Aetna managed care contracts the ENT Networks are
reimbursed for providing certain non-capitated services.
Under the managed care agreements, the ENT Networks and the participating
affiliated physicians and independent physicians are obligated, except under
certain circumstances, to refer enrollees to physicians and hospitals that have
a contractual arrangement with the payor under each contract. In addition, the
ENT Networks, the participating Founding Practice physicians and the independent
physicians are required to participate in quality management and utilization
management programs established by each payor. Quality management is the process
established by the payor to improve the quality of covered services and
utilization management is the process established to review whether certain
health care services provided to enrollees are in accordance with the
requirements established by each payor.
The managed care contracts may be terminated by either party (i) for cause,
including a material breach of the contract, generally upon 30 to 60 days notice
by the terminating party or (ii) without cause generally upon 90 to 120 days
notice by the terminating party.
NETWORK DEVELOPMENT AND MANAGEMENT
In addition to expanding through ENT and complementary specialty practice
asset acquisitions, the Company intends to develop ENT specialty provider
networks designed to enter into or provide greater access to capitated managed
care contracts with payors. These networks are expected to be comprised of ENT
specialty physicians and specialists practicing in complementary fields, such as
audiology, sleep medicine, allergy, plastic surgery and oral surgery, as well as
other health care providers. The networks are expected to include practices
managed by the Company and, eventually, independent physicians and other health
care providers engaged in ENT and related specialties and contracting with the
Company under network administration agreements. These agreements are generally
expected to provide for management of the provider panel, negotiation of managed
care agreements and performance of utilization management functions. The Company
anticipates working with specialty group practices in developing capitated
contract proposals, evaluating and assembling provider panels, negotiating
contract rate schedules and exclusions, managing utilization, and developing
provider compensation methodologies.
While the Company anticipates deriving revenue from its network development
and management activities, the Company believes the principal benefits from
including affiliated as well as independent physicians in its networks will be
the expansion and diversification of provider panels available to HMO enrollees,
as increasingly required by HMOs, and the ability of the Company to more
effectively evaluate a specialty practice prior to committing to an acquisition
of the assets of such practice.
INFORMATION SYSTEMS
The Company will support the free-standing practice management systems
utilized by the Founding Practice to facilitate patient scheduling, billing and
collection, accounts receivable, management, provider productivity analysis and
select cash disbursement functions. Rather than superseding systems utilized by
future affiliated practices, the Company intends to develop software to bridge
(or interface) an affiliated practice's systems with the Company's system in
order to streamline consolidated financial reporting, accounts receivable
management and productivity analysis functions. Additionally, the Company
anticipates providing and is evaluating the individual patient electronic
medical record system utilized by the Founding Practice for possible
implementation at future affiliated physician practices. The Company believes
that the use of this system may enhance operating efficiency through automation
of many routine functions, as well as the capacity to link "procedure specific"
treatment protocols, thereby enhancing the physician's ability to provide
cost-effective patient care.
The Company believes that effective and efficient access to key clinical
patient data is critical in controlling costs and improving quality outcomes as
the Company and the ENT Networks renew and enter into additional capitated
managed care contracts. The Company currently utilizes the Capitated Network
System, developed and enhanced by the Founding Practice in collaboration with an
unaffiliated software
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<PAGE> 41
vendor. The Company is currently negotiating a license to any rights held by the
vendor. The Capitated Network System integrates the following five functions:
- Tracking referrals from primary care physicians
- Issuing and managing authorization for surgeries and tracking diagnoses,
procedures and admissions
- Processing claims for physician payment
- Providing extensive customized management reports (including diagnosis
and procedure utilization data)
- Maintaining support files
The emergence of managed care has increased the need for specific and
extensive information collection, analysis and management so that providers can
better demonstrate outcomes and quantify the revenues and expenses associated
with managed care contracts. The Company believes that the Capitated Network
System will allow physicians, at the point of care and on a real-time basis, to
(i) access patient-specific medical and payor information, (ii) provide
extensive customized management reports and utilization reviews, (iii) issue and
manage authorization for surgeries and (iv) track diagnoses, procedures and
admissions. As a result, the Company believes that the Capitated Network System
will provide the Company with a competitive advantage in procuring and
administering specialty capitated managed care contracts.
COMPANY OPERATIONS
The Company intends to provide management and administrative services to
associated physicians, including access to integrated management information
systems, lower cost professional liability insurance, employee benefit programs,
and capital equipment, as well as access to marketing resources and the
Capitated Network System. The Company believes its services can provide
physicians relief from administrative burdens, access to economies of scale, and
access to capital, while allowing them to focus on providing high quality and
cost-effective medical care. The Company further believes that it can enhance
growth in ENT and related specialty practices affiliating with the Company by
expanding managed care arrangements, assisting in the recruiting of new
physicians and expanding and adding services that have historically been
performed outside of such practices.
Affiliated Physicians
The relationship between the Company and its affiliated physicians will be
set forth in asset or stock acquisition agreements, management services
agreements and employment agreements. Through an asset or stock acquisition
agreement, the Company will, depending on regulatory and other factors, either
(i) acquire substantially all of the assets utilized in the practice and assume
certain liabilities, leases and other contracts of such practice or (ii) acquire
the equity of the practice. The management services agreements generally will
have an initial term of 40 years, and will provide for the Company to manage the
affiliated practice while enabling the affiliated physicians to retain their
autonomy through their professional corporations, thereby maintaining governance
of physician-specific clinical issues. Typically, the physicians in a practice
group to be acquired by the Company will sign employment agreements with the
acquired medical group providing for an initial term of five years and
containing noncompetition covenants.
Acquisition Agreements
Pursuant to an acquisition agreement, including the acquisition agreement
entered into between the Company and the Founding Practice, the Company,
generally through PSC Management, will either (i) acquire substantially all of
the assets utilized in a practice (other than certain excluded assets such as
employment agreements and patient charts, records and files) and assume certain
liabilities, leases and other contracts of the practice group or (ii) acquire
the equity of the practice. The practice to be acquired will remain liable for
the payment of excluded liabilities under the acquisition agreement. Each
acquisition agreement will provide that the medical practice to be acquired and
the stockholders of such practice, if any, will not, for a period of time
following the closing of the acquisition, compete with the Company within a
specified geographic area, will not solicit patients of the Company within such
geographic area and will not
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<PAGE> 42
solicit employees of the Company. The acquisition agreement will also contain
standard representations and warranties and indemnification by each of the
parties to the agreement. In addition, the closing of the acquisition will be
conditioned upon, among other things, the execution and delivery of (i) an
employment agreement between select physicians affiliated with the practice to
be acquired and such practice and (ii) a management services agreement between
the Company and such practice. See "Certain Transactions."
Management Services Agreements
Pursuant to management services agreements, the Company, through PSC
Management, will act as the exclusive manager and administrator of an affiliated
practice. Upon the closing of the Offering, the Company will enter into a
management services agreement with the Founding Practice. The management
services agreements generally, and the management services agreement to be
entered into with the Founding Practice upon the consummation of the
Reorganization, will provide for the affiliated practice to assign to the
Company all or substantially all of its rights and interest in the proceeds of
its accounts receivable (or the revenue it receives). For providing services
pursuant to such agreement, the Company will retain an amount equal to the
operating and non-operating expenses of the practice (which will be paid by the
Company), a portion of the Company's non-allocable overhead, and a percentage of
the excess of the revenue assigned to the Company over such expenses. The
remaining revenues will be remitted to the affiliated practice to pay physician
compensation and benefits. See "Certain Transactions."
Under a management services agreement, the Company, among other things,
will (i) act as the exclusive manager and administrator relating to all
(non-clinical) operations of the affiliated practice, (ii) bill patients,
insurance companies and other third-party payors and collect on behalf of the
affiliated practice the fees for professional medical services and other
services and products rendered or sold by the affiliated practice, (iii)
provide, as necessary, clerical, accounting, purchasing, payroll, legal,
bookkeeping and computer services and personnel and information management
services to the affiliated practice, (iv) supervise and maintain custody of all
files and records of the affiliated practice, (v) provide facilities, furniture
and equipment for the affiliated practice, (vi) prepare all annual and capital
operating budgets of the affiliated practice, (vii) order and purchase inventory
and supplies as reasonably required by the affiliated practice, (viii) market
the services provided by the affiliated practice, (ix) provide financial and
business assistance to the affiliated practice, in the negotiation,
establishment, evaluation and administration of contracts and relationships with
managed care and other similar providers and payors and (x) perform
administrative services relating to the recruitment of physicians for the
affiliated practice.
The affiliated practice will retain the responsibility for, among other
things, (i) compensating physician employees, (ii) the payment of insurance
premiums and deductibles for professional liability insurance policies, (iii)
ensuring that affiliated physicians have the required licenses, credentials,
approvals and other certifications needed to perform their duties and (iv)
complying with certain federal and state laws and regulations applicable to the
practice of medicine. In addition, the affiliated practice will retain exclusive
control over all aspects of the practice of medicine and the delivery of medical
services.
The Company will establish an advisory board at each affiliated practice
comprised of physicians at the affiliated practice and Company management
personnel whose responsibilities will be advisory in nature. The advisory board
will review, evaluate and make recommendations to the affiliated practice and
the Company with respect to strategic and operational planning, physician
employment and recruitment, patient fees and collection policies, quality review
and the establishment and maintenance of relationships with managed care and
other similar providers and payors.
The management services agreements, generally, and the management services
agreement with the Founding Practice, will be for an initial term of 40 years,
which may be extended for separate and successive five-year terms. The
management services agreements may be terminated by either party if the other
party (i) files a petition in bankruptcy or other similar events occur or (ii)
defaults on the performance of a material duty or obligation, which default
continues without cure for a specified term after notice.
During the term of the management services agreement, the affiliated
practice will agree, with respect to management services, not to compete with
the Company and the other practices for which the Company
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provides management services within a specified geographic area. In addition,
during the term of the management services agreement and for a period following
the termination of such agreement, the affiliated practice will agree not to
solicit any employee of the Company or persons affiliated with the Company and
for a period following the termination of such agreement the affiliated practice
will not contract with any entity for the provision of comprehensive management
services substantially of the kind contemplated by the management services
agreement. The affiliated practice will also agree not to disclose certain
confidential and proprietary information relating to the Company and the
affiliated practice.
Physician Employment Agreements
Physicians in medical practices which enter into management services
agreements with the Company, including the Founding Practice, will typically
enter into employment agreements with the affiliated medical practice providing
for an initial term of five years, which will be automatically renewed for
successive one year terms unless an affiliated physician or the medical practice
elects not to renew the term by providing at least 90 days written notice of
such election or such agreement is otherwise terminated for cause or the death
or disability of an affiliated physician. Affiliated physicians will be paid
based upon either productivity or other negotiated formulas agreed upon between
the affiliated physician and the medical practice, and the medical practice will
provide the affiliated physicians with health, death and disability insurance
and other benefits. Affiliated physicians will be obligated to obtain and
maintain professional liability insurance coverage; however, the medical
practice will reimburse affiliated physicians for the cost of such insurance.
Pursuant to the employment agreements, affiliated physicians will agree not to
compete with the medical practice, not to solicit patients of the medical
practice and not to interfere with employees of the medical practice for a
certain period following the termination of such employment agreement unless the
agreement is terminated by the affiliated physician for cause. In addition,
affiliated physicians will agree not to disclose any confidential and
proprietary information of the medical practice during the term of the agreement
and for a certain period following the termination of the agreement.
Furthermore, under the employment agreements, affiliated physicians will assign
to the medical practice all contracts with HMOs or other managed care
arrangements and will grant an irrevocable power of attorney to the medical
practice to enter into such contracts on behalf of the physician.
COMPETITION
The physician practice management industry is highly competitive. The
restructuring of the United States health care system is leading to rapid
consolidation of the existing highly-fragmented health care delivery system into
larger and more organized groups and networks of health care providers. The
Company expects competition to increase as a result of this consolidation and
ongoing cost containment pressures among other factors. The Company will compete
with management services organizations, for-profit and nonprofit hospitals, HMOs
and other competitors seeking to form strategic alliances with physicians or
provide management services to physicians. The Company believes that the quality
of its management services, experience in developing, managing and administering
capitated managed care contracts, the breadth of its ENT medical and surgical
services provided and the utility of the Capitated Network System positions it
to compete favorably for affiliation with additional ENT and complementary group
practices.
The Company is unable to predict the extent of future competition because
of changing competitive conditions, changes in laws and regulations, government
budgeting, technological and economic developments and other factors. However,
there are certain companies, including hospitals and insurers, that are
expanding their presence in the health care industry and are significantly
larger, provide a wider variety of services, have greater experience in
providing health care management services, have longer established relationships
with customers for these services and have access to substantially greater
financial resources than the Company.
The Company believes that competition for fee-for-service revenue is
dependent upon, among other things, the Company's geographic coverage, the
reputation and referral patterns of affiliated physicians, the breadth of ENT
medical and surgical services provided and the composition of the physicians
practicing at affiliated practices and that the Company is well positioned to
compete on these bases. The Company's ability to compete successfully for
specialty capitated managed care contracts may depend upon, among other things,
the Company's ability to increase the number of associated physicians and other
health care professionals
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included in its network provider panel through asset or equity acquisitions of
additional specialty practices and by entering into network agreements with
independent physicians. There can be no assurance that suitable acquisitions can
be accomplished on terms favorable to the Company or that financing, if
necessary, can be obtained for such acquisitions. In addition, there can be no
assurance that the Company would be able to operate profitably any facilities,
businesses or other assets it may acquire, effectively integrate the operations
of such acquisition into its network or otherwise achieve the intended benefits
of such acquisition.
The Company's associated physicians also compete in certain markets,
including the Atlanta market, with substantial numbers of other ENT specialists
as well as general practitioners. The success of the Company is dependent upon
its ability to recruit, train and retain qualified health care professionals in
new and existing markets. The Company faces competition for these personnel from
other health care providers, research and academic institutions, government
entities and other organizations. The availability of such personnel is limited,
and the inability to recruit and maintain relationships with these individuals
in certain geographic areas could have a material adverse effect on the
Company's future growth and operations. There can be no assurance that the
Company will be successful in hiring and retaining qualified health care
professionals. The inability to retain sufficient numbers of qualified personnel
could have a material adverse effect on the Company's operations. In addition, a
shortage of skilled personnel or the delay resulting from a need to train
personnel could have a material adverse effect on the Company's business,
financial condition or operating results.
The Company, and the health care industry as a whole, face the challenge of
continuing to provide quality patient care while dealing with rising costs,
strong competition for patients and a general reduction of reimbursement rates
by both private and government payors. As both private and government payors are
reducing the scope of what may be reimbursed and reducing reimbursement levels
for covered services and products, national and state efforts to reform the
United States health care system may further impact reimbursement rates. Changes
in medical technology, existing and future legislation, regulations and
interpretations and competitive contracting for provider services by private and
government payors may require changes in the Company's facilities, equipment,
personnel, rates and/or services in the future.
GOVERNMENT REGULATION
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates and intends to
operate will not change significantly and adversely in the future. In general,
regulation of the health care industry, including scrutiny of the methods and
levels of payment to health care providers is increasing. The Company believes
that health care legislation, regulations and interpretations will continue to
change and, as a result, plans to routinely monitor developments in health care
law. The Company expects to modify its agreements and operations from time to
time as the business and regulatory environments change. While the Company
believes it will be able to structure all of its agreements and operations in
accordance with applicable law, the lack of definitive interpretations of many
statutory and regulatory provisions means that there can be no assurance that
the Company's arrangements are in compliance with such provisions or will not be
successfully challenged. See "Risk Factors -- Government Regulation."
Government Reimbursement Programs
Under the federal Medicare program, payment for physician services (other
than under Medicare risk contracts) is based on an annually adjusted fixed fee
schedule known as the Resource-Based Relative Value Scale ("RBRVS"). This
payment system, derived from historically customary and prevailing charge data,
is intended to reflect the relative resources required to provide a given
service as compared to another service. Fee schedule amounts are also based upon
a geographic adjustment factor and certain national conversion factors. The
RBRVS system is undergoing continual modifications and the Company anticipates
that the RBRVS fee schedule will continue to result in reductions from
historical levels in the per patient payment from the Medicare program. Because
the Company anticipates that approximately 10% of its revenues will be derived
from government-funded health care programs (principally, Medicare and
Medicaid), the Company
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does not believe that such reductions will result in a material adverse change
in the results of operations of the Company. The Medicaid program is a partially
federal-funded state administered program for the indigent. Payment to
physicians under state Medicaid programs is generally based upon fee schedules.
Both the Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings,
interpretations of policy, intermediary/carrier determinations and government
funding restrictions, all of which may materially increase or decrease the rate
of program payments to physicians and other health care practitioners.
Stark Legislation and Fraud and Abuse Laws
The Company is subject to a variety of laws and regulations governing the
referral of patients to facilities with which the referring physician has a
financial relationship. Significant prohibitions against physician referrals
were enacted by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as "Stark II," amended prior physician
self-referral legislation known as "Stark I" by dramatically enlarging the field
of physician-owned or physician-interested entities to which the referral
prohibitions apply. Effective January 1, 1995, Stark II prohibits, subject to
certain exceptions, a physician (or a member of the physician's immediate
family) from referring Medicare or Medicaid patients for "designated health
services" to an entity with which the physician has a financial relationship.
Financial arrangements include both ownership arrangements and compensation
arrangements, including such an arrangement with the physician's own group
practice. The designated health services include clinical laboratory services,
radiology services, radiation therapy services, physical and occupational
therapy services, durable medical equipment, parenteral and enteral nutrients,
equipment and supplies, prosthetics, orthotics, outpatient prescription drugs,
home health services and inpatient and outpatient hospital services. The
penalties for violating Stark II include a prohibition on payment by Medicare or
Medicaid for services resulting from prohibited referrals, and civil penalties
of as much as $15,000 for each violative referral and $100,000 for participation
in a "circumvention scheme." The Company believes that its activities are not in
violation of Stark I or Stark II. However, the Stark legislation is broad and
ambiguous. Interpretative regulations clarifying the provisions have only been
issued with respect to Stark I (clinical laboratory services), and have not yet
been issued with respect to Stark II (the other designated health services). In
addition, a number of states have enacted similar laws which apply to referrals
made for services reimbursed by all payors, and not simply Medicare or Medicaid.
Future regulations could require the Company to modify the form of its
relationships with physician organizations. Moreover, the violation of Stark I
or II by the Company's affiliated physician organizations could result in
significant fines and loss of reimbursement which could materially adversely
affect the Company.
The Company is also subject to federal and state fraud and abuse laws.
These laws include the Medicare and Medicaid anti-kickback statute, which
prohibits, among other things, the offer, payment, solicitation or receipt of
any remuneration, directly or indirectly in return for the referral of patients,
or arranging for the furnishing of items and services that are paid for in whole
or in part by Medicare, Medicaid or other federally-funded programs. The courts
and the Office of Inspector General of The Department of Health and Human
Services have stated that the anti-kickback statute is violated if one purpose,
as opposed to a primary or sole purpose, of the arrangement is to induce
referrals. Violations of the anti-kickback statute are punishable by criminal or
civil penalties, and/or exclusion of the provider from future participation in
the Medicare, Medicaid and other federally-funded programs. The federal
government has published exemptions, or "safe harbors," for business
transactions that will be deemed not to violate the anti-kickback statute.
Although satisfaction of the requirements of these safe harbors provides
protection from enforcement action under the anti-kickback legislation, failure
to meet the safe harbors does not necessarily mean that the activity violates
the statutory prohibitions. Rather, the legality of a particular business
arrangement will be assessed by comparing the particular facts of the
transaction to the proscriptions of the statute. In addition, a number of states
have enacted similar laws, which vary from state to state, prohibiting
remuneration or fee-splitting arrangements between health care providers for the
referral of patients to a particular provider, regardless of the payor source.
Also, under separate statutes, submission of claims for payment that are "not
provided as claimed" may lead to civil money penalties, criminal fines and
imprisonment and/or exclusion from participation in the Medicare, Medicaid and
other federally-funded health care programs. These false claims
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statutes include the Federal False Claims Act, which allows any person to bring
suit alleging false or fraudulent Medicare or Medicaid claims or other
violations of the statute and to share in any amounts paid by the entity to the
government in fines or settlement. Such qui tam actions have increased
significantly in recent years and have increased the risk that a health care
company will have to defend a false claims action, pay fines or be excluded from
participation in the Medicare and/or Medicaid programs as a result of an
investigation arising out of such an action. Recently, Congress enacted the
Health Insurance Portability and Accounting Act of 1996, which includes an
expansion of certain fraud and abuse provisions to other federal health care
programs. Due to the breadth of the statutory provisions of the Fraud and Abuse
Laws and the absence of definitive regulations or court decisions addressing the
type of arrangements by which the Company and its affiliated entities conduct
and will conduct their business, from time to time certain of their practices
may be subject to challenge under these laws.
The Company has attempted to structure its business relations to comply
with the Stark Legislation, the Fraud and Abuse Laws and all other applicable
health care laws and regulations. However, there can be no assurance that such
laws will be interpreted in a manner consistent with the Company's practices.
There can be no assurance that challenges under such laws or regulations or new
laws or regulations will not require the Company or its affiliated entities to
change their practices or will not have a material adverse effect on the
Company's business, financial condition or operating results. In addition, state
legislatures and other governmental entities are considering additional measures
restricting or regulating referrals, and there can be no assurance that new laws
or regulations will not be enacted which will require restructuring of the
Company's operations or otherwise have a material adverse effect on the
Company's business, financial conditions or operating results.
Health Care Reform
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Changes in the law,
new interpretations of existing laws, or changes in payment methodology or
amounts, may have a dramatic effect on the relative costs associated with doing
business and the amount of reimbursement by government and other third party
payors. In addition to specific health care legislation, both the President and
the Congress have expressed an interest in controlling the escalation of health
care expenditures and using health care reimbursement policies to help control
the federal deficit. In recent years, there have been numerous initiatives on
the federal and state levels for comprehensive reforms affecting the payment for
and availability of health care services. For example, in 1995, Congress passed
legislation to reduce significantly Medicare and Medicaid expenditures over
seven years, which would have cut payments to health care providers
participating in the Medicare and Medicaid programs. Although President Clinton
vetoed this legislation, the administration's counterproposal would have
included similar, although less drastic, Medicare and Medicaid payment
reductions. The Company anticipates that federal and state governments will
continue to review and assess alternative health care delivery systems and
payment methodologies, and public debate of these issues will likely continue in
the future. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted or what impact they may have on the Company, and there can be no
assurance that the adoption of reform proposals will not have a material adverse
effect on the Company's business, operating results or financial conditions. In
addition, the actual announcement of reform proposals and the investment
community's reaction to such proposals, as well as announcements by competitors
and third-party payors of their strategies to respond to such initiatives, could
produce volatility in the trading and market price of the Common Stock. In
addition, some states in which the Company may operate in the future are
considering various health care reform proposals.
Other Licensing Requirements
Every state imposes licensing requirements on individual physicians, and
some regulate facilities and services operated by physicians. In addition, many
states require physicians to obtain regulatory approval, including certificates
of need, before establishing certain types of health care facilities, offering
certain
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services, or making certain capital expenditures in excess of statutory
thresholds for health care equipment, facilities or services. To date, the
Company and the Founding Practice have not been required to obtain certificates
of need or similar approvals for their activities. In connection with the
expansion of its operations into new markets and contracting with managed care
companies, the Company and its affiliated practices may become subject to
compliance with additional regulations. Finally, the Company and its affiliated
practices are subject to federal, state and local laws dealing with issues such
as occupational safety, employment, medical leave, insurance regulation, civil
rights and discrimination, medical waste and other environmental issues.
Increasingly, federal, state and local governments are expanding the regulatory
requirements for businesses, including medical practices. The imposition of
these regulatory requirements may have the effect of increasing operating costs
and reducing the profitability of the Company's operations.
Restrictions on Corporate Practice of Medicine
The laws of certain states in which the Company operates or may operate in
the future prohibit nonphysician entities from practicing medicine, exercising
control over physicians or engaging in certain practices such as fee-splitting
with physicians. Although the Company has structured its affiliations with
physician groups so that the associated physicians maintain exclusive authority
regarding the delivery of medical care, there can be no assurance that these
laws will be interpreted in a manner consistent with the Company's practices or
that other laws or regulations will not be enacted in the future that could have
a material adverse effect on the Company's business. If a corporate practice of
medicine law is interpreted in a manner that is inconsistent with the Company's
practices, the Company would be required to restructure or terminate its
relationship with the applicable physician group in order to bring its
activities into compliance with such law. The termination of, or failure of the
Company to successfully restructure, any such relationship could result in fines
or a loss of revenue that could have a material adverse effect on the Company's
business, financial condition or operating results.
LIABILITY AND INSURANCE
The provision of health care services entails the risk of potential claims
of medical malpractice and similar claims. The Company does not, itself, engage
in the practice of medicine or have responsibility for compliance with
regulatory requirements directly applicable to physicians and requires
affiliated physicians performing medical services at its facilities to maintain
medical malpractice insurance. Nevertheless, malpractice claims may be asserted
against the Company directly in the event that services rendered by the Company
or procedures performed at one of the Company's facilities are alleged to have
resulted in injury or other adverse effects. Although the Company intends, upon
consummation of the Reorganization, to obtain liability insurance that it
believes will be adequate as to both risk and amounts, successful malpractice
claims could exceed the limits of the Company's insurance and could have a
material adverse effect on the Company's business, financial condition or
operating results. Moreover, a malpractice claim asserted against the Company
could be costly to defend, could consume management resources and could
adversely affect the Company's reputation and business, regardless of the merit
or eventual outcome of such claim. In addition, there can be no assurance that
the Company will be able to obtain such insurance on commercially reasonable
terms in the future or that any such insurance will provide adequate coverage
against potential claims. See "Risk Factors -- Liability and Insurance, Legal
Proceedings."
The Company will require each associated physician or group to obtain and
maintain professional liability insurance coverage. Such insurance would provide
coverage, subject to policy limits in the event the Company were held liable as
a co-defendant in a lawsuit for professional malpractice against a physician. In
addition, the Company generally is indemnified under the management agreements
by the affiliated physician groups for liabilities resulting from the
performance of medical services.
EMPLOYEES
Upon the closing of the Offering and the consummation of the
Reorganization, the Company will have approximately 124 full-time employees. The
Company intends to hire additional management and administra-
45
<PAGE> 48
tion personnel, including a chief financial officer. None of the Company's
employees is represented by a labor union and the Company believes its relations
with its employees are satisfactory.
PROPERTIES
The Company currently shares office space with the Founding Practice
pursuant to an oral agreement under which the Company does not pay rent and
anticipates leasing approximately 2,500 square feet of office space for its
executive office in Atlanta, Georgia. The lease will provide for annual rent of
approximately $50,000 during 1997, subject to specified annual increases. Upon
closing of the Offering and consummation of the Reorganization, the Company will
assume the leases for the 14 facilities currently used by the Founding Practice
which have varying remaining terms ranging from three months to 13 years and six
months and aggregate annual rent of approximately $850,000. In addition, the
Founding Practice has entered into a five-year lease for an additional facility,
the construction of which is expected to be completed by June 1997. The lease
provides for annual rent of approximately $55,000 and will be assumed by the
Company upon closing of the Offering and the Reorganization. The Company
believes that the shared office space, together with the office space it
anticipates leasing and the assumed leases will be suitable for the current and
anticipated needs of the Company, the Founding Practice and the ENT Networks.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
46
<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company and the persons expected to
become executive officers or directors of the Company upon completion of the
Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Ramie A. Tritt, M.D........................ 47 Chairman of the Board and President
Gerald R. Benjamin(2)...................... 38 Vice Chairman of the Board, Secretary and
Director
Richard D. Ballard(1)...................... 48 Chief Executive Officer and Director
Lawrence P. Kraska......................... 32 Vice President -- Operations(3)
Edward R. Casas, M.D.(1)(2)................ 36 Director
Steven L. Posar, M.D.(1)(2)................ 47 Director(3)
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Effective upon completion of the Offering
Ramie A. Tritt, M.D. has served as the Chairman of the Board and President
of the Company since its inception in July 1996. Dr. Tritt serves as President
of the Founding Practice, a multi-site otolaryngology group practice which is a
successor to a practice founded by Dr. Tritt in 1979. Dr. Tritt was a founding
Member and currently serves as President of Georgia Multi-Specialty Group,
L.L.C., a consortium of 15 specialty group practices, encompassing approximately
650 physicians, which contracts with payors for specialty medical services
throughout metropolitan Atlanta. Dr. Tritt also serves as President and Medical
Director of the ENT Center of Atlanta, Inc., Atlanta ENT Center for Physicians,
Inc., and Atlanta AHP, Inc., three otolaryngology provider networks (comprising
the ENT Networks) established to contract with HMOs in greater Atlanta.
Gerald R. Benjamin has served as Vice Chairman and Secretary of the Company
since its inception in July 1996. Mr. Benjamin serves as Chief Executive Officer
of Premier HealthCare, a division of Bock, Benjamin & Co., a boutique health
care investment banking concern which Mr. Benjamin co-founded in 1993. Prior to
founding Bock, Benjamin & Co., Mr. Benjamin served as Chief Executive Officer of
Premier HealthCare, Inc., a health care venture development and management firm
which Mr. Benjamin co-founded in 1991. Prior to co-founding Premier HealthCare,
Inc., Mr. Benjamin served for ten years as Managing Partner and Director of
Corporate Finance Services for Williams, Benjamin, Benator & Libby, an Atlanta,
Georgia-based Certified Public Accounting firm.
Richard D. Ballard has served as the Chief Executive Officer and a director
of the Company since November 1996. Prior to joining the Company, Mr. Ballard
served as Vice President of Recruiting for Physicians' Online, Inc., founding an
intranet physician recruiting service. Prior to joining Physicians' Online in
September 1995, Mr. Ballard served as Executive Vice President, President and
Chief Executive Officer of Allegiant Physician Services, Inc. (formerly Premier
Anesthesia, Inc.). Prior to joining Premier Anesthesia in 1988, Mr. Ballard
served for six years as Executive Vice President of Jackson & Coker Inc., a
national physician recruiting firm and for seven years as director of national
recruiting for Spectrum Emergency Care Inc.
Lawrence P. Kraska will become the Vice President-Operations of the Company
concurrently with the completion of the Offering. Mr. Kraska has served as the
Administrator of the Founding Practice, since June 1994. Prior to joining the
Founding Practice, Mr. Kraska provided hospital administration, physician
recruiting and practice management services as the Regional Director of
Professional Relations for the Atlanta division of National Medical Enterprises
from July 1993 to May 1994, for Charter Medical Corporation --
47
<PAGE> 50
Charter Peachford Hospital from September 1992 to June 1993 and as the
Administrator for The Center For Psychiatry, a large multi-specialty mental
health group practice, from March 1990 to August 1992.
Edward R. Casas, M.D. has served as a director of the Company since
November 1996. Dr. Casas is President of PrimeCare International, Inc., a
California-based multi-site primary care physician practice management concern.
Prior to joining PrimeCare in September of 1996, Dr. Casas served as Vice
President of Mergers and Acquisitions for the Physician Practice Management
Division of Caremark International Inc. Prior to joining Caremark International
in December 1992, Dr. Casas completed his active duty service as a designated
Flight Surgeon in support of Marine special operations and as a clinical
Departmental Head in Aerospace Medicine in the United States Navy. Prior to
completing his medical training, Dr. Casas was Executive Vice President of CES
Corporation, an investment banking concern. Dr. Casas is a graduate of
Northwestern University's Medical School and Kellogg Graduate School of
Management where he concurrently earned a Medical Doctorate, a Masters of
Management and a Masters in Public Health.
Steven L. Posar, M.D. will become a director of the Company concurrently
with the completion of the Offering. Dr. Posar currently serves as Senior Vice
President, Operations Group of AHI HealthCare Systems, Inc., a publicly traded
independent physician management company. Prior to joining AHI in 1991, Dr.
Posar served as Medical Director of Blue Cross of California, a managed care
payor with approximately 2.5 million enrollees in sponsored HMO and preferred
provider organization plans. Prior to joining Blue Cross of California, Dr.
Posar spent three years as Chief of Cigna Medical Center, and staff medical
director of Cigna Healthplan of Los Angeles, a staff model HMO with
approximately 450,000 enrollees. Dr. Posar received his M.D. degree from
Michigan State University.
Dr. Tritt and Mr. Benjamin were elected as directors of the Company
pursuant to an agreement entered into in connection with the formation of the
Company. See "Certain Transactions."
All directors hold office until the next annual meeting of stockholders or
until their successors are elected and qualified; vacancies and any additional
positions created by board action are filled by action of the existing Board of
Directors. Officers are elected to serve, subject to the discretion of the Board
of Directors, until their successors are appointed.
The Company has agreed for the five year period commencing upon
consummation of the Offering, to nominate, if requested by Barington Capital
Group, L.P., ("Barington") and use its best efforts (including the solicitation
of proxies) to elect one designee of Barington to the board of directors of the
Company. No designee has been chosen as of the date hereof.
The Board of Directors has established a Compensation Committee and an
Audit Committee. Upon completion of the Offering, the Compensation Committee
will consist of three directors. The Compensation Committee reviews and
recommends to the Board of Directors the compensation and benefits of all
officers of the Company, reviews general policy matters relating to compensation
and benefits of employees of the Company and administers the Company's stock
option plans.
Upon completion of the Offering, the Audit Committee will consist of three
directors. The Audit Committee is authorized to review, with the Company's
independent accountants, the scope and timing of audit services and any other
services that the accountants are asked to perform, their report on the
Company's financial statements following completion of their audit and the
Company's policies and procedures with respect to internal accounting and
financial controls. In addition, the Audit Committee makes annual
recommendations to the Board of Directors for the appointment of independent
public accountants for the ensuing year.
DIRECTOR COMPENSATION
Directors who are not officers or employees of the Company ("Independent
Directors") are entitled to compensation of $1,500 for each Board of Directors
meeting attended and are reimbursed for expenses actually incurred in connection
with attending such meetings. Independent Directors are also awarded initial
grants of non-qualified stock options to purchase 7,500 shares of Common Stock
upon joining the Board of
48
<PAGE> 51
Directors and annual grants of non-qualified stock options to purchase 2,500
shares of Common Stock. All options are granted at the then fair market value.
See "-- Stock Option Plans" and "Certain Transactions."
LIMITATION ON LIABILITY; INDEMNIFICATION AGREEMENTS
The General Corporation Law of the State of Delaware permits a corporation
through its Certificate of Incorporation to eliminate the personal liability of
its directors to the corporation or its stockholders for monetary damages for
breach of fiduciary duty of loyalty and care as a director, with certain
exceptions. The exceptions include a breach of the director's duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, improper declarations of dividends, and transactions
from which the directors derived an improper personal benefit. The Company's
Certificate of Incorporation exonerates its directors from monetary liability to
the fullest extent permitted by this statutory provision but does not restrict
the availability of non-monetary and other equitable relief. The Company's By-
Laws provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by Delaware Law. See "Description of Capital Stock."
The Company also intends to enter into Indemnification Agreements with each
of its directors and executive officers. Each such Indemnification Agreement
will provide that the Company will indemnify the indemnitee against expenses,
including reasonable attorney's fees, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any civil or criminal action or administrative proceeding arising out of the
performance of his duties as an officer, director, employee or agent of the
Company. Such indemnification will be available if the acts of the indemnitee
were in good faith, if the indemnitee acted in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal proceeding, the indemnitee had no reasonable cause to believe
his conduct was unlawful.
EXECUTIVE COMPENSATION
As the Company was not organized until July 1996, the Company did not
accrue or pay any compensation to any of its executive officers in the year
ended December 31, 1995 or to date. Compensation to executive officers will be
governed by employment agreements between the Company and such executive
officers.
EMPLOYMENT AGREEMENTS
On November 26, 1996, the Company entered into employment agreements with
Ramie A. Tritt, M.D., Richard D. Ballard and Gerald R. Benjamin (effective as of
the date of this Prospectus with respect to each of Dr. Tritt and Mr. Benjamin).
Pursuant to the employment agreements, Dr. Tritt, Mr. Ballard and Mr. Benjamin
have agreed to serve as the Company's President, Chief Executive Officer and
Vice-Chairman, respectively. The employment agreements with Dr. Tritt, Mr.
Ballard and Mr. Benjamin, provide for an initial term of five, three and three
years, respectively, with automatic renewals for successive one year terms
unless terminated by either party.
The employment agreement with Dr. Tritt provides for an annual base salary
of $350,000 plus an annual bonus of up to 50% of his base salary, to be approved
by the Board of Directors, in consideration of his devoting approximately 50% of
his business time each week to serving as the President of the Company. The
agreement acknowledges that the remaining 50% of Dr. Tritt's business time each
week will be spent performing ENT medical and surgical services at the Founding
Practice for which time Dr. Tritt will be separately compensated. The employment
agreement with Dr. Tritt provides for increases in Dr. Tritt's annual base
salary, subject to approval of the Board of Directors, if the amount of time he
devotes as President of the Company is greater than anticipated. Upon the
consummation of the Reorganization, Dr. Tritt will also enter into an employment
agreement with the Founding Practice. The employment agreement with Mr. Ballard
provides for an annual base salary of $150,000 plus an annual bonus of up to 50%
of his base salary, to be approved by the Board of Directors. The employment
agreement with Mr. Benjamin provides that he will
49
<PAGE> 52
work part-time for the Company and will receive an annual base salary of $60,000
plus an annual bonus of up to 50% of his base salary, to be approved by the
Board of Directors.
Each employment agreement provides for termination of the executive's
employment by the Company prior to the expiration of its term in the event of
the executive's death or disability or for cause. Each employment agreement also
provides that either party may terminate the employment agreement, effective at
the end of the term or any renewal term, upon 60 days notice of termination. The
Company may terminate each employment agreement without cause and, upon such
termination, the executive will be entitled to receive his base salary for a
period of one year following the date of termination (subject to a 100% offset
for salary received from subsequent employment during such one year period
(subject to certain exclusion in the case of Dr. Tritt and Mr. Benjamin)). In
addition, each employment agreement provides that the executive may terminate
his employment agreement upon a change of control of the Company by providing at
least 30 days notice of termination. Upon termination of the employment
agreement following a change of control, the executive will be entitled to
severance compensation in the amount of two times his taxable compensation for
the previous fiscal year.
Pursuant to the employment agreements, each of the executives has agreed
not to compete with the Company, solicit any of the Company's customers or
employees or disclose any confidential information or trade secrets during the
term of their employment agreement and for certain periods of time following the
termination of such employment agreement.
STOCK OPTION PLANS
1996 STOCK OPTION PLAN
GENERAL
In November 1996, the Board of Directors adopted and the Company's
stockholders approved the 1996 Stock Option Plan (the "1996 Plan"), under which
550,000 shares of the Company's authorized but unissued Common Stock are
authorized for issuance pursuant to the grant by the Company of options to
officers, directors, employees, consultants and independent contractors of the
Company. The purposes of the 1996 Plan are to ensure the retention of existing
executive personnel, key employees, directors and consultants of the Company, to
attract and retain competent new executive personnel, key employees, directors
and consultants and to provide additional incentive to all such persons by
permitting them to participate in the ownership of the Company. The 1996 Plan
terminates in November 2006.
The 1996 Plan will be administered by the Board of Directors or a committee
of the Board of Directors. The 1996 Plan provides for automatic grants of
options to certain directors in the manner set forth below under "Directors'
Options."
Options granted under the 1996 Plan may be either incentive options or
non-qualified options. Incentive options granted under the 1996 Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Common Stock on the
date of the grant, except that the term of an incentive option granted under the
Plan to a stockholder owning more than 10% of the outstanding voting power of
the Company may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the Common Stock on the date of the grant.
To the extent that the aggregate fair market value, as of the date of grant, of
the shares for which incentive options become exercisable for the first time by
an optionee during the calendar year exceeds $100,000, the portion of such
option which is in excess of the $100,000 limitation will be treated as a
non-qualified option. Only employees of the Company or a subsidiary of the
Company shall be eligible to receive incentive options. Additionally, the
aggregate number of shares of Common Stock that may be subject to options
granted to any person in a calendar year shall not exceed 35% of the maximum
number of shares of Common Stock which may be issued from time to time under the
1996 Plan. Options granted under the 1996 Plan to officers, directors or
employees of the Company may be exercised only while the optionee is employed or
retained by the Company or within 90 days of the date of termination of the
employment relationship or directorship. However, options which are exercisable
at the time of termination by reason of death or permanent disability of the
optionee may be exercised within 12 months of the date of termination of the
employment relationship or directorship.
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<PAGE> 53
Upon the exercise of an option, payment may be made by cash or by any other
means that the Board of Directors or the committee determines.
As of November 30, 1996, the number of employees, officers and directors of
the Company eligible to receive grants under the 1996 Plan was approximately six
persons. The number of consultants and advisors to the Company eligible to
receive grants under the 1996 Plan is not determinable. An optionee may be
granted more than one option under the 1996 Plan. The Board of Directors or the
committee will, in its discretion, determine (subject to the terms of the 1996
Plan) who will be granted options, the time or times at which options shall be
granted, the number of shares subject to each option and whether the options are
incentive options or non-qualified options. In making such determination,
consideration may be given to the value of the services rendered by the
respective individuals, their present and potential contributions to the success
of the Company and its subsidiaries and such other factors deemed relevant in
accomplishing the purpose of the 1996 Plan.
Under the 1996 Plan, the optionee has none of the rights of a stockholder
with respect to the shares until such shares are issued upon the exercise of the
option. No adjustment shall be made for dividends or distributions or other
rights for which the record date is prior to the date of exercise, except as
provided in the 1996 Plan. During the lifetime of the optionee, an option shall
be exercisable only by the optionee. No option may be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of decent and distribution.
The Board of Directors may amend or terminate the 1996 Plan except that
stockholder approval is required for certain amendments to the 1996 Plan. No
action taken by the Board may materially and adversely affect any outstanding
option grant without the consent of the optionee.
Under current tax law, there are no Federal income tax consequences to
either the employee or the Company on the grant of non-qualified options if
granted under the terms set forth in the 1996 Plan. Upon exercise of a
non-qualified option, the excess of the fair market value of the shares subject
to the option over the option price (the "Spread") at the date of exercise is
taxable as ordinary income to the optionee in the year it is exercised and is
deductible by the Company as compensation for Federal income tax purposes, if
Federal income tax is withheld on the Spread. However, if the shares are subject
to vesting restrictions conditioned on future employment or the holder is
subject to the short-swing profits liability restrictions of Section 16(b) of
the Securities and Exchange Act of 1934 (the "Exchange Act") of (i.e., is an
executive officer, director or 10% stockholder of the Company) then taxation and
measurement of the Spread is deferred until such restrictions lapse, unless a
special election is made under Section 83(b) of the Code to report such income
currently without regard to such restrictions. The optionee's basis in the
shares will be equal to the fair market value on the date taxation is imposed
and the holding period commences on such date.
Incentive option holders incur no regular Federal income tax liability at
the time of grant or upon exercise of such option, assuming that the optionee
was an employee of the Company from the date the option was granted until 90
days before such exercise. However, upon exercise, the Spread must be added to
regular Federal taxable income in computing the optionee's "alternative minimum
tax" liability. An optionee's basis in the shares received upon exercise of an
incentive stock option will be the option price of such shares for regular
income tax purposes. No deduction is allowable to the Company for Federal income
tax purposes in connection with the grant or exercise of such option.
If the holder of shares acquired through exercise of an incentive option
sells such shares within two years of the date of grant of such option or within
one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary income, a Disqualifying Disposition may
result in taxable income subject to capital gains treatment if the sales
proceeds exceed the optionee's basis in the shares (i.e., the option price plus
the amount includable as ordinary income). The amount of the optionee's taxable
ordinary income will be deductible by the Company in the year of the
Disqualifying Disposition.
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<PAGE> 54
At the time of sale of shares received upon exercise of an option (other
than a Disqualifying Disposition of shares received upon the exercise of an
incentive option), any gain or loss is deemed long-term or short-term capital
gain or loss, depending upon the holding period. The holding period for
long-term capital gain or loss treatment is more than one year.
The foregoing is not intended to be an exhaustive analysis of the tax
consequences relating to stock options issued under the 1996 Plan. For instance,
the treatment of options under state and local tax laws, which is not described
above, may differ from the treatment for Federal income tax purposes.
As of November 27, 1996, 227,500 options have been granted under the 1996
Plan at an exercise price of $6.80 per share, of which 165,000, 55,000 and 7,500
options were granted to Mr. Ballard, Mr. Kraska and Dr. Casas, respectively. As
of November 27, 1996, 41,250 and 13,750 of the options granted to Mr. Ballard
and Mr. Kraska, respectively, have vested and all of the options granted to Dr.
Casas have vested. 7,500 options have been granted to Dr. Posar, effective upon
completion of the Offering, at an exercise price equal to the initial public
offering price, all of which will vest on the closing date.
Directors' Options
The 1996 Plan provides for the automatic grant of non-qualified stock
options to purchase shares of Common Stock ("Director Options") to directors of
the Company who are not employees or principal stockholders of the Company
("Eligible Directors"). Eligible Directors of the Company elected after the date
hereof will be granted Director Options to purchase 7,500 shares of Common Stock
on the date they are first elected or appointed a director (an "Initial Director
Option"). Further, commencing on the day immediately following the date of the
annual meeting of stockholders for the Company's fiscal year ending December 31,
1997, each Eligible Director, other than directors who received an Initial
Director Option since the last annual meeting, will be granted Director Options
to purchase 2,500 shares of Common Stock ("Automatic Grant") on the day
immediately following the date of each annual meeting of stockholders, as long
as such director is a member of the Board of Directors. The exercise price for
each share subject to a Director Option shall be equal to the fair market value
of the Common Stock on the date of grant. Director Options will expire the
earlier of 10 years after the date of grant or 90 days after the termination of
the director's service on the Board of Directors.
1996 HEALTH CARE PROFESSIONALS STOCK OPTION PLAN.
In November, 1996, the Company adopted the 1996 Health Care Professionals
Stock Option Plan (the "1996 Professionals Plan"), under which 275,000 shares of
the Company's authorized but unissued Common Stock are authorized for issuance
pursuant to the grant by the Company of options to physicians or dentists who
are employed by the Company's affiliated practices or who provide medical and
surgical services to enrollees of managed care contracts held by the Company.
The purposes of the 1996 Professionals Plan are to ensure the retention of
existing physicians and dentists, to attract and retain competent new physicians
and to provide additional incentive to all such persons by permitting them to
participate in the ownership of the Company. The 1996 Professionals Plan
terminates in November 2006.
The 1996 Professionals Plan will be administered by the Board of Directors
or a committee of the Board of Directors. Options granted under the 1996
Professionals Plan will be non-qualified options and will vest over a period of
five years. Generally, such options will expire upon the termination of
employment or the advisory or consultant relationship with the Company or on the
day prior to the 10th anniversary of the date of grant, whichever occurs first.
The options granted under the 1996 Professionals Plan will be exercisable at an
exercise price which is not less than the fair market value of the Common Stock
on the date of grant.
As of November 27, 1996, no options under the 1996 Professionals Plan have
been granted.
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<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock for (i) each person known by the Company to own beneficially
more than five percent of the outstanding voting stock, (ii) each director and
named executive officer of the Company and (iii) all executive officers and
directors of the Company as a group, prior to the Offering and as adjusted to
give effect to the sale of the Common Stock offered hereby and the issuance of
the Common Stock in connection with the Reorganization.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
NUMBER OF SHARES BENEFICIALLY
BENEFICIALLY OWNED(2) OWNED(2)
---------------------- -------------------
NAME AND ADDRESS OF BEFORE AFTER BEFORE AFTER
BENEFICIAL OWNER(1) OFFERING OFFERING OFFERING OFFERING
- ------------------------------------------------------ -------- --------- -------- --------
<S> <C> <C> <C> <C>
Ramie A. Tritt, M.D.(3)............................... 286,225 1,629,952 51.0% 30.6%
Bock, Benjamin & Co., Partners(4)..................... 275,000 275,000 49.0 5.2
3414 Peachtree Road
Suite 238
Atlanta, Georgia 30326
Gerald R. Benjamin(4)................................. 275,000 275,000 49.0 5.2
Richard D. Ballard(5)................................. 41,250 41,250 6.8 *
Lawrence P. Kraska(6)................................. 13,750 13,750 2.4 *
Edward R. Casas, M.D.(7).............................. 7,500 7,500 1.3 *
Steven L. Posar, M.D.(8).............................. -- 7,500 -- *
Michael J. Pickford, M.D.(9).......................... -- 296,270 -- 5.6
Keith R. Jackson, M.D.(9)............................. -- 278,704 -- 5.2
All executive officers and directors of the Company as
a group (6 persons)(10)............................. 623,725 1,974,952 100.0% 36.6%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address is c/o Physicians' Specialty Corp.,
The Medical Quarters, 5555 Peachtree Dunwoody Road, Suite 235, Atlanta,
Georgia 30342. Except as otherwise indicated, each of the parties listed
above has sole voting and investment power over the shares owned.
(2) In computing the number and percentage ownership of shares beneficially
owned by a person, shares of Common Stock subject to options held by that
person that are exercisable within 60 days are deemed outstanding. Such
shares, however, are not deemed outstanding for purposes of computing the
percentage ownership of stockholders other than such person.
(3) Includes 1,343,727 shares to be issued or distributed to Dr. Tritt, the
Chairman of the Board and President of the Company, in connection with the
Reorganization, based upon an assumed initial public offering price of
$9.50 per share. The Company will issue an aggregate of 2,767,500 shares of
Common Stock in connection with the Reorganization and the number of shares
to be issued to be allocated between the Founding Practice and the ENT
Networks, and accordingly, to be issued or distributed to Dr. Tritt, are
subject to adjustment. See "The Reorganization" and "Certain Transactions."
(4) Mr. Benjamin, the Vice Chairman of the Board and Secretary of the Company,
is a partner in Bock, Benjamin & Co., Partners. Mr. Benjamin may be deemed
to beneficially own these shares of Common Stock.
(5) Represents shares of Common Stock issuable upon exercise of options that are
immediately exercisable. Excludes 123,750 shares of Common Stock issuable
upon exercise of options which are not exercisable within 60 days.
(6) Represents shares of Common Stock issuable upon exercise of options that are
immediately exercisable. Excludes 41,250 shares of Common Stock issuable
upon exercise of options which are not exercisable within 60 days.
(7) Represents shares of Common Stock issuable upon exercise of options that are
immediately exercisable.
(8) Represents shares of Common Stock issuable upon exercise of options which
have been granted, effective upon completion of the Offering, that are
immediately exercisable.
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<PAGE> 56
(9) Represents shares of Common Stock to be issued to such stockholder in
connection with the acquisition of the Founding Practice, based upon an
assumed initial public offering price of $9.50 per share and upon such
stockholder's percentage ownership of the Founding Practice. See "The
Reorganization" and "Certain Transactions."
(10) Includes 62,500 shares of Common Stock issuable upon exercise of options
that are immediately exercisable. In addition, upon completion of the
Offering, includes 7,500 shares of Common Stock issuable upon exercise of
options granted to Dr. Posar that are immediately exercisable. Excludes
165,000 shares of Common Stock issuable upon exercise of options which are
not exercisable within 60 days.
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<PAGE> 57
CERTAIN TRANSACTIONS
FORMATION TRANSACTIONS
In connection with the formation of the Company in July 1996, Ramie A.
Tritt, M.D. and Bock, Benjamin & Co., Partners, a partnership in which Gerald R.
Benjamin, the Company's Vice Chairman and Secretary, is a partner, each
purchased 275,000 shares of Common Stock at a purchase price of approximately
$.0018 per share. In November 1996, Dr. Tritt purchased an additional 11,225
shares of Common Stock at a purchase price of approximately $.0042 per share.
Dr. Tritt and Bock, Benjamin & Co., Partners have "piggyback" registration
rights with respect to the shares of Common Stock held by them.
In July 1996, the Founding Practice, Dr. Tritt, Mr. Benjamin and two
entities whose principal stockholders were former directors of the Company (the
"Former Directors") loaned $170,500, $33,500, $33,500 and an aggregate of
$247,500, respectively, to the Company for legal, accounting and other fees in
connection with the formation of the Company, the Offering and the
Reorganization. The loans are evidenced by promissory notes bearing interest at
a prime rate as announced by NationsBank, and payable on the closing of the
Offering. The Company has agreed in principle to enter into a termination
agreement which provides for approximately $77,472 of the loans made by the
Former Directors to be paid upon execution of such agreement and the outstanding
balance of such loans to be paid at the closing of the Offering. In addition, at
the closing of the Offering, the Company will pay $250,000 to Premier
HealthCare, a corporation of which Mr. Benjamin is a principal, for consulting
services in connection with the formation of the Company, the Offering and the
Reorganization. See "Use of Proceeds."
THE REORGANIZATION
Concurrently with the closing of the Offering, the Company will acquire
substantially all of the assets of the Founding Practice and will acquire all of
the outstanding shares of common stock of ENT Networks from Dr. Tritt (the
"Seller"). In connection with the Reorganization, the Company will issue an
aggregate of 2,767,500 shares of Common Stock to the Founding Practice and to
the Seller. The allocation of such shares between the Founding Practice and the
Seller will be based upon the initial public offering price of the Common Stock,
with the number of shares of Common Stock issuable to the Seller to equal
$7,750,000 divided by the initial public offering price and the remainder
issuable to the Founding Practice. Based upon an assumed initial public offering
price of $9.50 per share, the Seller will receive 815,789 shares of Common Stock
and the Founding Practice will receive 1,951,711 shares of Common Stock (of
which 527,938 will be distributed to Dr. Tritt, based on his percentage
ownership of the Founding Practice).
The assets of the Founding Practice will be acquired pursuant to an Asset
Acquisition Agreement, dated as of November 25, 1996, by and among PSC
Management, the Company, the Founding Practice and the Acquisition Stockholders,
(the "Asset Acquisition Agreement"). The Asset Acquisition Agreement provides
for the Company, through PSC Management, to acquire, on the closing date of the
Offering, substantially all of the assets (other than certain excluded assets
such as employment agreements and patient charts, records and files) and
liabilities (other than certain excluded liabilities) of the Founding Practice.
The Founding Practice will remain liable for the payment of excluded
liabilities, if any, under the Asset Acquisition Agreement. The Asset
Acquisition Agreement provides that all of the non-physician employees of the
Founding Practice will be offered employment with PSC Management upon the
closing of the acquisition. Under the Asset Acquisition Agreement, the Founding
Practice and the Acquisition Stockholders have agreed that for a period of five
years following the closing of the acquisition they will not compete with the
Company within an eight mile radius of any of the primary offices of the
Founding Practice (the "Geographic Territory"), will not solicit customers of
the Company within the Geographic Territory and will not solicit employees of
the Company.
The Asset Acquisition Agreement contains representations and warranties and
indemnification by each of the parties to the agreement. The closing of the
acquisition is conditioned upon, among other things, the execution and delivery
of (i) an employment agreement between each of the Acquisition Stockholders and
the Founding Practice, (ii) a management services agreement between PSC
Management, the Company and the
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<PAGE> 58
Founding Practice and (iii) a registration rights agreement between the Company
and each of the Acquisition Stockholders, pursuant to which the Acquisition
Stockholders will have "piggyback" registration rights with respect to their
shares of Common Stock.
In addition, pursuant to the Acquisition Agreement, dated as of November
25, 1996, by and among PSC Acquisition, the Company, the Seller and the ENT
Networks (the "Stock Acquisition Agreement"), the Company, through PSC
Acquisition, will acquire, on the closing date of the Offering, all of the
outstanding shares of common stock of the corporations comprising the ENT
Networks. The Stock Acquisition Agreement contains representations and
warranties and indemnification by each of the parties to the agreement. The
closing of the Stock Acquisition Agreement is conditioned upon, among other
things, the execution of a registration rights agreement between the Company and
the Seller pursuant to which the Seller will have "piggyback" registration
rights with respect to the shares of Common Stock received by him pursuant to
such agreement. In August 1996, the Company, through PSC Management, acquired
certain assets (primarily computer hardware) of and entered into a management
agreement with the ENT Networks, which agreement will terminate upon the
consummation of the Reorganization, and began utilizing the Capitated Network
System. In connection with the acquisition of these assets, the Company executed
a promissory note payable to the ENT Networks in the principal amount of
$20,000, and bearing interest at a prime rate as announced by NationsBank which
note will be paid, and the proceeds distributed to Dr. Tritt upon consummation
of the Reorganization. See "The Reorganization," "Business -- The Founding
Practice and The ENT Networks" and "-- Company Operations -- Management Services
Agreement."
The Company intends to use a portion of the net proceeds of this Offering
to repay outstanding indebtedness, including accrued interest, of the Founding
Practice which at September 30, 1996 aggregated approximately $1,204,000. In
connection with the repayment of this indebtedness, guarantees made by Dr.
Tritt, Michael J. Pickford, M.D. and Keith R. Jackson, M.D., principal
stockholders of the Company, upon consummation of the Reorganization for 45%,
15% and 15%, respectively, of such indebtedness will be cancelled. See "Risk
Factors -- Benefits to Insiders of the Offering" and "Use of Proceeds."
LEASES
The Founding Practice leases its administrative offices and one clinical
location from Dr. Tritt. The lease provides for monthly rental payments of
approximately $39,500, subject to annual increases. Upon consummation of the
Reorganization, the Company will assume the Founding Practice's obligations
under this lease.
The Founding Practice leases one clinical location from Duluth Professional
Center, L.P., a Georgia limited partnership, of which Dr. Pickford, is a limited
partner. The lease provides for monthly rental payments of approximately $3,255,
subject to annual increases. Upon consummation of the Reorganization, the
Company will assume the Founding Practice's obligations under this lease.
The Founding Practice leases one clinical location from Eastside Physicians
Center, L.P., a Georgia limited partnership, of which Dr. Tritt, Dr. Pickford
and Dr. Jackson are limited partners. The lease provides for monthly rental
payments of approximately $5,500, subject to annual increases. Upon consummation
of the Reorganization, the Company will assume the Founding Practice's
obligations under this lease.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors of the Board of
Directors.
DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of the terms of the capital stock of the
Company. Such summary is qualified in its entirety by reference to the Company's
Certificate of Incorporation (the "Charter"), attached as an exhibit hereto and
to the applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL").
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The Company's authorized capital stock currently consists of 50,000,000
shares of Common Stock, $.001 par value, and 10,000 shares of Preferred Stock,
$1.00 par value.
COMMON STOCK
Immediately prior to the date hereof, there were 561,225 shares of Common
Stock outstanding held by two stockholders of record. Holders of shares of
Common Stock are entitled to one vote at all meetings of stockholders for each
share held by them and are not entitled to cumulative voting. Holders of Common
Stock have no preemptive rights, no other rights to subscribe for additional
shares of the Company, and no conversion rights or rights of redemption. Subject
to preferences that may be applicable to any outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." Upon liquidation, all holders of Common Stock are entitled to
participate pro rata in the assets of the Company available for distribution,
subject to the rights of any class of preferred stock then outstanding. All of
the outstanding shares of Common Stock are, and the shares to be issued pursuant
to the Offering will be, when issued, fully paid and nonassessable.
PREFERRED STOCK
None of the 10,000 shares of Preferred Stock authorized by the Company's
Charter will be issued or outstanding upon completion of the Offering. The Board
of Directors has the authority to issue Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series of the designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect the
voting and other rights of the holders of Common Stock, including the loss of
voting control to others.
UNDERWRITERS' WARRANTS
The Company has agreed to grant to the Underwriters, upon the closing of
the Offering, the Underwriters' Warrants to purchase up to 200,000 shares of
Common Stock. The Underwriters' Warrants cannot be transferred, sold, assigned
or hypothecated for one year, except to any successor, officer or partner of
each of the Underwriters. The Underwriters' Warrants are exercisable during the
four-year period commencing one year from the date of this Prospectus at an
exercise price of $ per share of Common Stock (120% of the initial
public offering price) subject to adjustment in certain events to protect
against dilution. The holders of the Underwriters' Warrants have certain demand
and piggyback registration rights. See "Underwriting."
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER, BY-LAWS AND CERTAIN OTHER
AGREEMENTS
Stockholders' rights and related matters are governed by the DGCL, the
Charter and the By-Laws. Certain provisions of the DGCL, the Charter and the
By-Laws, which are summarized below, may discourage or make more difficult a
takeover attempt that a stockholder might consider in its best interest. Such
provisions may also adversely affect prevailing market prices for the Common
Stock.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
The By-Laws contain advance notice procedures with regard to stockholder
proposals and the nomination, other than by or at the direction of the Board of
Directors or a committee thereof, of candidates for election as directors of the
Company. These procedures provide that notice of stockholder proposals and
stockholder nominations for the election of directors at an annual meeting must
be in writing and received by the Secretary of the Company no later than 60 days
nor more than 90 days prior to such annual meeting (or if less than 70 days'
notice of a meeting of stockholders is given, stockholder proposals and
nominations must be
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delivered to the Secretary of the Company no later than the close of business on
the tenth day following the day notice was mailed). The notice of stockholder
nominations must set forth certain information with respect to each nominee who
is not an incumbent director.
Business Combination Provisions
The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who have
acquired at least 15% of a corporation's stock. Under such statute a corporation
may not engage in any business combination with any interested stockholder for a
period of three years after the date such person became an interested
stockholder unless certain conditions are satisfied. The statute contains
provisions enabling a corporation to avoid the statute's restrictions.
The Company has not sought to "elect out" of the statute, and, therefore,
upon closing of the Offering and the registration of its shares of Common Stock
under the Exchange Act, the restrictions imposed by such statute will apply to
the Company.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
The Charter provides that a director or officer of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director or officer, except for liability (i) for
any breach of the director's or officer's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL which concerns unlawful payment of dividends, stock purchases or
redemptions or (iv) for any transaction from which the director or officer
derived an improper personal benefit.
While the Charter provides directors and officers with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Charter will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's or officer's breach of his duty of care.
The Company intends to enter into Indemnification Agreements with each of
its directors and executive officers. Each such Indemnification Agreement will
provide that the Company will indemnify the indemnitee against expenses,
including reasonable attorney's fees, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any civil or criminal action or administrative proceeding arising out of the
performance of his duties as an officer, director, employee or agent of the
Company. Such indemnification will be available if the acts of the indemnitee
were in good faith, if the indemnitee acted in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal proceeding, the indemnitee had no reasonable cause to believe
his conduct was unlawful. See "Management -- Limitation on Liability;
Indemnification Agreements."
TRANSFER AGENT AND REGISTRAR
SunTrust Corp. will act as transfer agent and registrar for the Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 5,328,725 shares of
Common Stock outstanding, assuming that the Underwriters' over-allotment option
is not exercised. Of these shares, the 2,000,000 shares offered hereby will be
freely tradeable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act ("Rule 144") described below. The
remaining 3,328,725 shares outstanding upon completion of the Offering
(including the shares of Common Stock issued in connection with the
Reorganization) are "restricted securities" as that term is defined under Rule
144 (the "Restricted Shares") and may not be sold publicly unless they are
registered under the Securities Act or are sold pursuant to Rule 144 or another
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exemption from registration. 550,000 Restricted Shares issued in connection with
the formation of the Company will become eligible for sale pursuant to Rule 144
commencing July 1998.
Beginning 90 days after the date of this Prospectus, certain shares
issuable upon exercise of options granted by the Company prior to the date of
this Prospectus will also be eligible for sale in the public market pursuant to
Rule 701 under the Securities Act. In general, Rule 701 permits resales of
shares issued pursuant to certain compensatory benefit plans and contracts
commencing 90 days after the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirements, contained in Rule 144. If all the requirements of
Rule 701 are met, an aggregate of approximately 62,500 shares of Common Stock
issuable upon exercise of outstanding options will be eligible for sale pursuant
to such rule beginning 90 days after the date of this Prospectus.
Notwithstanding the foregoing, all stockholders of the Company prior to the
Offering, have agreed not to sell, transfer or otherwise dispose of any shares
of the Company's Common Stock without the prior written consent of Barington
Capital Group, L.P., on behalf of the Underwriters for a period of 12 months
after the date of this Prospectus. See "Underwriting."
In general under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years,
including persons who may be deemed to be "affiliates" of the Company, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) one percent of the then outstanding shares of Common
Stock or (ii) the average weekly trading volume in the Common Stock during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain requirements as to the manner of sale, notice and the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned for at least three years the
shares proposed to be sold, would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above.
The Commission has proposed certain amendments to Rule 144 that would
reduce to one year the holding period required prior to restricted securities
becoming eligible for resale in the public market under Rule 144 and would
reduce to two years the holding period required prior to a person becoming
eligible to effect sales under Rule 144(k). This proposal, if adopted, would
result in a substantial number of shares of Common Stock becoming eligible for
resale in the public markets significantly sooner than would otherwise be the
case, which could adversely affect the market price for the Common Stock. No
assurance can be given concerning whether or when such proposal will be adopted
by the Commission.
Holders of the Underwriters' Warrants have certain demand and piggyback
registration rights. In addition, the Existing Stockholders and the Acquisition
Stockholders have "piggyback" registration rights with respect to their shares
of Common Stock. See "Certain Transactions," "Description of Capital Stock --
Underwriters' Warrants" and "Underwriting."
Prior to the Offering, there has been no market for the Common Stock of the
Company, and the Company cannot predict what effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices and the ability of the Company to
raise equity capital in the future.
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UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
each of the Underwriters named below has severally agreed to purchase from the
Company, and the Company has agreed to sell to such Underwriter, the respective
number of shares of Common Stock set forth opposite the name of such
Underwriter:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Barington Capital Group, L.P..............................................
Total...........................................................
---------
2,000,000
</TABLE>
The several Underwriters have agreed to purchase all of the shares of
Common Stock offered hereby (other than shares that may be purchased under the
Over-Allotment Option) if any are purchased. The Underwriters propose initially
to offer the shares to the public at the price set forth on the cover page of
this Prospectus. The Underwriters may allow a selling concession not exceeding
$ per share of Common Stock to certain dealers. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to other dealers. The public offering price and concessions may be
changed by the Underwriters after the initial public offering.
The Company has granted an option to the Underwriters during the 45-day
period after the date of this Prospectus, to purchase up to an aggregate of
300,000 additional shares of Common Stock at the public offering price, less the
underwriting discounts and commissions. The Underwriters may exercise the option
only for the purpose of covering over-allotments made in connection with the
sale of the Common Stock offered hereby. To the extent that the Underwriters
exercise their option, each Underwriter will be committed, subject to certain
conditions, to purchase a number of such additional shares proportionate to such
Underwriter's initial commitment.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriters a non-accountable expense allowance equal
to 3% of the aggregate offering price of the shares of Common Stock offered
hereby (including any shares of Common Stock purchased pursuant to the
Over-Allotment Option) of which $35,000 has been paid to date.
The Company has also agreed to sell to the Underwriters, upon the closing
of the Offering for nominal consideration, the Underwriters' Warrants to
purchase up to 200,000 shares of Common Stock. The Underwriters' Warrants cannot
be transferred, sold, assigned or hypothecated for one year, except to any
successor, officer or partner of each of the Underwriters. The Underwriters'
Warrants are exercisable during the four-year period commencing one year from
the date of this Prospectus at an exercise price of $ per share of
Common Stock (120% of the initial public offering price) subject to adjustment
in certain events to protect against dilution. The Company has agreed to
register during the four-year period commencing one year after the date of this
Prospectus, on two separate occasions, the securities issuable upon exercise
thereof under the Securities Act, the initial such registration to be at the
Company's expense and the second at the expense of the holders. The Company has
also granted certain piggyback registration rights to the holders of the
Underwriters' Warrants.
The Underwriters have advised the Company that they do not intend to
confirm sales to accounts over which they exercise discretionary authority.
The Company, its directors and officers and the holders of all of the
Company's outstanding Common Stock have agreed with the Underwriter not to sell,
contract to sell or otherwise dispose of any of the Company's securities held by
them for a period of 12 months following the date of this Prospectus without the
prior written consent of Barington Capital Group, L.P., on behalf of the
Underwriters, except for certain exceptions and under certain circumstances.
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The Company has agreed for the five year period commencing upon
consummation of the Offering, to nominate, if requested by Barington, and use
its best efforts (including the solicitation of proxies) to elect one designee
of Barington to the board of directors of the Company. No designee has been
chosen as of the date hereof.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the public offering price has been determined by
arms-length negotiation between the Company and the Underwriters and does not
necessarily bear any relationship to the Company's book value, assets, past
operating results, financial condition, or other established criteria of value.
Factors considered in determining such price included an assessment of the
Company's recent financial results and current financial condition, future
prospects of the Company, the qualifications of the Company's management, the
general condition of the securities markets and other relevant factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bachner, Tally, Polevoy & Misher LLP, New York, New
York. The statements in the Prospectus under "Risk Factors -- Government
Regulation," "-- Healthcare Reform Proposals" and "Business -- Government
Regulation" are the subject of an opinion by Reed Smith Shaw & McClay,
Washington, D.C., regulatory counsel to the Company. Certain legal matters will
be passed upon for the Underwriters by Kramer, Levin, Naftalis & Frankel, New
York, New York.
EXPERTS
The audited financial statements of Atlanta Ear, Nose & Throat Associates,
P.C., the ENT Networks and Physicians' Specialty Corp. included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts giving said reports.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (the "Commission") in
Washington, D.C. with respect to the shares of Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules, which may be inspected without charge
at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Reports and other information filed by the Company with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at the following addresses: New York Regional Office, Seven World
Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. PHYSICIANS' SPECIALTY CORP.
Report of Independent Public Accountants.......................................... F-2
Consolidated Balance Sheets at September 30, 1996................................. F-3
Consolidated Statement of Operations for the Period from Inception (July 31, 1996)
to September 30, 1996........................................................... F-4
Consolidated Statement of Stockholders' Equity for the Period from Inception (July
31, 1996) to September 30, 1996................................................. F-5
Consolidated Statement of Cash Flows for the Period from Inception (July 31, 1996)
to September 30, 1996........................................................... F-6
Notes to Consolidated Financial Statements........................................ F-7
II. ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C.
Report of Independent Public Accountants.......................................... F-9
Balance Sheets at December 31, 1995 and 1994 and September 30, 1996 (unaudited)... F-10
Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 and
for the Nine Months Ended September 30, 1996 and 1995 (unaudited)............... F-11
Statements of Owners' Equity for the Years Ended December 31, 1995, 1994 and 1993
and for the Nine Months Ended September 30, 1996 (unaudited).................... F-12
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 and
for the Nine Months Ended September 30, 1996 and 1995 (unaudited)............... F-13
Notes to Financial Statements..................................................... F-14
III. THE ENT NETWORKS
Report of Independent Public Accountants.......................................... F-19
Combined Balance Sheets at December 31, 1995 and 1994 and September 30, 1996
(unaudited)..................................................................... F-20
Combined Statements of Operations for the Years Ended December 31, 1995, 1994 and
1993 and for the Nine Months Ended September 30, 1996 and 1995 (unaudited)...... F-21
Combined Statements of Owner's Equity for the Years Ended December 31, 1995, 1994
and 1993 and for the Nine Months Ended September 30, 1996 (unaudited)........... F-22
Combined Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993 and for the Nine Months Ended September 30, 1996 and 1995 (unaudited)...... F-23
Notes to Combined Financial Statements............................................ F-24
IV. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Balance Sheet at September 30, 1996.................. P-2
Unaudited Pro Forma Combined Statement of Operations for the Nine Months Ended
September 30, 1996.............................................................. P-3
Unaudited Pro Forma Combined Statement of Operations for the Year Ended December
31, 1995........................................................................ P-4
Notes to Unaudited Pro Forma Combined Financial Statements........................ P-5
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Physicians' Specialty Corp.:
We have audited the accompanying consolidated balance sheet of PHYSICIANS'
SPECIALTY CORP. (a Delaware corporation) as of September 30, 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the period from inception (July 31, 1996) to September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Physicians' Specialty Corp.
as of September 30, 1996 and the results of their operations and their cash
flows for the period from inception (July 31, 1996) to September 30, 1996 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
November 13, 1996
F-2
<PAGE> 66
PHYSICIANS' SPECIALTY CORP.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 322,184
Accounts receivable........................................................... 14,617
--------
336,801
--------
EQUIPMENT, net (Notes 2 and 3).................................................. 19,333
DEFERRED OFFERING COSTS AND OTHER (Note 2)...................................... 329,713
--------
Total................................................................. $ 685,847
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued interest......................................... $ 184,758
Short-term debt (Note 4)...................................................... 505,000
--------
689,758
--------
STOCKHOLDERS' EQUITY (Note 6):
Preferred stock, $1.00 par value; 10,000 shares authorized; no shares issued
and outstanding............................................................ 0
Common stock, $0.001 par value; 50,000,000 shares authorized; 550,000 shares
issued and outstanding..................................................... 550
Additional paid-in capital.................................................... 450
Accumulated deficit........................................................... (4,911)
--------
Total stockholders' equity............................................ (3,911)
--------
Total liabilities and stockholders' equity............................ $ 685,847
========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 67
PHYSICIANS' SPECIALTY CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(JULY 31,
1996) TO
SEPTEMBER 30,
1996
-------------
<S> <C>
REVENUES........................................................................ $14,617
-------
OPERATING EXPENSES:
Salaries, wages, and benefits................................................. 13,289
General and administrative expenses........................................... 5,517
Depreciation and amortization................................................. 722
-------
19,528
-------
NET LOSS........................................................................ $(4,911)
=======
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-4
<PAGE> 68
PHYSICIANS' SPECIALTY CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JULY 31, 1996)
TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, inception (July 31, 1996)............. 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock..................... 550,000 550 450 0 1,000
Net loss..................................... 0 0 0 (4,911) (4,911)
------- ------ ---------- ----------- -------
BALANCE, September 30, 1996.................... 550,000 $550 $450 $(4,911) $(3,911)
======= ====== ======= ========= =======
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-5
<PAGE> 69
PHYSICIANS' SPECIALTY CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JULY 31, 1996)
TO SEPTEMBER 30, 1996
---------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................ $ (4,911)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization........................................ 722
Increase in accounts receivable...................................... (14,617)
Increase in accounts payable......................................... 184,758
Increase in other assets............................................. (1,100)
---------
Total adjustments............................................... 169,763
---------
Net cash provided by operating activities....................... 164,852
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................... (20,000)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under short-term debt........................................ 505,000
Issuance of common stock................................................ 1,000
Deferred offering costs................................................. (328,668)
---------
Net cash provided by financing activities....................... 177,332
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 322,184
---------
CASH AND CASH EQUIVALENTS, inception (July 31, 1996)...................... 0
---------
CASH AND CASH EQUIVALENTS, September 30, 1996............................. $ 322,184
=========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-6
<PAGE> 70
PHYSICIANS' SPECIALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. ORGANIZATION
Physicians' Specialty Corp. was organized in July of 1996 to provide
physician practice management services to medical groups specializing in
disorders and diseases of the ear, nose and throat.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Physicians' Specialty Corp. and its subsidiaries, all of which are wholly owned
(collectively, the "Company"). Intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash flows, cash and cash equivalents include cash on hand and in checking
and money market accounts.
EQUIPMENT
Equipment is recorded at cost. Depreciation is computed on the
straight-line method over the estimated service lives of depreciable assets
(five years). Maintenance and repairs are charged to expense as incurred. The
cost of renewals and betterments is capitalized and depreciated over the
applicable estimated useful lives. The cost and accumulated depreciation of
assets sold, retired, or otherwise disposed of are removed from the accounts,
and the related gain or loss is credited or charged to income.
DEFERRED OFFERING COSTS
The Company has capitalized legal and consulting expenses incurred through
September 30, 1996 related to a stock offering. These costs will be offset
against the proceeds upon completion of the stock offering.
ORGANIZATION COSTS
The Company has capitalized legal expenses incurred prior to July 31, 1996
related to the organization and start-up of the Company. These costs are
included in other assets on the balance sheet and are being amortized over a
three-year period.
REVENUE RECOGNITION
The Company recognizes revenue at the date management services are
provided.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the carrying amounts of financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable, and
short-term debt approximated their fair values as of September 30, 1996 due to
the relatively short maturity of these instruments.
F-7
<PAGE> 71
PHYSICIANS' SPECIALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EQUIPMENT
Equipment at September 30, 1996 consisted of the following:
<TABLE>
<S> <C>
Equipment.................................................................. $20,000
Less accumulated depreciation.............................................. (667)
-------
$19,333
=======
</TABLE>
4. SHORT-TERM DEBT
The Company's short-term debt at September 30, 1996 consisted of promissory
notes in principal amounts ranging from $20,000 to $170,500 and bearing simple
interest at a bank prime rate (6% at September 30, 1996). Amounts are payable to
various related party organizations and individuals. The short-term debt matures
at the earlier of the completion of a stock offering or June 30, 1997.
Management has the capacity to fund requisite cash operating needs.
5. INCOME TAXES
Deferred income tax assets and liabilities arise from differences between
the tax basis of an asset or liability and its reported amount in the financial
statements. Deferred tax balances are calculated by applying the provisions of
enacted tax law to determine the amount of taxes payable or refundable currently
or in future years.
Deferred tax assets for the Company arise mainly as a result of net
operating losses deductible for income tax purposes. The Company evaluates the
need for a valuation allowance related to the deferred tax assets based on
recent earnings, anticipated future operating profits, and the anticipated
reversal of taxable temporary differences, if any. Income tax net operating loss
carryforwards totaled approximately $4,900 as of September 30, 1996. A valuation
allowance was recorded at September 30, 1996 for approximately $1,900 to offset
this net deferred tax asset.
6. STOCKHOLDERS' EQUITY
Stockholders' equity includes the respective capital stock, additional
paid-in capital and accumulated deficit of the Company. Subsequent to the period
ended September 30, 1996, the Company declared a .6875 to 1 reverse stock split.
All financial information has been restated to reflect for the stock split.
7. RELATED-PARTY TRANSACTIONS
The Company is currently providing management services to the ENT Networks,
a related party.
The Company utilizes office space of a related party for which no rent or
other consideration is charged.
8. SUBSEQUENT EVENT
In November 1996, the Company adopted two stock option plans, the 1996
Stock Option Plan and the 1996 Health Care Professionals Stock Option Plan. The
Company has authorized up to 825,000 options to purchase shares under these
plans.
F-8
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlanta Ear, Nose, and Throat Associates, P.C.:
We have audited the accompanying balance sheets of ATLANTA EAR, NOSE, AND
THROAT ASSOCIATES, P.C. (a Georgia corporation) as of December 31, 1995 and 1994
and the related statements of operations, owners' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Atlanta Ear, Nose, and
Throat Associates, P.C. as of December 31, 1995 and 1994 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 15, 1996
F-9
<PAGE> 73
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1994 1996
---------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)...................... $ 401,517 $ 23,832 $ 455,135
Accounts receivable, less estimated allowances for
uncollectible accounts of $66,317, $34,619, and
$86,504 in 1995, 1994 and 1996, respectively (Note
2)................................................... 2,003,634 1,592,738 2,432,706
Prepayments and other................................... 23,180 19,071 60,402
---------- ---------- ----------
2,428,331 1,635,641 2,948,243
PROPERTY AND EQUIPMENT, net (Note 3)...................... 986,094 720,023 1,502,762
OTHER ASSETS.............................................. 21,735 8,473 205,342
---------- ---------- ----------
Total assets.................................... $3,436,160 $2,364,137 $ 4,656,347
========== ========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable (Note 4)............... $ 178,000 $ 286,190 $ 357,120
Accounts payable........................................ 112,473 171,326 141,661
Accrued compensation to owners.......................... 1,564,396 1,051,219 2,504,412
Other accrued liabilities............................... 713,769 559,880 740,478
---------- ---------- ----------
2,568,638 2,068,615 3,743,671
---------- ---------- ----------
NOTES PAYABLE, long-term (Note 4)......................... 802,000 230,000 847,154
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
OWNERS' EQUITY (Note 2):
Common stock, $1 par value; 10,000 shares authorized;
1,000 shares issued and outstanding.................. 1,000 1,000 1,000
Additional paid-in capital.............................. 64,522 64,522 64,522
Retained earnings....................................... 0 0 0
---------- ---------- ----------
Total owners' equity............................ 65,522 65,522 65,522
---------- ---------- ----------
Total liabilities and owners' equity............ $3,436,160 $2,364,137 $ 4,656,347
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-10
<PAGE> 74
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -----------------------
1995 1994 1993 1996 1995
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
NET PATIENT SERVICE REVENUES (Note
2)................................ $10,290,549 $8,123,653 $7,195,068 $9,522,449 $7,627,075
----------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages, and benefits..... 3,922,240 2,928,834 2,276,999 3,705,384 2,767,500
Compensation to
owner-physicians............... 3,961,310 3,343,812 3,169,990 3,339,477 3,030,408
General and administrative
expenses....................... 1,884,613 1,473,805 1,385,935 2,009,402 1,430,783
Bad debt expense.................. 233,069 109,694 60,788 229,100 178,125
Depreciation and amortization..... 275,072 258,818 262,349 262,879 206,304
----------- ---------- ---------- ---------- ----------
10,276,304 8,114,963 7,156,061 9,546,242 7,613,120
----------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS....... 14,245 8,690 39,007 (23,793) 13,955
OTHER (INCOME) EXPENSE, net......... 14,245 8,690 39,007 (23,793) 13,955
----------- ---------- ---------- ---------- ----------
NET INCOME.......................... $ 0 $ 0 $ 0 $ 0 $ 0
=========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE> 75
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.......................... 1,000 $1,000 $ 64,522 $0 $65,522
Net income.......................................... 0 0 0 0 0
--
----- ------ ------- -------
BALANCE, December 31, 1994.......................... 1,000 1,000 64,522 0 65,522
Net income.......................................... 0 0 0 0 0
--
----- ------ ------- -------
BALANCE, December 31, 1995.......................... 1,000 1,000 64,522 0 65,522
===== ====== ======= == =======
Net income (unaudited).............................. 0 0 0 0 0
--
----- ------ ------- -------
BALANCE, September 30, 1996 (unaudited)............. 1,000 $1,000 $ 64,522 $0 $65,522
===== ====== ======= == =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE> 76
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1995 1994 1993 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- ----------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization... 275,072 258,818 262,349 262,879 206,304
(Increase) decrease in assets:
Accounts receivable........... (410,896) (266,738) (29,000) (429,072) (128,578)
Prepayments and other
assets..................... (17,371) (1,650) (2,290) (220,829) (60,982)
Increase (decrease) in
liabilities:
Accounts payable.............. (58,853) (98,659) 116,202 29,188 (107,624)
Accrued liabilities........... 667,066 486,267 62,970 966,725 1,175,574
---------- ---------- ---------- ---------- ----------
Total adjustments.......... 455,018 378,038 410,231 608,891 1,084,694
---------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities..... 455,018 378,038 410,231 608,891 1,084,694
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (541,143) (162,435) (321,915) (779,547) (366,166)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes
payable......................... (286,000) (241,810) (222,447) (275,726) (220,000)
Borrowings under notes payable..... 749,810 0 170,000 500,000 0
---------- ---------- ---------- ---------- ----------
Net cash provided by (used
in) financing
activities............... 463,810 (241,810) (52,447) 224,274 (220,000)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 377,685 (26,207) 35,869 53,618 498,528
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 23,832 50,039 14,170 401,517 23,832
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 401,517 $ 23,832 $ 50,039 $ 455,135 $ 522,360
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest........................ $ 33,666 $ 40,379 $ 51,729 $ 64,050 $ 29,569
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE> 77
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. THE COMPANY AND BASIS OF PRESENTATION
Atlanta Ear, Nose, and Throat Associates, P.C. (the "Company") was
organized in 1988. The Company currently has seventeen physicians, fifteen
audiologists, six physician assistants, and over one hundred total employees.
The physicians within the group deal with a wide variety of ear, nose, and
throat specialties, including general otolaryngology, pediatric otolaryngology,
head and neck surgery, neuro-otology, and facial plastic surgery. The group also
provides comprehensive audiology services. There are currently fourteen office
locations throughout the metropolitan Atlanta area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
ACCOUNTS RECEIVABLE
Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances.
Contractual adjustments result from the differences between the rates charged by
the physicians for services performed and the amounts allowed by the Medicare
and Medicaid programs and other public and private insurers. An allowance for
uncollectible accounts has been established to provide for losses on
uncollectible accounts based on management's estimates and historical
collection.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed on
the straight-line method over the estimated service lives of depreciable assets
(life of the lease for leasehold improvements, five to seven years for
equipment, and seven years for furniture and fixtures). Maintenance and repairs
are charged to expense as incurred. The cost of renewals and betterments is
capitalized and depreciated over the applicable estimated useful lives. The cost
and accumulated depreciation of assets sold, retired, or otherwise disposed of
are removed from the accounts, and the related gain or loss is credited or
charged to income.
OWNERS' EQUITY
Owners' equity includes the respective capital stock, partnership capital
and retained earnings of the Company. Various types of agreements exist among
the owners which call for the transfer of a physician's ownership interest by
the continuing owners in the case of certain events such as the owner's
retirement or death.
F-14
<PAGE> 78
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the carrying amounts of financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
debt, approximated their fair values as of each balance sheet date because of
the relatively short maturity of these instruments.
NET PATIENT SERVICE REVENUES
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and others
for services rendered. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.
CONCENTRATION OF CREDIT RISK
The Company extends credit to patients covered by insurance programs such
as governmental programs like Medicare and Medicaid and private insurers. The
Company manages credit risk with the various public and private insurance
providers, as appropriate. Allowances for doubtful accounts have been made for
potential losses, where appropriate.
INTERIM FINANCIAL STATEMENTS
The Company has made all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the financial condition of the
Company as of September 30, 1996 and the results of operations for the nine
months ended September 30, 1995 and 1996, as presented in the accompanying
unaudited financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 and September 30, 1996
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER
1995 1994 30, 1996
---------- ---------- ------------
<S> <C> <C> <C>
Leasehold improvements........................ $ 225,519 $ 145,843 $ 378,546
Equipment..................................... 1,588,376 1,148,649 1,797,055
Furniture and fixtures........................ 152,905 140,021 570,746
---------- ---------- ----------
1,966,800 1,434,513 2,746,347
Less accumulated depreciation................. (980,706) (714,490) (1,243,585)
---------- ---------- ----------
$ 986,094 $ 720,023 $ 1,502,762
========== ========== ==========
</TABLE>
F-15
<PAGE> 79
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE
The Company's notes payable at December 31, 1995 and 1994 and September 30,
1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1994 1996
-------- -------- -------------
<S> <C> <C> <C>
Note payable to bank dated December 23, 1993;
principal of $848,000 and interest (at Prime
less 0.25%) due monthly through June 22, 1998;
secured by all property and equipment.......... $230,000 $516,190 $ 32,190
Note payable to bank dated December 26, 1995;
principal of $750,000 and interest (at Prime
less 0.25%) due monthly beginning December 26,
1995 through March 25, 1996 based on terms of
refinancing; secured by all property and
equipment...................................... 750,000 0 0
Note payable to bank dated July 11, 1996;
principal of $1,212,500 and interest (at Prime
less 0.25%) due monthly through July 10, 2001;
secured by accounts receivable and property and
equipment...................................... 0 0 1,172,084
-------- -------- ----------
980,000 516,190 1,204,274
Less current portion............................. 178,000 286,190 357,120
-------- -------- ----------
Notes payable due after one year................. $802,000 $230,000 $ 847,154
======== ======== ==========
</TABLE>
The aggregate maturities of notes payable at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996...................................................................... $178,000
1997...................................................................... 254,542
1998...................................................................... 152,542
1999...................................................................... 152,542
2000 and thereafter....................................................... 242,374
--------
$980,000
========
</TABLE>
5. INCOME TAXES
The Company has elected to be taxed as an S corporation as permitted by the
Internal Revenue Code. As an S corporation, the Company is not a taxable entity,
and separately stated items of income, loss, deduction, and credit are passed
through to and taken into account by the individual owners in computing their
federal and state individual income tax liabilities.
6. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan under Section 401(k) of
the Internal Revenue Code covering substantially all employees. The plan
requires that the Company provide a 25% matching contribution for up to 6% of an
employee's contribution base up to specified limitations. The total cost of the
Company's plan was approximately $9,755 and $5,991 in 1995 and 1994,
respectively.
F-16
<PAGE> 80
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases facilities under operating leases which expire at
various dates through December 2010. Future minimum lease payments under these
leases as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996..................................................................... $ 893,841
1997..................................................................... 838,264
1998..................................................................... 771,816
1999..................................................................... 648,336
2000 and thereafter...................................................... 5,129,024
</TABLE>
Lease expense for the years ended December 31, 1995, 1994, and 1993 and for
the nine months ended September 30, 1996 totaled approximately $597,000,
$471,000, $487,000 and $716,000, respectively.
INSURANCE
The Company is insured with respect to medical malpractice risks on a
claims made basis. Accordingly, coverage relates only to claims made during the
policy term. Historically, any claims paid have been within the insurance policy
limits. Management is not aware of any claims against it or its affiliated
medical practices which might have a material impact on the Company's financial
position or results of operations.
EMPLOYMENT AGREEMENTS
Certain management personnel and physician employees are covered by
employment agreements that vary in length from one to five years, which include,
among other terms, salary and benefits provisions. Future minimum payments under
these agreements as of December 31, 1995 are approximately:
<TABLE>
<S> <C>
1996..................................................................... $4,087,500
1997..................................................................... 950,000
1998..................................................................... 540,000
1999..................................................................... 140,000
2000 and thereafter...................................................... 0
</TABLE>
8. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect the
Company's financial position or results of operations.
9. RELATED-PARTY TRANSACTIONS
For the years ended December 31, 1995, 1994, and 1993, the Company paid
approximately $250,000 annually in rent for its location at the Medical Quarters
to a certain stockholder who owns this location.
For the year ended December 31, 1995, the Company paid approximately
$38,000 in rent for its Snellville location to a partnership in which certain
stockholders are partners.
For the years ended December 31, 1995, 1994, and 1993, the Company paid
approximately $40,000 annually in rent for its Duluth location to a partnership
in which a certain stockholder is partner.
For the years ended December 31, 1995, 1994, and 1993, and for the nine
months ended September 30, 1996 and 1995, the Company received approximately
$2,292,000, $1,286,000, $1,333,000, $1,930,000, and $1,593,000, respectively, in
discounted fee-for-service payments from three companies which are solely owned
F-17
<PAGE> 81
ATLANTA EAR, NOSE, AND THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
by a certain stockholder of the Company. In addition for the years ended
December 31, 1995, 1994 and 1993, and for the nine months ended September 30,
1996 and 1995, the Company received approximately $65,000, $29,000, $54,000,
$22,000 and $45,000, respectively, in salary and expense reimbursements from
these three companies for work performed by two employees of the Company.
10. SUBSEQUENT EVENT
NEW DEBT
On July 11, 1996 the Company entered into a new $1,212,500 loan agreement
with a bank to replace its existing $750,000 secured note payable and to finance
the purchase of property and equipment. The new loan agreement is evidenced by a
secured promissory note payable to the bank by July 10, 2001 that bears interest
at a per annum rate of prime rate less 0.25%. This loan agreement is guaranteed
by the owners of the Company up to 120% of their ownership interests.
F-18
<PAGE> 82
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlanta-AHP, Inc.,
ENT Center of Atlanta, Inc., and
Atlanta ENT Center, Inc.:
We have audited the accompanying combined balance sheets of ATLANTA-AHP,
INC., ENT CENTER OF ATLANTA, INC., AND ATLANTA ENT CENTER, INC. (Georgia
corporations) (collectively, the "ENT Networks") as of December 31, 1995 and
1994 and the related combined statements of operations, owner's equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the ENT Networks' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the ENT Networks as of
December 31, 1995 and 1994 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 15, 1996
F-19
<PAGE> 83
ENT NETWORKS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1994 1996
-------- -------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. $302,054 $291,496 $ 771,311
EQUIPMENT, net............................................... 4,041 4,574 4,702
-------- -------- --------
Total assets....................................... $306,095 $296,070 $ 776,013
======== ======== ========
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES:
Claims payable............................................. $436,043 $550,000 $ 387,651
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
OWNER'S EQUITY:
Common stock, no par value; 210,000 shares authorized;
2,000 shares issued and outstanding..................... -- -- --
Additional paid-in capital................................. 2,000 2,000 2,000
Retained earnings.......................................... (131,948) (255,930) 386,362
-------- -------- --------
Total owner's equity............................... (129,948) (253,930) 388,362
-------- -------- --------
Total liabilities and owner's equity............... $306,095 $296,070 $ 776,013
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-20
<PAGE> 84
ENT NETWORKS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1995 1994 1993 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CAPITATION REVENUE................... $4,168,279 $3,510,747 $2,314,513 $3,285,614 $3,043,862
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages, and benefits...... 64,600 28,752 53,500 22,072 44,745
General and administrative
expenses........................ 170,792 136,757 122,815 112,247 122,658
Depreciation....................... 6,395 7,795 873 5,696 4,796
Provider claims.................... 2,892,646 2,455,964 1,692,309 2,389,767 2,149,673
---------- ---------- ---------- ---------- ----------
3,134,433 2,629,268 1,869,497 2,529,782 2,321,872
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS............... 1,033,846 881,479 445,016 755,832 721,990
OTHER INCOME, net.................... 33,476 25,388 10,413 17,828 23,049
---------- ---------- ---------- ---------- ----------
NET INCOME........................... $1,067,322 $ 906,867 $ 455,429 $ 773,660 $ 745,039
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-21
<PAGE> 85
ENT NETWORKS
COMBINED STATEMENTS OF OWNER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992................... 0 $0 $2,000 $ (133,226) $ (131,226)
Distributions.............................. 0 0 0 (485,000) (485,000)
Net income................................. 0 0 0 455,429 455,429
--
----- ------ ----------- -----------
BALANCE, December 31, 1993................... 2,000 0 2,000 (162,797) (160,797)
Distributions.............................. 0 0 0 (1,000,000) (1,000,000)
Net income................................. 0 0 0 906,867 906,867
--
----- ------ ----------- -----------
BALANCE, December 31, 1994................... 2,000 0 2,000 (255,930) (253,930)
Distributions.............................. 0 0 0 (943,340) (943,340)
Net income................................. 0 0 0 1,067,322 1,067,322
--
----- ------ ----------- -----------
BALANCE, December 31, 1995................... 2,000 0 2,000 (131,948) (129,948)
Distributions (unaudited).................. 0 0 0 (255,350) (255,350)
Net income (unaudited)..................... 0 0 0 773,660 773,660
--
----- ------ ----------- -----------
BALANCE, September 30, 1996 (unaudited)...... 2,000 $0 $2,000 $ 386,362 $ 388,362
===== == ====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-22
<PAGE> 86
ENT NETWORKS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1995 1994 1993 1996 1995
---------- ----------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income........................ $1,067,322 $ 906,867 $ 455,429 $ 773,660 $ 745,039
---------- ----------- --------- ---------- ----------
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................. 6,395 7,795 873 5,696 4,796
Increase (decrease) in claims
payable...................... (113,957) 275,000 7,236 (48,392) 121,290
---------- ----------- --------- ---------- ----------
Total adjustments......... (107,562) 282,795 8,109 (42,696) 126,086
---------- ----------- --------- ---------- ----------
Net cash provided by
operating activities.... 959,760 1,189,662 463,538 730,964 871,125
---------- ----------- --------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures.............. (5,862) (11,059) (2,183) (6,357) (5,862)
---------- ----------- --------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Distributions to owners........... (943,340) (1,000,000) (485,000) (255,350) 0
---------- ----------- --------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. 10,558 178,603 (23,645) 469,257 865,263
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............... 291,496 112,893 136,538 302,054 291,496
---------- ----------- --------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $ 302,054 $ 291,496 $ 112,893 $ 771,311 $1,156,759
========== =========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-23
<PAGE> 87
ENT NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION
Atlanta-AHP, Inc. ("AHP"), ENT Center of Atlanta, Inc. ("ENT Center"), and
Atlanta ENT Center, Inc. ("Atlanta ENT") (collectively "ENT Networks" or the
"Company") were organized as Georgia S corporations. The ENT Networks have
contracts to administer capitated specialty services in the greater Atlanta area
through affiliated physicians and other independent physicians.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of AHP,
ENT Center, and Atlanta ENT and have been combined because of common control and
ownership. All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
EQUIPMENT
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated service lives of depreciable assets
(five to seven years). Maintenance and repairs are charged to expense as
incurred. The cost of renewals and betterments is capitalized and depreciated
over the applicable estimated useful lives. The cost and accumulated
depreciation of assets sold, retired, or otherwise disposed of are removed from
the accounts, and the related gain or loss is credited or charged to income.
CLAIMS PAYABLE
The cost of providing healthcare services is accrued for in the period in
which it is provided to a member based in part on estimates, including an
accrual for medical services provided but not reported to the ENT Networks.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the carrying amounts of financial instruments,
including cash and cash equivalents and accounts payable, approximated their
fair values as of each balance sheet date because of the relatively short
maturity of these instruments.
CAPITATION REVENUE
Membership contracts are on a yearly basis and are subject to cancellation.
Premiums are due monthly and are recognized as revenue during the period in
which the ENT Networks is obligated to provide services to members.
F-24
<PAGE> 88
ENT NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The ENT Networks have made all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the financial condition of the
ENT Networks as of September 30, 1996, and the results of operations for the
nine months ended September 30, 1996 and 1995 as presented in the accompanying
unaudited financial statements.
3. EQUIPMENT
Equipment at December 31, 1995 and 1994 and September 30, 1996 consisted of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1994 1996
-------- ------- -------------
<S> <C> <C> <C>
Equipment............................................. $ 19,648 $13,786 $ 26,005
Less accumulated depreciation......................... (15,607) (9,212) (21,303)
-------- --------
$ 4,041 $ 4,574 $ 4,702
======== ========
</TABLE>
4. INCOME TAXES
The ENT Networks have elected to be taxed as S corporations as permitted by
the Internal Revenue Code. As an S corporation, ENT Networks is not a taxable
entity, and separately stated items of income, loss, deduction, and credit are
passed through to and taken into account by the individual owners in computing
their federal and state individual income tax liabilities.
5. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect ENT
Networks' financial position or results of operations.
6. RELATED-PARTY TRANSACTIONS
For the years ended December 31, 1995, 1994, and 1993 and for the nine
months ended September 30, 1996 and 1995, the ENT Networks paid approximately
$2,292,000, $1,286,000, $1,133,000, $1,930,000 and $1,593,0000, respectively, in
discounted fee-for-service payments to a company in which an owner is the
shareholder. In addition, for the years ended December 31, 1995, 1994, and 1993
and for the nine months ended September 30, 1996 and 1995, the ENT Networks paid
approximately $65,000, $29,000, $54,000, $22,000 and $45,000, respectively, in
salary and expense reimbursements to this related company for work performed by
two of its employees.
For the years ended December 31, 1995, 1994, and 1993 and for the nine
months ended September 30, 1996 and 1995, the ENT Networks paid approximately
$148,000, $124,000, $75,000, $101,000 and $114,000, respectively, to its owner
and a related physician in administrative and management fees.
F-25
<PAGE> 89
The following Unaudited Pro Forma Combined Statements of Operations give
effect to the Reorganization of Physicians' Specialty Corp., Atlanta Ear, Nose &
Throat Associates, P.C. and the ENT Networks as if it had been consummated as of
January 1, 1995. The Unaudited Pro Forma Combined Balance Sheet gives effect to
the Reorganization as if it had occurred on September 30, 1996. The unaudited
pro forma combined financial information and notes thereto do not purport to
represent what the Company's results of operations or financial position would
actually have been if such transactions had occurred on such dates or project
the Company's results of operations or financial position for future periods or
dates. The pro forma adjustments are based upon currently available information
and upon certain assumptions that management of the Company believes are
reasonable in the circumstances. The following unaudited pro forma financial
statements and related notes should be read in conjunction with other financial
information pertaining to the Company, including the audited financial
statements, "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
P-1
<PAGE> 90
PHYSICIANS' SPECIALTY CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------------------------------------------------------
ATLANTA PHYSICIANS'
EAR, NOSE, ENT SPECIALTY UNADJUSTED PRO-FORMA PRO-FORMA
& THROAT NETWORKS CORP. TOTAL ADJUSTMENTS TOTAL
---------- -------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 455,135 $771,311 $ 322,184 $1,548,630 $ 0 $1,548,630
Accounts receivable,
net.................. 2,432,706 0 14,617 2,447,323 0 2,447,323
Inventory............... 0 0 0 0 0 0
Prepayments and other... 60,402 0 0 60,402 0 60,402
---------- -------- ----------- ---------- ----------- ----------
2,948,243 771,311 336,801 4,056,355 0 4,056,355
PROPERTY AND EQUIPMENT
(net)................... 1,502,762 4,702 19,333 1,526,797 0 1,526,797
OTHER ASSETS.............. 205,342 0 329,713 535,055 0 535,055
---------- -------- ----------- ---------- ----------- ----------
Total assets.... $4,656,347 $776,013 $ 685,847 $6,118,207 $ 0 $6,118,207
========= ======== ======== ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes
payable -- banks..... $ 357,120 $ 0 $ 505,000 $ 862,120 $ 0 $ 862,120
Accrued compensation to
owners............... 2,504,412 0 0 2,504,412 (2,504,412)(7) 0
Accounts payable........ 141,661 387,651 184,758 714,070 0 714,070
Accrued expenses........ 740,478 0 0 740,478 0 740,478
Deferred taxes.......... 0 0 0 0 604,721(6) 604,721
---------- -------- ----------- ---------- ----------- ----------
3,743,671 387,651 689,758 4,821,080 (1,899,691) 2,921,389
LONG-TERM DEBT............ 847,154 0 0 847,154 0 847,154
STOCKHOLDERS' EQUITY...... 65,522 388,362 (3,911) 449,973 1,899,691(7)(6) 2,349,664
---------- -------- ----------- ---------- ----------- ----------
Total
liabilities
and
stockholders'
equity........ $4,656,347 $776,013 $ 685,847 $6,118,207 $ 0 $6,118,207
========= ======== ======== ========= ========== =========
</TABLE>
See the notes to unaudited pro forma combined financial statements.
P-2
<PAGE> 91
PHYSICIANS' SPECIALTY CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
----------------------------------------------------------------------------------
ATLANTA PHYSICIANS'
EAR, NOSE, ENT SPECIALTY UNADJUSTED PRO-FORMA PRO-FORMA
& THROAT NETWORKS CORP TOTAL ADJUSTMENTS TOTAL
---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Capitation and patient
service revenues........ $9,522,449 $3,285,614 $14,617 $12,822,680 $(1,930,144)(3) $10,892,536
Less: amounts retained by
physician owners........ 3,339,477 0 0 3,339,477 (1,161,668)(2) 2,177,809
---------- ---------- ------- ----------- ----------- -----------
Net revenues.............. 6,182,972 3,285,614 14,617 9,483,203 (768,476) 8,714,727
Expenses
Salaries, wages &
benefits............. 3,705,384 22,072 13,289 3,740,745 (22,072)(3) 3,718,673
General &
administrative....... 2,009,402 112,248 5,517 2,127,167 (100,793)(4) 2,026,374
Bad debt expense........ 229,100 0 0 229,100 0 229,100
Depreciation and
amortization......... 262,879 5,696 722 269,297 0 269,297
Provider claims......... 0 2,389,767 0 2,389,767 (1,930,144)(3) 459,623
---------- ---------- ------- ----------- ----------- -----------
6,206,765 2,529,783 19,528 8,756,076 (2,053,009) 6,703,067
Operating income (loss)... (23,793) 755,831 (4,911) 727,127 1,284,533 2,011,660
Other expense (income),
net..................... (23,793) (17,828) 0 (41,621) (41,621)
---------- ---------- ------- ----------- ----------- -----------
Pretax income............. 0 773,659 (4,911) 768,748 1,284,533 2,053,281
Provision for income
taxes................... 0 0 0 0 800,780(5) 800,780
---------- ---------- ------- ----------- ----------- -----------
Net income...... $ 0 $ 773,659 $(4,911) $ 768,748 $ 483,753 $ 1,252,501
========== ========== ======= =========== =========== ===========
</TABLE>
See the accompanying notes to unaudited pro forma combined financial statements.
P-3
<PAGE> 92
PHYSICIANS' SPECIALTY CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------
ATLANTA
EAR, NOSE, ENT UNADJUSTED PRO-FORMA PRO-FORMA
& THROAT NETWORKS TOTAL ADJUSTMENTS TOTAL
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Capitation and patient service
revenues........................ $10,290,549 $4,168,279 $14,458,828 $(2,292,149)(3) $12,166,679
Less: amounts retained by
physician owners................ 3,961,310 0 3,961,310 (1,286,319)(2) 2,674,991
----------- ---------- ----------- ----------- -----------
Net revenues...................... 6,329,239 4,168,279 10,497,518 (1,005,830) 9,491,688
Expenses
Salaries, wages & benefits...... 3,922,240 64,600 3,986,840 (64,600)(3) 3,922,240
General & administrative........ 1,884,613 170,792 2,055,405 (148,080)(4) 1,907,325
Bad debt expense................ 233,069 0 233,069 0 233,069
Depreciation and amortization... 275,072 6,394 281,466 0 281,466
Provider claims................. 0 2,892,647 2,892,647 (2,292,149)(3) 600,498
----------- ---------- ----------- ----------- -----------
6,314,994 3,134,433 9,449,427 (2,504,829) 6,944,598
Operating income (loss)........... 14,245 1,033,846 1,048,091 1,498,999 2,547,090
Other expense (income), net....... 14,245 (33,476) (19,231) (19,231)
----------- ---------- ----------- ----------- -----------
Pretax income..................... 0 1,067,322 1,067,322 1,498,999 2,566,321
Provision for income taxes........ 0 0 0 1,000,865(5) 1,000,865
----------- ---------- ----------- ----------- -----------
Net income...................... $ 0 $1,067,322 $ 1,067,322 $ 498,134 $ 1,565,456
=========== ========== =========== =========== ===========
</TABLE>
See the accompanying notes to unaudited pro forma combined financial statements.
P-4
<PAGE> 93
PHYSICIANS' SPECIALTY CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) The following is a summary of the adjustments reflected in the
Unaudited Pro Forma Financial Statements assuming the Reorganization of the ENT
Networks and Atlanta Ear, Nose and Throat Associates, P.C. with Physicians'
Specialty Corp. This Reorganization will be accomplished as a combination of
promoter interests at historical costs under generally accepted accounting
principles.
(2) Reflects the adjustment for a management service agreement with Atlanta
Ear, Nose and Throat Associates, P.C. that would allocate operating income
(after corporate and operating expenses) on a percentage basis between
Physicians' Specialty Corp. and Atlanta Ear, Nose and Throat Associates, P.C.
(3) Reflects the elimination of intercompany revenue and expenses between
Atlanta Ear, Nose and Throat Associates, P.C. and the ENT Networks.
(4) Reflects the elimination of management fees paid to certain
stockholders related to the ENT Networks that will not be paid after the
Reorganization.
(5) Reflects the establishment of a provision for income taxes at a 39%
effective tax rate for Physicians' Specialty Corp. after the Reorganization.
Atlanta Ear, Nose and Throat Associates, P.C. and the ENT Networks, before the
Reorganization, are S corporations with the corporations owing no federal or
state taxes and the owners of each entity being responsible for their tax
payment.
(6) Reflects the establishment of deferred taxes for Physicians' Specialty
Corp. after the Reorganization.
(7) Reflects the contribution of the physician owners to the
Reorganization. Physicians are paid based upon cash collections and the amount
of payment owed to the physicians on outstanding accounts receivable at the time
of the Reorganization will be contributed as capital by the physicians.
P-5
<PAGE> 94
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
The Reorganization..................... 8
Risk Factors........................... 9
Use of Proceeds........................ 18
Dividend Policy........................ 18
Capitalization......................... 19
Dilution............................... 20
Management's Discussion And Analysis of
Financial Condition And Results of
Operations........................... 24
Business............................... 32
Management............................. 47
Principal Stockholders................. 53
Certain Transactions................... 55
Description of Capital Stock........... 56
Shares Eligible for Future Sale........ 58
Underwriting........................... 60
Legal Matters.......................... 61
Experts................................ 61
Additional Information................. 61
Index to Financial Statements.......... F-1
Unaudited Pro Forma Combined Financial
Statements........................... P-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES
[LOGO]
PHYSICIANS'
SPECIALTY CORP.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
BARINGTON
CAPITAL GROUP, L.P.
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions) are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
SEC Registration Fee........................................................ $8,082
NASD Filing Fee............................................................. 3,167
Nasdaq Listing Fee.......................................................... *
Printing and Engraving Expenses............................................. *
Accounting Fees and Expenses................................................ *
Legal Fees and Expenses..................................................... *
Blue Sky Fees and Expenses.................................................. *
Transfer Agent's Fees and Expenses.......................................... *
Miscellaneous Expenses...................................................... *
-------
Total............................................................. $ *
========
</TABLE>
- ---------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and By-Laws of the Registrant provides
that the Company shall indemnify any person to the full extent permitted by the
General Corporation Law of the State of Delaware (the "DGCL"). Section 145 of
the DGCL, relating to indemnification, is hereby incorporated herein by
reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company pursuant
to the Company's Certificate of Incorporation, By-Laws and the DGCL, the Company
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and directors of the Company
are to be indemnified against certain liabilities. The Company's Certificate of
Incorporation also limits, to the fullest extent permitted by Delaware law, a
director's liability for monetary damages for breach of fiduciary duty,
including gross negligence, except liability for (i) breach of the director's
duty of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware law does not eliminate a director's duty of care and this provision has
no effect on the availability of equitable remedies such as injunction or
rescission based upon a director's breach of the duty of care.
In accordance with Section 102(a)(7) of the DGCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).
The Registrant also intends to enter into indemnification agreements with
each of its executive officers and directors, the form of which is filed as
Exhibit 10.15 hereto and reference is hereby made to such form.
Reference is made to the Underwriting Agreement (Exhibit 1.1) which
provides for indemnification by the Underwriters of the Registrant, its officers
and directors.
II-1
<PAGE> 96
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the formation of the Registrant in July 1996, Ramie A.
Tritt, M.D. and Bock, Benjamin & Co., Partners were each issued 275,000 shares
of Common Stock of the Registrant at a purchase price of approximately $.0018
per share. In November 1996, Dr. Tritt purchased an additional 11,225 shares of
Common Stock at a purchase price of approximately $.0042 per share. The shares
were issued pursuant to an exemption from registration pursuant to Section 4(2)
of the Securities Act.
In connection with the acquisition of (i) substantially all of the assets
and liabilities of Atlanta Ear, Nose & Throat Associates, P.C. and (ii) the
outstanding shares of capital stock of ENT Center of Atlanta, Inc., Atlanta ENT
Center, Inc. and Atlanta-AHP, Inc., the Registrant has agreed to issue an
aggregate of 2,767,500 shares of Common Stock.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof. The sale of securities
was without the use of an underwriter, and the certificates evidencing the
shares bear a restrictive legend permitting the transfer thereof only upon
registration of the shares or an exemption under the Securities Act of 1933, as
amended.
ITEM 16. EXHIBITS
<TABLE>
<C> <C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Incorporation of the Registrant
3.2 -- Amended and Restated By-laws of the Registrant
4.1 -- Form of Underwriters' Warrant Agreement*
5.1 -- Opinion of Bachner, Tally, Polevoy & Misher LLP*
10.1 -- Asset Acquisition Agreement dated November 26, 1996 between the Registrant, PSC
Management Corp. and Atlanta Ear, Nose & Throat Associates, P.C. ("Atlanta ENT")
10.2 -- Acquisition Agreement dated November 26, 1996 between the Registrant, PSC
Acquisition Corp. and Ramie A. Tritt, M.D.
10.3 -- Employment Agreement between the Registrant and Ramie A. Tritt, M.D. dated as of
November 26, 1996
10.4 -- Employment Agreement between the Registrant and Richard D. Ballard dated as of
November 26, 1996
10.5 -- Employment Agreement between the Registrant and Gerald R. Benjamin dated as of
November 26, 1996
10.6 -- Form of Management Services Agreement to be entered into between the Registrant, PSC
Management Corp. and Atlanta ENT+
10.7 -- Asset Purchase Agreement dated August 1, 1996 among PSC Management Corp. ("PSC
Management") and ENT Center of Atlanta, Inc., Atlanta ENT Center for Physicians,
Inc. and Atlanta-AHP, Inc. (the "ENT Networks")
10.8 -- Form of Registration Rights Agreement
10.9 -- Promissory Note payable by PSC Management to the ENT Networks in the principal
amount of $20,000
10.10 -- Lease Agreement for office space located at The Medical Quarters, 5555 Peachtree
Dunwoody Road, Suite 235, Atlanta, Georgia dated October 1, 1988 between Atlanta ENT
and Ramie A. Tritt, M.D., as amended
10.11 -- Lease Agreement for office space located at the Gwinnett Medical Building, 3540
Duluth Park Lane, Duluth Georgia dated December 29, 1989 between Duluth Professional
Center, L.P., Gwinnett Pulmonology, P.C. and Atlanta ENT as amended
</TABLE>
II-2
<PAGE> 97
<TABLE>
<C> <C> <S>
10.12 -- Lease Agreement for office space located at Eastside Physicians Center, 1700 Tree
Lane, Snellville, Georgia dated July 11, 1994 and effective June 1, 1995 between
Atlanta ENT and Eastside Physicians Center, L.P.
10.13 -- 1996 Stock Option Plan
10.14 -- 1996 Health Care Professionals Stock Option Plan
10.15 -- Form of Indemnification Agreement
10.16 -- Group Practice Managed Care Agreement dated September 1, 1992 by and between CIGNA
HealthCare of Georgia, Inc. and The ENT Center of Atlanta, Inc.+
10.17 -- Physician Network Participation Agreement dated as of July 1, 1994 by and between
Atlanta-AHP, Inc. and Aetna Health Management, Inc.+
10.18 -- Agreement dated June 1, 1995 by and between United HealthCare of Georgia, Inc. and
Atlanta ENT Center for Physicians, Inc.+
10.19 -- Non-Negotiable Promissory Note payable by the Registrant to Gerald R. Benjamin in
the principal amount of $33,500 (one in a series of identical notes in the aggregate
amount of $485,000)
10.20 -- Non-Negotiable Promissory Note payable by the Registrant to Ramie A. Tritt, M.D. in
the principal amount of $33,500 (one in a series of identical notes in the aggregate
amount of $485,000)
10.21 -- Termination Agreement effective as of October 7, 1996 by and among Kevin Thomas,
M.D., Stephen B. Levine, M.D., various affiliated professional corporations
affiliated with Thomas and Levine, Ramie A. Tritt, M.D., Atlanta ENT, Rande H.
Lazar, M.D., Otolaryngology of Memphis, P.C., Gerald R. Benjamin, Premier HealthCare
and the Registrant.*
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Bachner, Tally, Polevoy & Misher LLP (Exhibit 5.1)*
23.2 -- Consent of Reed Smith Shaw & McClay -- Included on page II-7
23.3 -- Consent of Arthur Andersen LLP -- Included on page II-8
23.4 -- Consent of Steven L. Posar, M.D. -- Included on page II-9
24.1 -- Power of Attorney -- Included on Page II-6
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
+ Confidential treatment has been requested with respect to portions of this
exhibit.
* To be filed by amendment
ITEM 17. UNDERTAKINGS
Undertakings Required by Regulation S-K, Item 512(f)
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Undertaking Required by Regulation S-K, Item 512(h)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or 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
II-3
<PAGE> 98
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.
Undertakings required by Regulation S-K, Item 512(i)
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this 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 this Registration Statement as of the time it was declared
effective.
(2) For purposes 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.
II-4
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 29th day of November, 1996.
PHYSICIANS' SPECIALTY CORP.
By: /s/ RAMIE A. TRITT, M.D.
------------------------------------
Ramie A. Tritt, M.D.,
Chairman of the Board and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints Ramie A. Tritt,
M.D. and Gerald R. Benjamin or either of them, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments (including post-effective amendments) to this registration
statement and any related registration statement filed under Rule 462(b), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- -----------------
<C> <S> <C>
/s/ RAMIE A. TRITT, M.D. Chairman of the Board and November 29, 1996
- --------------------------------------------- President (principal
Ramie A. Tritt, M.D. executive officer)
/s/ RICHARD D. BALLARD Chief Executive Officer and November 29, 1996
- --------------------------------------------- Director
Richard D. Ballard
/s/ GERALD R. BENJAMIN Vice Chairman of the Board November 29, 1996
- --------------------------------------------- and Secretary (principal
Gerald R. Benjamin accounting and financial
officer)
/s/ EDWARD R. CASAS, M.D. Director November 29, 1996
- ---------------------------------------------
Edward R. Casas, M.D.
</TABLE>
II-5
<PAGE> 100
CONSENT OF COUNSEL
The consent of Bachner, Tally, Polevoy & Misher LLP will be contained in
its opinion to be filed as Exhibit 5.1 to the Registration Statement.
II-6
<PAGE> 101
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name, and the statement
with respect to us appearing under the heading "Legal Matters" included in the
Registration Statement and to the incorporation by reference of this consent
pursuant to Rule 439(b) under the Securities Act of 1933, as amended (the "Act")
into any subsequent registration statement for the same offering that may be
filed pursuant to Rule 462(b) under the Act.
Reed Smith Shaw & McClay
Washington, D.C.
November 29, 1996
II-7
<PAGE> 102
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated October 15, 1996 and November 13, 1996 and to all references to
our firm included in or made a part of this Registration Statement.
Arthur Andersen LLP
Atlanta, Georgia
November 25, 1996
II-8
<PAGE> 103
CONSENT
The undersigned hereby consents, pursuant to Rule 438 promulgated under the
Securities Act of 1933, as amended, to his being named as about to become a
director of Physicians' Specialty Corp. in such Company's Registration Statement
on Form S-1.
/s/ STEVEN L. POSAR
--------------------------------------
Steven L. Posar
II-9
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement*..........................................
3.1 -- Certificate of Incorporation of the Registrant...........................
3.2 -- Amended and Restated By-laws of the Registrant...........................
4.1 -- Form of Underwriters' Warrant Agreement*.................................
5.1 -- Opinion of Bachner, Tally, Polevoy & Misher LLP*.........................
10.1 -- Asset Acquisition Agreement dated November 26, 1996 between the
Registrant, PSC Management Corp. and Atlanta Ear, Nose & Throat
Associates, P.C. ("Atlanta ENT").........................................
10.2 -- Acquisition Agreement dated November 26, 1996 between the Registrant, PSC
Acquisition Corp. and Ramie A. Tritt, M.D................................
10.3 -- Employment Agreement between the Registrant and Ramie A. Tritt, M.D.
dated as of November 26, 1996............................................
10.4 -- Employment Agreement between the Registrant and Richard D. Ballard dated
as of November 26, 1996..................................................
10.5 -- Employment Agreement between the Registrant and Gerald R. Benjamin dated
as of November 26, 1996..................................................
10.6 -- Form of Management Services Agreement to be entered into between the
Registrant, PSC Management Corp. and Atlanta ENT+........................
10.7 -- Asset Purchase Agreement dated August 1, 1996 among PSC Management Corp.
("PSC Management") and ENT Center of Atlanta, Inc., Atlanta ENT Center
for Physicians, Inc. and Atlanta-AHP, Inc. (the "ENT Networks")..........
10.8 -- Form of Registration Rights Agreement....................................
10.9 -- Promissory Note payable by PSC Management to the ENT Networks in the
principal amount of $20,000..............................................
10.10 -- Lease Agreement for office space located at The Medical Quarters, 5555
Peachtree Dunwoody Road, Suite 235, Atlanta, Georgia dated October 1,
1988 between Atlanta ENT and Ramie A. Tritt, M.D., as amended............
10.11 -- Lease Agreement for office space located at the Gwinnett Medical
Building, 3540 Duluth Park Lane, Duluth Georgia dated December 29, 1989
between Duluth Professional Center, L.P., Gwinnett Pulmonology, P.C. and
Atlanta ENT as amended...................................................
10.12 -- Lease Agreement for office space located at Eastside Physicians Center,
1700 Tree Lane, Snellville, Georgia dated July 11, 1994 and effective
June 1, 1995 between Atlanta ENT and Eastside Physicians Center, L.P.....
10.13 -- 1996 Stock Option Plan...................................................
10.14 -- 1996 Health Care Professionals Stock Option Plan.........................
10.15 -- Form of Indemnification Agreement........................................
10.16 -- Group Practice Managed Care Agreement dated September 1, 1992 by and
between CIGNA HealthCare of Georgia, Inc. and The ENT Center of Atlanta,
Inc.+....................................................................
10.17 -- Physician Network Participation Agreement dated as of July 1, 1994 by and
between Atlanta-AHP, Inc. and Aetna Health Management, Inc.+.............
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<C> <C> <S> <C>
10.18 -- Agreement dated June 1, 1995 by and between United HealthCare of Georgia,
Inc. and Atlanta ENT Center for Physicians, Inc.+........................
10.19 -- Non-Negotiable Promissory Note payable by the Registrant to Gerald R.
Benjamin in the principal amount of $33,500 (one in a series of identical
notes in the aggregate amount of $485,000)...............................
10.20 -- Non-Negotiable Promissory Note payable by the Registrant to Ramie A.
Tritt, M.D. in the principal amount of $33,500 (one in a series of
identical notes in the aggregate amount of $485,000).....................
10.21 -- Termination Agreement effective as of October 7, 1996 by and among Kevin
Thomas, M.D., Stephen B. Levine, M.D., various affiliated professional
corporations affiliated with Thomas and Levine, Ramie A. Tritt, M.D.,
Atlanta ENT, Rande H. Lazar, M.D., Otolaryngology of Memphis, P.C.,
Gerald R. Benjamin, Premier HealthCare and the Registrant.*..............
21.1 -- Subsidiaries of the Registrant...........................................
23.1 -- Consent of Bachner, Tally, Polevoy & Misher LLP (Exhibit 5.1)*...........
23.2 -- Consent of Reed Smith Shaw & McClay -- Included on page II-7.............
23.3 -- Consent of Arthur Andersen LLP -- Included on page II-8..................
23.4 -- Consent of Steven L. Posar, M.D. -- Included on page II-9................
24.1 -- Power of Attorney -- Included on Page II-6...............................
27.1 -- Financial Data Schedule..................................................
</TABLE>
- ---------------
+ Confidential treatment has been requested with respect to portions of this
exhibit.
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PHYSICIANS' SPECIALTY CORP.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
ARTICLE ONE
The name of the Corporation (hereinafter called the "Corporation") is
PHYSICIANS' SPECIALTY CORP.
ARTICLE TWO
The address, including street, number, city, and county, of the registered
office of the Corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, City of Wilmington 19801, County of New Castle; and the name
of the registered agent of the Corporation in the State of Delaware at such
address is The Corporation Trust Company.
ARTICLE THREE
The nature of the business and the purposes to be conducted and promoted
by the Corporation shall be to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
<PAGE> 2
ARTICLE FOUR
The total number of shares of all classes of stock which the Corporation
shall have the authority to issue shall be Fifty Million Ten Thousand
(50,010,000) shares which shall be divided into two classes as follows:
Ten Thousand (10,000) shares of preferred stock having a par value of
$1.00 per share, and Fifty Million (50,000,000) shares of common stock
having a par value of $0.001 per share.
The designations, voting powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions of the above classes of stock shall be as follows:
I.
PREFERRED STOCK
1. Shares of preferred stock may be issued in one or more series at such
time or times, and for such consideration or considerations, as the Board of
Directors may determine.
2. The Board of Directors is expressly authorized at any time, and from
time to time, to provide for the issue of all or any shares of preferred stock,
in one or more series and to fix for each such series, such voting powers
(subject to the limitations provided below), full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof
as shall be stated and expressed in the resolution or resolutions providing for
the issue thereof adopted by the Board of Directors providing for the issue of
such series (a "Preferred Stock Designation") and as may be permitted by the
General Corporation Law of the State of Delaware including, but not limited to,
determination of any of the following:
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<PAGE> 3
(a) The distinctive designation of, and the number of shares
constituting, a series of preferred stock;
(b) The dividend rate or rates on the shares of such series, whether
dividends shall be cumulative, and, if so, which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of such series;
(c) The voting powers, full or limited, if any, of the shares of
such series; provided that the holders of shares of such series (i) will not be
entitled to more than the lesser of (X) one vote per $100 of liquidation value
or (Y) one vote per share and (ii) will not be entitled to vote on any matter
separately as a class, except (A) to the extent provided by the General
Corporation Law of the State of Delaware and (B) to the extent specified in the
Preferred Stock Designation with respect to such series;
(d) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corporation or any other
corporation, and if so convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(e) Whether or not the shares of such series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
date upon which or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
-3-
<PAGE> 4
(f) Whether or not the shares of such series shall be entitled to
the benefit of a sinking or retirement fund to be applied to the purchase or
redemption of shares of such series, and, if so entitled, the amount of such
fund and the manner of its application, including the price or prices at which
the shares of such series may be redeemed or purchased through the application
of such fund;
(g) The amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation prior to any payment or distribution of the assets of the
Corporation to any class or classes of stock of the Corporation ranking junior
to the shares of such series; and
(h) Any other preferences, privileges and powers, and relative,
participating, option or other special rights, and qualifications, limitations
or restrictions of such series, as the Board of Directors may deem advisable and
as shall not be inconsistent with the provisions of this Certificate of
Incorporation.
3. Shares of preferred stock which have been issued and reacquired in any
manner by the Corporation (excluding, until the Corporation elects to retire
them, shares which are held as treasury shares but including shares redeemed,
shares purchased and retired and shares which have been converted into shares of
common stock) shall have the status of authorized but unissued shares of
preferred stock and may be reissued.
-4-
<PAGE> 5
II.
COMMON STOCK
1. Subject to the preferential rights of the preferred stock, the holders
of the common stock shall be entitled to receive, to the extent permitted by
law, such dividends as may be declared from time to time by the Board of
Directors.
2. Except as may be otherwise required by law or this Certificate of
Incorporation, each holder of common stock shall have one vote in respect of
each share of common stock held by such holder of record on the books of the
Corporation on all matters voted upon by the stockholders.
3. In the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding up of the Corporation, after distribution in
full of the preferential amount to be distributed to the holders of shares of
the preferred stock, holders of the common stock shall be entitled to receive
all the remaining assets of the Corporation of whatever kind available for
distribution to stockholders, ratably in proportion to the number of shares of
common stock held by them respectively.
III.
OTHER PROVISIONS
1. The number of authorized shares of stock of any class may be increased
or decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the voting power of all
then outstanding shares of the stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class,
without a separate vote of the holders of the stock, or any class or series
thereof, unless a vote of any such
-5-
<PAGE> 6
holders is required pursuant to any Preferred Stock Designation or by the
General Corporation Law of the State of Delaware.
ARTICLE FIVE
The name and the mailing address of the incorporator are Joy E. Barbour,
Esquire, 600 Peachtree Street, N.E., Suite 5200, Atlanta, Georgia 30308-2216.
ARTICLE SIX
The name and mailing address of each person who is to serve as a director
until the first annual meeting of the stockholders or until a successor is
elected and qualified, is as follows:
NAME MAILING ADDRESS
---- ---------------
Ramie A. Tritt, M.D. c/o The Medical Quarters
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Gerald R. Benjamin 3414 Peachtree Road
Suite 238
Atlanta, Georgia 30326
W. Kevin Thomas, M.D. 5671 Peachtree Dunwoody Road, N.E.
Suite 400
Atlanta, Georgia 30342
Rande H. Lazar, M.D. 1618 East Clanlo Drive
Memphis, Tennessee 38104
ARTICLE SEVEN
The Corporation is to have perpetual existence.
-6-
<PAGE> 7
ARTICLE EIGHT
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation, and regulation of the
powers of the Corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other Bylaws of the Corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the Corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the Bylaws of the Corporation may be
exercised by the Board of Directors of the Corporation; provided, however, that
any provision for the classification of directors of the Corporation for
staggered terms pursuant to the provisions of subsection (d) of Section 141 of
the General Corporation Law of the State of Delaware shall be set forth in an
initial Bylaw or in a Bylaw adopted by the stockholders entitled to vote of the
Corporation unless provisions for such classification shall be set forth in this
Certificate of Incorporation.
3. Whenever the Corporation shall be authorized to issue only one class of
stock, each outstanding share shall entitle the holder thereof to notice of, and
the right to vote at, any meeting of stockholders. Whenever the Corporation
shall be authorized to issue more than one class of
-7-
<PAGE> 8
stock, no outstanding share of any class of stock which is denied voting power
under the provisions of the Certificate of Incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except as the
provisions of paragraph (2) of subsection (b) of Section 242 of the General
Corporation Law of the State of Delaware shall otherwise require; provided, that
no share of any such class which is otherwise denied voting power shall entitle
the holder thereof to vote upon the increase or decrease in the number of
authorized shares of said class.
ARTICLE NINE
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
ARTICLE TEN
The Corporation shall, to the fullest extent permitted by the provisions
of Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
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ARTICLE ELEVEN
From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article Eleven.
Signed on July 31, 1996.
------------------------------------
Joy E. Barbour, Incorporator
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EXHIBIT 3.2
* * * * *
AMENDED AND RESTATED BY-LAWS
OF
PHYSICIANS' SPECIALTY CORP.
* * * * *
ARTICLE I
OFFICERS
Section 1. Registered Office The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of Stockholders All meetings of the stockholders for
the election of directors shall be held at such place as may be fixed from time
to time by the board of directors, or at such other place either within or
without the State of Delaware as shall be designated from time to time by the
board of directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings Annual meetings of stockholders shall be held
at such date and time as shall be designated from time to time by the board of
directors and stated in the notice of the meeting, at which they shall elect by
a plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Notice of Annual Meetings Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
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Section 4. Proposals at Annual Meetings At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements for business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation, not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and record address of the stockholder
proposing such business (c) the class or series and number of shares of capital
stock of the corporation which are beneficially or of record owned by the
stockholder, (d) a description of all arrangements or understandings between the
stockholder and any other person or persons (including their names) in
connection with the proposal of such business by the stockholder and any
material interest of the stockholder in such business, and (e) a representation
that the stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting. Notwithstanding anything in
these by-laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Article II,
Section 4. The chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Article II, Section
4, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Section 5. List of Stockholders The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Special Meetings Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called
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by the president and shall be called by the president or secretary at the
request in writing of a majority of the board of directors, or at the request in
writing of stockholders owning at least twenty-five percent (25%) of the entire
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Section 7. Notice of Special Meeting Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting, to each stockholder entitled to
vote at such meeting.
Section 8. Limited Purpose of Special Meeting Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 9. Quorum for Meeting The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 10. Quorum for Action When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the certificate of incorporation, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 11. Voting Unless otherwise provided in the certificate of
incorporation or in an agreement among shareholders as permitted under the
General Corporation Law of the State of Delaware (the "Delaware Corporation
Law"), each stockholder shall at every meeting of the stockholders be entitled
to one vote in person or by proxy for each share of the capital stock having
voting power held by such stockholder, but no proxy shall be voted on after
three years from its date, unless the proxy provides for a longer period.
Section 12. Action Without Meeting Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock
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having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. Number and Election The number of directors which shall
constitute the whole board shall be not less than one (1) nor more than ten
(10). The initial board shall consist of four (4) directors. Thereafter, within
the limits above specified, the number of directors shall be determined by
resolution of the board of directors or by the stockholders at the annual
meeting. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies and New Positions Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
Section 3. Notice of Stockholder Nominees In addition to any other
applicable requirements, only persons who are nominated in accordance with the
procedures set forth in this Article III, Section 3 shall be eligible for
election as directors. Nominations of persons for election to the board of
directors of the corporation may be made at a meeting of stockholders by or at
the direction of the board of directors, by any nominating committee or person
appointed by the board of directors or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Article III, Section 3. Such
nominations, other than those made by or at the direction of the board of
directors, by a nominating committee or person appointed by the board of
directors, shall be made pursuant to timely notice in writing to the secretary
of the corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the corporation not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholders to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
corporation which are beneficially owned
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by such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder; and (b)
as to the stockholder giving the notice (i) the name and address, as they appear
on the corporation's books, of such stockholder, (ii) the class or series and
number of shares of capital stock of the corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in such notice, and (v) any other
information relating to the stockholder that would be required in a proxy
statement or other filings required to be made in connection with solicitation
of proxies for the election of directors pursuant to Section 14 of the Exchange
Act and the rules and regulations promulgated thereunder. Such notice must be
accompanied by a written consent of each proposed nominee being named as a
nominee to serve as a director if elected. The corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the corporation to determine the eligibility of such proposed nominee to
serve as a director of the corporation. No person shall be eligible for election
as a director of the corporation unless nominated in accordance with the
procedures set forth in this Article III, Section 3. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing procedures, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 4. Authority of Directors The business of the corporation shall be
managed by or under the direction of the corporation's board of directors which
may exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute, the certificate of incorporation or these by-laws
directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. Meetings The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 6. Location The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
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Section 7. Time and Location Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
Section 8. Special Meetings Special meetings of the board may be called by
the president on 2 days' notice to each director, either personally or by mail
or by telegram; special meetings shall be called by the president or secretary
in like manner and on like notice on the written request of at least two
directors.
Section 9. Quorum At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 10. Action Without Meeting Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 11. Teleconferencing Unless otherwise restricted by the
certificate of incorporation or these by-laws, members of the board of
directors, or any committee designated by the board of directors, may
participate in a meeting of the board of directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 12. Committees The board of directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by
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the board of directors as provided in the Delaware Corporate Law Section 151(a)
fix any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation) adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the by-laws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock or to adopt a certificate of ownership and merger. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors.
Section 13. Recordkeeping Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 14. Compensation Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 15. Removal Unless otherwise restricted by the certificate of
incorporation or by law, any director of the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Form of Notice Whenever, under the provisions of the statutes
or of the certificate of incorporation or of these by-laws, notice is required
to be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the
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time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
Section 2. Waiver Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. Number and Type The officers of the corporation shall be chosen
by the board of directors and may be at a minimum a president and a secretary.
The board of directors may also choose such chairman of the board, vice-chairman
of the board, vice-presidents, treasurer and one or more assistant secretaries
and assistant treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these by-laws otherwise provide. The
board of directors at its first meeting after each annual meeting of
stockholders shall choose a president and a secretary. The board of directors
may appoint such other officers and agents as it shall deem necessary who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the board. The salaries
of all officers and agents of the corporation shall be fixed by the board of
directors.
Section 2. Term The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE CHAIRMAN OF THE BOARD AND
VICE-CHAIRMAN OF THE BOARD
Section 3. Chairman of the Board The chairman of the board shall preside
at all meetings of the board of directors and at all meetings of the
stockholders and shall be charged with general supervision of the management and
policy of the corporation, and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
Section 4. Vice-Chairman of the Board The vice-chairman of the board
shall, in the absence or disability of the chairman, perform the duties of the
chairman and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
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THE PRESIDENT
Section 5. Authority The president shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the board of directors are carried into effect.
Section 6. Contracts The president shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation.
THE CHIEF EXECUTIVE OFFICER
Section 7. Authority The chief executive officer shall have general and
active management of the business of the corporation, and in the absence of the
chairman of the board or vice chairman of the board, perform the duties of the
chairman and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
THE VICE-PRESIDENTS
Section 8. Authority In the absence of the president or in the event of
his inability or refusal to act, the vice-president (or in the event there be
more than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. Secretary The secretary shall attend all meetings of the board
of directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 10. Assistant Secretary The assistant secretary, or if there be
more than one, the assistant secretaries in the order determined by the board of
directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 11. Treasurer The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. The treasurer shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 12. Assistant Treasurer The assistant treasurer, or if there shall
be more than one, the assistant treasurers in the order determined by the board
of directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. Certification The shares of the corporation shall be
represented by a certificate or shall be uncertificated. Certificates shall be
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or a vice-president and the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of the corporation.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to the Delaware Corporate Law Sections 151, 156, 202(a) or
218(a) or a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Signatures Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such
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certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. Lost Certificates The board of directors may direct a new
certificate or certificates or uncertificated shares to be issued in place of
any certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates or
uncertificated shares, the board of directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Transfer Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertificated shares such uncertificated shares shall
be cancelled and issuance of new equivalent uncertificated shares or
certificated shares shall be made to the person entitled thereto and the
transaction shall be recorded upon the books of the corporation.
FIXING RECORD DATE
Section 5. Record Date In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
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REGISTERED STOCKHOLDERS
Section 6. Registered Stockholders The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
INDEMNIFICATION
Section 1. Primary Indemnity The corporation shall have power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
Section 2. Additional Indemnity The corporation shall have power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability
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but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 3. Expenses To the extent that a director, officer, employee or
agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 1 and 2 of
this Article VII, or in defense of any claim, issue or matter therein, such
individual shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
Section 4. Standards Any indemnification under Sections 1 and 2 (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Sections 1 and 2. Such
determination shall be made (1) by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 5. Advancement of Expenses Expenses (including attorneys' fees)
incurred by an officer or director in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the board of directors in
the specific case upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount unless it shall ultimately be
determined that such individual is entitled to be indemnified by the corporation
as authorized in this Section. Such expenses (including attorneys' fees)
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
Section 6. Other Rights The indemnification and advancement of expenses
provided by this Article VII shall not be exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such individual's official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 7. Insurance The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such in any such capacity, or
arising out of his or her status as such, whether or not the corporation would
have the power to indemnify against such liability under the provisions of this
Article VII.
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Section 8. Affiliates For purposes of this Article VII, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this with respect to
the resulting or surviving corporation as he or she would have with respect to
such constituent corporation if its separate existence had continued.
Section 9. Other Enterprises For purposes of this Article VII, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee or agent
of the corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the corporation" as
referred to in this Article VII.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Pre-requisites Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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ANNUAL STATEMENT
Section 3. Annual Statement The board of directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
CHECKS
Section 4. Checks All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 5. Fiscal Year The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
SEAL
Section 6. Seal The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE IX
AMENDMENTS
Section 1. Amendments These by-laws may be altered, amended or repealed or
new by-laws may be adopted by the stockholders or by the board of directors,
when such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the board of directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
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IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
______ day of July 1996.
PHYSICIANS' SPECIALTY CORP.
By:_________________________________
Its:__________________________________
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Page 1
EXHIBIT 10.1
ASSET ACQUISITION AGREEMENT
by and among
Physicians' Specialty Corp.
PSC Management Corp.
and
Atlanta Ear, Nose & Throat Associates, P.C.
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Page 2
TABLE OF CONTENTS
<TABLE>
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Page
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SECTION 1. TERMS OF THE SALE AND ACQUISITION OF ASSETS 1
1.1 CONVEYANCE OF ASSETS 2
1.2 EXCLUDED ASSETS. 3
1.3 ACQUISITION PSC PRICE; ASSUMPTION OF LIABILITIES. 3
1.4 EMPLOYMENT ARRANGEMENTS. 4
1.5 MANAGEMENT SERVICES AGREEMENT. 5
1.6 SELLER'S FINANCIAL INFORMATION. 5
1.7 EACH PARTY TO BEAR COSTS. 5
1.8 ASSIGNMENT OF CONTRACTS AND ASSETS; CONSENTS. 5
1.9 COOPERATION WITH REGULATORY APPROVALS. 6
1.10 IRREVOCABLE GUARANTY BY PARENT. 6
1.11 TAX AND ACCOUNTING TREATMENT. 6
1.12 CLOSING 7
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS. 8
2.1 CORPORATE EXISTENCE; GOOD STANDING. 8
2.2 POWER AND AUTHORITY FOR TRANSACTIONS. 8
2.3 SUBSIDIARIES AND AFFILIATES. 9
2.4 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. 9
2.5 SELLER'S FINANCIAL INFORMATION. 10
2.6 LEASES. 10
2.7 PERSONAL PROPERTY. 10
2.8 INVENTORIES. 11
2.9 PRINCIPAL PLACE OF BUSINESS. 11
2.10 LOCATION OF ASSETS. 11
2.11 INTELLECTUAL PROPERTY RIGHTS. 11
2.12 DIRECTORS AND OFFICERS; PAYROLL INFORMATION. 11
2.13 LEGAL PROCEEDINGS. 11
2.14 CONTRACTS. 12
2.15 SUBSEQUENT EVENTS. 12
2.16 ACCOUNTS RECEIVABLE. 13
2.17 TAX RETURNS. 14
2.18 COMMISSIONS AND FEES. 14
2.19 MATERIAL LIABILITIES. 14
2.20 INSURANCE POLICIES. 14
2.21 EMPLOYEE BENEFIT PLANS. 15
2.22 COMPLIANCE WITH LAWS IN GENERAL. 15
2.23 FRAUD AND ABUSE. 15
2.24 MEDICARE, MEDICAID, AND OTHER THIRD-PARTY PAYOR PAYMENT LIABILITIES. 16
2.25 BILLING PRACTICES AND REFERRAL SOURCES. 16
2.26 PHYSICIAN SELF-REFERRALS. 17
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PSC. 17
3.1 CORPORATE EXISTENCE; GOOD STANDING; QUALIFICATION. 17
3.2 POWER AND AUTHORITY. 18
3.3 COMMISSIONS AND FEES. 18
3.4 CAPITALIZATION. 18
3.5 PSC COMMON STOCK. 18
3.6 PARENT DOCUMENTS. 19
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<TABLE>
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3.7 LEGAL PROCEEDINGS. 19
SECTION 4. ACCESS TO INFORMATION AND DOCUMENTS PRIOR TO CLOSING. 19
4.1 ACCESS TO SELLER'S INFORMATION. 19
4.2 ACCESS TO INFORMATION OF PSC AND PARENT. 19
4.3 RETENTION OF RECORDS. 19
SECTION 5. CONDITIONS TO OBLIGATION OF PARENT AND PSC TO CLOSE 20
5.1 REPRESENTATIONS AND WARRANTIES TRUE. 20
5.2 COVENANTS. 20
5.3 NO SUIT OR PROCEEDING. 20
5.5 CERTIFICATE. 20
5.6 CONSENTS AND APPROVALS. 21
5.7 COUNSEL OPINION. 21
5.8 OTHER AGREEMENTS EXECUTED. 21
5.9 RELEASE OF LIENS 21
5.10 CLOSING DATE FINANCIAL CERTIFICATE 21
5.11 CORPORATE DOCUMENTS. 21
5.12 INSTRUMENTS OF CONVEYANCE. 22
5.14 INVESTOR LETTER AND FINANCIAL DATA SHEET. 22
SECTION 6. CONDITIONS TO OBLIGATION OF SELLER AND THE SHAREHOLDERS 22
6.1 REPRESENTATIONS AND WARRANTIES TRUE. 22
6.2 COVENANTS. 22
6.3 NO SUIT OR PROCEEDING. 22
6.4 CERTIFICATE. 23
6.5 GOVERNMENT APPROVALS. 23
6.6 COUNSEL OPINION. 23
6.7 OTHER AGREEMENTS EXECUTED. 23
6.8 PARENT STOCK. 23
6.9 CORPORATE DOCUMENTS. 23
6.10 ASSUMPTION OF LIABILITIES. 23
SECTION 7. CERTAIN ADDITIONAL COVENANTS 24
7.1 CONDUCT OF BUSINESS PRIOR TO CLOSING. 24
7.2 FUNDING OF ACCRUED EMPLOYEE BENEFITS. 24
7.3 CREDITOR'S CLAIMS. 25
7.4 AFFILIATE AGREEMENTS. 25
7.5 WAIVER OF BULK TRANSFER COMPLIANCE. 25
7.6 LIQUIDATION OF SELLER. 25
7.7 COVENANT NOT TO COMPETE. 25
7.8 CONFIDENTIALITY. 26
7.9 POOLING AND TAX-FREE COMBINATION TREATMENT. 27
SECTION 8. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. 27
8.1 NATURE AND SURVIVAL. 27
8.2 INDEMNIFICATION BY PSC AND PARENT. 28
8.3 INDEMNIFICATION BY SELLER AND SHAREHOLDERS. 28
8.4 INDEMNIFICATION PROCEDURE. 29
8.5 LIMITATIONS UPON OBLIGATIONS. 29
SECTION 9. TERMINATION. 30
9.1 RIGHT TO TERMINATE. 30
</TABLE>
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<TABLE>
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9.2 EFFECT OF TERMINATION. 30
SECTION 10. MISCELLANEOUS. 31
10.1 NOTICES. 31
10.2 FURTHER ASSURANCES. 32
10.3 PUBLIC DISCLOSURES. 32
10.4 GOVERNING LAW. 32
10.5 "INCLUDING 32
10.6 "KNOWLEDGE 32
10.7 "MATERIAL". 32
10.8 "MATERIAL ADVERSE CHANGE" OR "MATERIAL ADVERSE EFFECT". 33
10.9 "HAZARDOUS MATERIALS". 33
10.10 "ENVIRONMENTAL LAWS". 33
10.12 CAPTIONS. 34
10.13 INTEGRATION OF EXHIBITS. 34
10.14 ENTIRE AGREEMENT. 34
10.15 COUNTERPARTS. 34
10.16 BINDING EFFECT. 34
10.17 NO RULE OF CONSTRUCTION. 34
10.18 COSTS OF ENFORCEMENT. 35
10.19 TRANSFER OF ASSETS; ASSIGNMENT. 35
</TABLE>
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ASSET ACQUISITION AGREEMENT
ASSET ACQUISITION AGREEMENT (this "Agreement"), dated as of November 26,
1996, by and among PSC MANAGEMENT CORP., a Delaware corporation ("PSC");
PHYSICIANS' SPECIALTY CORP., a Delaware corporation ("PARENT"); ATLANTA EAR,
NOSE & THROAT ASSOCIATES, P.C., a Georgia professional corporation ("Seller");
and RAMIE A. TRITT M.D.; DANIEL M. ADAMS, III; MICHAEL J. PICKFORD M.D.; KEITH
JACKSON, M.D.; KEITH A. KOWAL, M.D.; AND ANN K. WHITE, M.D., all individual
residents of the State of Georgia (individually a "Shareholder," and
collectively the "Shareholders").
W I T N E S S E T H:
WHEREAS, Seller operates a medical practice which provides otolaryngology
and other medical and surgical services from offices located in the metropolitan
Atlanta, Georgia area and surrounding communities ("Business");
WHEREAS, Shareholders are the only shareholders of Seller;
WHEREAS, Parent through its wholly-owned subsidiaries is engaged in the
business of acquiring the assets of and managing medical practices;
WHEREAS, PSC is a wholly-owned subsidiary of Parent;
WHEREAS, Seller wishes to convey to PSC, and PSC wishes to acquire from
Seller, substantially all of the properties and assets constituting the
Business, subject to certain liabilities set forth herein, all upon the terms
and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises, the mutual promises and
covenants hereinafter set forth, and the contemplated delivery by PSC to Seller
of shares of the Common Stock of Parent, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto do hereby agree as follows:
SECTION 1. TERMS OF THE SALE AND ACQUISITION OF ASSETS.
The sale of the assets of Seller hereunder and the acquisition thereof by
PSC shall be made at the Closing (as defined in Section 1.12) based on the
respective representations, warranties and agreements of the parties hereto and
subject to the terms and conditions herein stated.
1.1 CONVEYANCE OF ASSETS. Subject to the provisions of Section 1.2 hereof,
at the Closing Seller shall convey, transfer and assign to PSC and PSC shall
acquire from Seller all of Seller's right, title and interest in and to the
properties and assets of Seller as a going concern,
<PAGE> 6
Page 6
including, without limitation, all items of personal property and other assets
used in connection with the Business (except as otherwise provided herein),
whether or not any of such assets have any value for accounting purposes
(individually "Asset," and collectively "Assets"), free and clear of all
obligations, security interests, liens, claims and encumbrances whatsoever,
except as specifically assumed by PSC pursuant to Section 1.3(b). Without
limiting the generality of the foregoing, the Assets specifically include:
(a) All real estate, personal property, plant, furniture, fixtures and
equipment owned by Seller which are utilized in or related to the Business,
including, but not limited to, all items owned by Seller identified on Exhibit
1.1(a) attached hereto.
(b) All contracts, agreements and commitments of Seller and/or the
Shareholders related to the Business identified on Exhibit 2.6 and Exhibit 2.14
attached hereto and set forth on Exhibit 1.3(b) and all contracts, agreements
and commitments of Seller and/or the Shareholders related to the Business and
entered into after the date hereof and prior to the Closing in the ordinary
course of business and not in violation of Section 7.1 hereof (but excluding
this Agreement and the agreements, instruments and documents executed and
delivered by PSC pursuant to this Agreement and also excluding physician
employment agreements of Seller and any contracts with nurse practitioners and
physician assistants of Seller) and all contract rights of Seller incident
thereto, and all general intangibles of Seller.
(c) Subject to applicable laws and regulations, all inventories
maintained by Seller as of the Closing Date as described in Exhibit 1.1(c).
(d) Subject to applicable laws and regulations, all accounts receivable
of Seller, notes receivable and other rights to receive payments owing to Seller
in existence on the Closing Date, and all cash arising from the collection of
same from and after the Closing Date.
(e) Subject to applicable laws and regulations, all patient accounts
receivable records of Seller.
(f) The books and records of Seller relating to the Assets, all of
which shall be delivered to PSC, or such person as PSC may designate, on the
Closing Date.
(g) Subject to applicable laws and regulations, all transferable
licenses and other regulatory approvals necessary for or incident to the
operation of the Assets.
(h) Seller's right to use the name "Atlanta Ear, Nose & Throat
Associates" and all other trade and service marks and names and goodwill
associated therewith, and all customer lists, clinical and administrative policy
and procedure manuals, trade secrets, copyrights, patents, marketing and
promotional materials (including audiotapes, videotapes and printed materials)
and all other property rights required for or incident to the marketing of the
products and services of the Business, and all books and records relating
thereto.
(i) All of Seller's prepaid expenses, prepaid insurance, deposits and
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Page 7
similar items.
1.2 EXCLUDED ASSETS. There shall be excluded from the Assets transferred
and conveyed hereunder, and Seller shall retain all of its right, title and
interest in and to, the assets set forth on Exhibit 1.2 attached hereto and the
following assets:
(a) The minute books of Seller and similar corporate records of Seller.
(b) All considerations to be delivered by PSC on the Closing Date.
(c) All assets listed in Exhibit 1.2 hereto.
(d) Patient charts, records and files.
1.3 ACQUISITION PSC PRICE; ASSUMPTION OF LIABILITIES. As consideration
for the sale of the Assets by Seller, at Closing PSC shall provide Seller with
the following considerations:
(a) Parent Shares. At the Closing Parent shall issue to Seller shares
of the Common Stock, par value $.001 per share, of Parent (the "Parent Common
Stock") with a total value equal to [$15,773,748] subject to adjustments
described in Exhibit 1.3(a) (the "Acquisition Price"). The number of shares of
Parent Common Stock which shall constitute the Acquisition Price shall be
determined by dividing the Acquisition Price by the Initial Public Offering
Price of the Parent Common Stock. For purposes of this Section 1.3(a), the
"Initial Public Offering Price" shall mean the price for the shares of Parent
Common Stock as priced and sold on a gross basis before taking into account the
managing underwriters' commissions and costs associated with Parent's initial
public offering (the "IPO"). Assuming an IPO Price of [$8.50] per share and no
adjustments pursuant to Exhibit 1.3(a), a total of [1,885,737] shares of Parent
Common Stock would be issued as the Acquisition Price. The Acquisition Price
shall be allocated to the acquisition of the Assets as set forth on Exhibit
1.3(a)(1) attached hereto. The parties shall use such allocation in completing
Form 8594 and satisfying any and all other reporting requirements of the
Internal Revenue Service or any other state or local taxing authority.
(b) Assumption of Liabilities. Except as otherwise provided herein, at
the Closing PSC shall assume and shall perform or discharge on or after the
Closing Date (as defined in Section 1.12), only those contracts, leases,
commitments, obligations and liabilities of Seller which are listed on Exhibit
1.3(b), attached hereto (collectively, the "Obligations"), except to the extent
that such contracts, leases, commitments, obligations and liabilities are
excluded by virtue of the operation of other provisions of this Agreement. PSC
agrees to promptly pay and discharge such Obligations assumed by it as the same
become due and payable.
(c) Liabilities Not Assumed. Notwithstanding any contrary provision
contained herein, PSC shall not be deemed to have assumed, nor shall PSC assume
(i) any liability which may be incurred by reason of any uncured material breach
of or any monetary default under such contracts, leases, commitments or
obligations which occurred prior to the Closing Date; (ii)
<PAGE> 8
Page 8
any liability for any employee benefits payable to employees of Seller,
including, but not limited to, liabilities arising under any Seller Plan (as
defined in Section 2.21 hereto) and liabilities for accrued sick leave or
vacation days; (iii) any liability based upon or arising out of a violation of
any antitrust or similar restraint-of-trade laws by Seller, including, without
limiting the generality of the foregoing, any such antitrust liability which
may arise in connection with agreements, contracts, commitments or orders for
the sale of goods or provision of services by Seller reflected on the books of
Seller at or prior to the Closing Date; (iv) any liability based upon or
arising out of overpayments due to the Medicare and/or Medicaid programs, any
other third party payor, or any liability based upon or arising out of a
violation of any false claim, anti-kickback, prohibition or self-referral laws
or similar fraud and abuse laws by Seller; (v) any medical malpractice
liability associated with the Business or Seller or any person associated with
the business or Seller; nor (vi) any liability based upon or arising out of any
tortious or wrongful actions of Seller or any Shareholder, or any liability for
the payment of any taxes imposed by law on Seller arising from or by reason of
the transactions contemplated by this Agreement.
1.4 EMPLOYMENT ARRANGEMENTS.
(a) Following the Closing PSC will offer employment as
employees-at-will to all persons (other than physicians and such personnel as
are specified in the Management Services Agreement, defined in Section 1.5
below) who are employees of Seller on the Closing Date; Seller's employees who
become employed by PSC are hereinafter referred to as "Transferred Employees"
and the physicians and such other personnel as are specified in the Management
Services Agreement, but who will not become employed by PSC are hereafter
referred to as the "Practice Employees."
(b) As of the Closing Date, Seller will use its best efforts to: (i)
terminate any employment contracts applicable to those persons who are employed
by PSC as Transferred Employees pursuant to Section 1.4(a) hereof; and (ii)
terminate the participation of all such employees in all Seller Plans, such
termination to be effected in accordance with and to the extent permitted by
applicable provisions of the Internal Revenue Code of 1986, as amended, (the
"Code") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other applicable laws, rules and regulations; and (iii) cause
the Seller Plans to make timely appropriate distributions, to the extent
required, to such employees in accordance with, and to the extent permitted by,
the terms and conditions of such Seller Plans. Seller will provide to PSC such
copies of documents and other information related to the termination of such
employees' participation in the Seller Plans as PSC may request.
1.5 MANAGEMENT SERVICES AGREEMENT. Prior to the effective date of the
registration statement governing the IPO, New Atlanta Ear, Nose & Throat
Associates, P.C. ("Practice"), Parent and PSC shall execute and deliver a
Management Services Agreement substantially in the form of Exhibit 1.5, pursuant
to which PSC will provide management services to Practice from and after the
Closing Date.
1.6 SELLER'S FINANCIAL INFORMATION. The agreement between the parties
evidenced by this Agreement has been reached based on financial information
about Seller, the Assets and the
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Business as of September 30, 1996, all provided to PSC by Seller. The unaudited
Balance Sheet of Seller as of September 30, 1996 ("Balance Sheet Date"), is
attached hereto as Exhibit 1.6 and is hereinafter referred to as the "Balance
Sheet".
1.7 EACH PARTY TO BEAR COSTS. Each of the parties to this Agreement shall
pay all of the costs and expenses incurred by such party in connection with the
transactions contemplated by this Agreement, except as otherwise provided
herein. Without limiting the generality of the foregoing, and whether or not
such liabilities may be deemed to have been incurred in the ordinary course of
business, neither party shall be liable for or required to pay, either directly
or indirectly, any of the following liabilities or expenses incurred by the
other party: (a) fees and expenses of any person for services as a finder, or
for fees and expenses of any persons for financial services rendered to such
other party in connection with negotiating and closing the sale contemplated by
this Agreement; (b) fees and expenses of legal counsel retained by such other
party for services rendered to such party in connection with negotiating and
closing the sale contemplated by this Agreement; (c) fees and expenses of any
auditors and accountants retained by such other party for services rendered to
such party in connection with negotiating and closing the sale contemplated by
this Agreement; (d) state and federal income taxes or other similar charges on
income incurred by such other party on any gain from the purchase and sale of
Assets hereunder; and (e) expenses and fees relating to feasibility studies,
appraisals and similar valuation services performed on behalf of such other
party in connection with the transactions contemplated hereby.
1.8 ASSIGNMENT OF CONTRACTS AND ASSETS; CONSENTS. Nothing in this Agreement
or delivered pursuant to this Agreement shall be construed as an attempt to
agree to assign any contract, certificate, license or other Asset which is in
law or by agreement nonassignable without the consent of the other party or
parties thereto, or of any governmental authority, as the case may be, unless
such consent shall be given. Seller will use its reasonable good faith efforts
to obtain all such necessary consents of the parties to any such contracts prior
to the Closing. In order, however, that the full value of every such contract,
certificate, license or other Asset included within the Assets and all claims
and demands in such contracts may be realized, Seller and the Shareholders
hereby covenant with PSC and Parent that Seller, by itself or by its agents,
will, at the request and expense and under the direction of PSC, in the name of
Seller or otherwise, as PSC shall specify and as shall be permitted by law, take
all such reasonable actions and do or cause to be done all such reasonable
things as shall, in the opinion of PSC, be necessary or proper (a) in order that
the rights and obligations of Seller under such contracts, certificates,
licenses and other Assets shall be preserved, and (b) for, and to facilitate,
from and after the Closing, the collection of the moneys due and payable, and to
become due and payable, to Seller in and under every such contract and in
respect of every such claim and demand, from and after the Closing, and Seller
shall hold the same for the benefit of, and shall pay the same over to, PSC.
1.9 COOPERATION WITH REGULATORY APPROVALS. Seller and the Shareholders
shall cooperate with and assist PSC, as PSC shall reasonably request, in
obtaining the approval of all regulatory agencies and officials whose approval
is required for the transfer of all licenses and other regulatory approvals
required to enable PSC to acquire the Assets and operate the Business.
1.10 IRREVOCABLE GUARANTY BY PARENT. To induce Seller to execute and
deliver this
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Agreement, Parent hereby unconditionally and irrevocably guarantees the Seller
and Shareholders the full, prompt and faithful performance by PSC of all
covenants and obligations to be performed by PSC under this Agreement,
including, but not limited to, the payment of all sums and delivery of all
property stipulated to be transferred by PSC pursuant to this Agreement and
PSC's obligation to indemnify the Seller and the Shareholders pursuant to
Section 8.2. This guaranty shall be a guaranty of payment, not merely
collection, and shall be unaffected by any subsequent modification or amendment
of this Agreement whether or not Parent has knowledge of or consented to such
modification or amendment. In the event that PSC fails to fully perform all such
covenants and obligations in accordance with their terms or pay all or any part
of such sums or deliver all or any part of such property when due, Parent will
perform all such covenants and obligations in accordance with their terms or
immediately pay or deliver to Seller (or such other payee or transferee as may
be provided in any such agreement) the amount due and unpaid or the property not
delivered, as the case may be, by PSC. In the event of bankruptcy, termination,
liquidation or dissolution of PSC, this unconditional guaranty shall continue in
full force and effect. In the event of any extension of time for payment or
performance or other modification of any guaranteed obligation or covenant, or
any waiver thereof or other compromise or indulgence with respect thereto or any
release or impairment of any security for any such obligation or covenant, or
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor, no notice to, or consent of, Parent shall be
required.
1.11 TAX AND ACCOUNTING TREATMENT. It is intended by the parties that the
purchase and sale contemplated by this Agreement and related documents qualify
as a reorganization under the provisions of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended, and that for accounting purposes, it is
intended that such transaction be accounted for by Parent as a "pooling of
interests".
1.12 CLOSING.
(a) Closing. Subject to the fulfillment of the conditions precedent
specified in Sections 5 and 6, the transaction contemplated by this Agreement
shall be consummated at a closing (the "Closing") to be held at 10:00 a.m. local
time simultaneously with the closing of the IPO at the offices of Bachnor,
Tally, Polevoy, & Misher L.L.P., or at such other location, as is mutually
agreed upon by the Parties. The date on which the Closing occurs shall be
referred to as the "Closing Date."
(b) Documents to be Delivered by Seller. At the Closing, Seller shall
deliver, or cause to be delivered, to PSC the following:
(i) Such bills of sale, endorsements and assignments as
are necessary to vest in PSC good and valid title to the
Purchased Assets;
(ii) The certificate required to be delivered pursuant
to Section 5.5;
(iii) The legal opinion required to be delivered
pursuant to
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Section 5.7 of this Agreement;
(iv) The other agreements, documents and instruments
required by Sections 5.8 through 5.14;
(v) Any other documentation required to be delivered
under this Agreement or otherwise requested to be delivered by
PSC that is necessary or appropriate to consummate the
Transaction.
(c) Documents and Other Items to be Delivered by Purchaser.
At the Closing, PSC shall deliver to Seller the following:
(i) The Acquisition Price, payable by shares of Parent
Common Stock pursuant to Section 1.3;
(ii) The certificate required to be delivered pursuant
to Sections 6.4 of this Agreement;
(iii) The legal opinion required to be delivered
pursuant to Section 6.6 of this Agreement;
(iv) The other agreements, documents and instruments
required by Section 6.7, 6.9 and 6.10;
(v) Any other documentation required to be delivered
under this Agreement or otherwise reasonably requested to be
delivered by Seller or the Shareholders that is necessary or
appropriate to consummate the transaction.
Simultaneously with such delivery, Seller and Shareholders jointly and
severally agree to use their best efforts and to take all action as may be
reasonably necessary to put PSC in possession and operating control of the
Assets free and clear of all liens or other restrictions or encumbrances,
including the obtaining of such consents of third parties as may be reasonably
necessary to effect the foregoing.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS.
The Seller and Shareholders jointly and severally represent and warrant to
PSC and Parent as follows:
2.1 CORPORATE EXISTENCE; GOOD STANDING. Seller is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia. Seller has all necessary corporate powers to own all of
its assets and to carry on its business as such business is now being conducted.
Seller is not required to qualify to do business as a foreign corporation in any
other state or jurisdiction by reason of its business, properties or activities
in or
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relating to such other state or jurisdiction.
2.2 POWER AND AUTHORITY FOR TRANSACTIONS.
(a) Seller has corporate power to execute, deliver and perform its
obligations under this Agreement and all agreements and other documents executed
and delivered by it pursuant to this Agreement, and has taken all action
required by law, its Articles of Incorporation, its Bylaws or otherwise, to
authorize the execution and delivery of and the performance of this Agreement
and such related documents. The execution and delivery of this Agreement, and
the agreements related hereto executed and delivered pursuant to this Agreement,
do not, and, subject to the receipt of consents to assignments of leases and
other contracts where required and the receipt of regulatory approvals where
required, the consummation of the transactions contemplated hereby will not,
violate any provision of the Articles of Incorporation or Bylaws of Seller or
any provisions of, or result in the acceleration of, any obligation under any
mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment
or decree to which Seller is a party or by which Seller is bound, or violate any
material restrictions of any kind to which Seller is subject which could have a
Material Adverse Effect.
(b) The execution and delivery of this Agreement, and the agreements
related hereto executed and delivered pursuant to this Agreement, do not, and
the consummation of the transactions contemplated hereby will not, violate any
provisions of, or result in the acceleration of, any obligation under any
mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment
or decree to which any Shareholder is a party or by which any Shareholder is
bound, or violate any material restrictions of any kind to which any Shareholder
is subject and which could have a Material Adverse Effect.
2.3 SUBSIDIARIES AND AFFILIATES. Except as set forth in Exhibit 2.3
attached hereto, Seller does not own stock in or control, directly or
indirectly, any other corporation, association or business organization, nor is
Seller a party to any joint venture or partnership. The Shareholders are the
sole shareholders of Seller and own all the capital stock of Seller in the
respective proportionate amounts set forth in Exhibit 2.3. There are no
outstanding (a) securities of Seller convertible into equity interests in
Seller, or (b) commitments, options, rights or warrants to issue any such equity
interests in Seller, or to issue securities of Seller convertible into such
equity interests.
2.4 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. (a) All material
building or other permits, certificates of occupancy, concessions, grants,
franchises, licenses, certificates of need and other material governmental
authorizations and approvals necessary for the conduct of the Business, or
waivers thereof, have been duly obtained and are in full force and effect, and
there are no proceedings pending or, to the knowledge of Seller and
Shareholders, threatened which may result in the revocation, cancellation or
suspension, or any adverse modification, of any thereof. Any and all past
litigation concerning such building or other permits, certificates of occupancy,
concessions, grants, franchises, licenses, certificates of need and other
governmental authorizations and approvals, and all claims and causes of action
raised therein, have been finally adjudicated.
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(b) Approvals. Each Shareholder holds in full force and effect all
approvals, authorizations, licenses, and certifications required by law (the
"Approvals") to practice medicine. Evidence of such Approvals has been delivered
to PSC. There has been no lapse, revocation, or suspension of any Approval, or
any formal allegation (including any complaint, indictment or initiation of
proceedings) made before a court of law, licensing or regulatory authority,
professional organization, or the medical staff or committee of a hospital,
regarding any Shareholder's practice or fitness to practice medicine, including
any allegation of the following: alcohol abuse, a violation of any law or
regulation relating to controlled substances, professional malpractice or
misconduct, improper billing practices, or a crime involving moral turpitude.
The foregoing does not include any action taken as a result of failure to timely
complete medical records.
(c) Provider Numbers. Each Shareholder holds a valid Medicare provider
number and valid uniform physician identification numbers. Evidence of such
numbers has been delivered to PSC.
(d) Board Certification. Each Shareholder is certified by the American
Board of Otolaryngology and evidence of such board certification(s) has been
delivered to PSC.
(e) No Conviction. No Shareholder has ever been convicted of a criminal
offense relating to the Medicare or any federally-funded state health care
program. For purposes of this Agreement, the term conviction includes the entry
of a plea of guilty or no contendere and participation in a first offender,
deferred adjudication, or other arrangement or program whereby a judgment of
conviction has been withheld.
2.5 SELLER'S FINANCIAL INFORMATION. Seller has heretofore furnished PSC and
Parent with copies of financial information about Seller as set forth on Exhibit
2.5 attached hereto, including, but not limited to, the Balance Sheet. All such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods indicated,
reflect all liabilities of Seller as of their respective dates, and present
fairly the financial position of Seller as of such dates and the results of
operations and cash flows for the period or periods reflected therein.
2.6 LEASES. Exhibit 2.6 attached hereto sets forth a list of all leases
pursuant to which Seller leases, as lessor or lessee, real or personal property
used in operating the Business or otherwise; however the parties understand and
agree that only those leases listed on Exhibit 1.3(b) will be assumed by PSC.
Except as indicated on Exhibit 2.16, all such leases listed on Exhibit 2.6 are
valid and effective in accordance with their respective terms, and there is not
under any such lease any existing default by Seller, as lessor or lessee, or any
condition or event of which Seller or any Shareholder has knowledge which with
notice or lapse of time, or both, would constitute a default, in respect of
which Seller has not taken adequate steps to cure such default or to prevent a
default from occurring.
2.7 PERSONAL PROPERTY. Seller owns all of the personal property reflected
on the
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Balance Sheet and included in the Assets, including, but not limited to, all
items of personal property identified on Exhibit 1.1(a) and Exhibit 1.1(c)
attached hereto, free and clear of any liens, claims, charges, exceptions or
encumbrances, except for those set forth in Exhibit 2.7 attached hereto. All
such personal property that comprises the Assets shall be transferred to PSC
subject to only claims, charges, exceptions or encumbrances set forth on Exhibit
2.7. Such personal property is in usable condition, normal wear and tear
excepted, and suitable for its purpose and intended use.
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2.8 INVENTORIES. The items of Seller's inventory have been acquired in the
ordinary course of the Business and maintained at levels consistent with past
practices and are in all material respects adequate for the reasonable
requirements of the Business.
2.9 PRINCIPAL PLACE OF BUSINESS. The principal places of business of Seller
are, and have been for the previous five (5) years, in those counties listed in
Exhibit 2.9.
2.10 LOCATION OF ASSETS. Except as indicated in Exhibit 2.10, all of the
Assets are located in those counties listed in Exhibit 2.9.
2.11 INTELLECTUAL PROPERTY RIGHTS. Except as set forth in Exhibit 2.11
attached hereto, Seller has no right, title or interest in or to patents, patent
rights, manufacturing processes, trade names, trademarks, service marks,
inventions, specialized treatment protocols, copyrights, formulas and trade
secrets. Except for off-the-shelf software licenses, Seller is not a licensee in
respect of any patents, trademarks, service marks, trade names, copyrights or
applications therefor, or manufacturing processes, formulas or trade secrets.
Seller owns and possesses adequate licenses or other rights to use all such
patents, trademarks, service marks, trade names, copyrights, manufacturing
processes, inventions, specialized treatment protocols, formulas and trade
secrets necessary to conduct its business as now operated. No claim is pending
or has been made to the effect that the present or past operations of Seller
infringe upon or conflict with the asserted rights of others to such patents,
patent rights, manufacturing processes, trade names, trademarks, service marks,
inventions, specialized treatment protocols, copyrights, formulas and trade
secrets.
2.12 DIRECTORS AND OFFICERS; PAYROLL INFORMATION. Set forth on Exhibit 2.12
attached hereto is a true and complete list, as of the date of this Agreement,
of: (a) the name of each Director and officer of Seller and the offices held by
each; and (b) the most recent payroll report of Seller, showing all current
employees of Seller and their current levels of compensation other than bonuses
and other extraordinary compensation.
2.13 LEGAL PROCEEDINGS. Except as set forth in Exhibit 2.13 attached
hereto, neither Seller nor any Shareholder has knowledge of any pending or
threatened litigation, governmental investigation, condemnation or other
proceeding against or relating to or affecting Seller, any Shareholder, the
Business, the Assets or the transactions contemplated by this Agreement,
including, but not limited to, claims for medical malpractice or negligence,
and, to the knowledge of Seller and Shareholders, no basis for any such action
exists, nor is there any legal impediment of which Seller or any Shareholder has
knowledge to the continued operation of the Business in the ordinary course.
2.14 CONTRACTS. Seller has delivered to PSC true copies of all written, and
disclosed to PSC all Material oral, outstanding contracts, obligations and
commitments of Seller and each Shareholder entered into in connection with the
Business, all of which are listed or incorporated by reference on Exhibit 2.6
(in the case of leases) and Exhibit 2.14 (in the case of managed care contracts,
third party payor contracts and contracts other than leases) attached hereto.
Except as
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otherwise indicated on such Exhibits, all of such contracts, obligations and
commitments are valid, binding and enforceable against Seller in accordance with
their terms and are in full force and effect, subject to limitations on
enforceability imposed by, bankruptcy, moratorium, creditors' rights or similar
laws. Except as set forth or incorporated by reference on such Exhibits, to
Seller's knowledge no default or alleged default by Seller exists thereunder.
Except as listed or incorporated by reference on Exhibit 2.6 and Exhibit 2.14,
neither Seller nor any Shareholder is a party to any Material written or oral
agreement, contract, lease or plan of a type described as follows:
(a) Contract related to the Assets, not made in the ordinary course of
business, other than this Agreement.
(b) Employment contract which is not terminable without cost or other
liability to Seller, or any successors or assigns thereof, upon notice of 30
days or less.
(c) Contract with any labor union.
(d) Bonus, pension, profit-sharing, retirement, stock acquisition,
hospitalization, insurance or similar plan providing for employee benefits.
(e) Lease with respect to any property, real or personal, whether as
lessor or lessee.
(f) Contract for the future acquisition of materials, supplies or
equipment (i) which is in excess of the requirements of the Business now booked
or for normal operating inventories, or (ii) which is not terminable without
material cost or liability to Seller, or any successors or assigns thereof, upon
notice of 30 days or less.
(g) Insurance contract.
(h) Contract continuing for a period of more than six months from the
Closing Date.
(i) Loan agreement or other contract for money borrowed.
2.15 SUBSEQUENT EVENTS. Except as set forth on Exhibit 2.15 attached
hereto, Seller has not, since the date of the Balance Sheet:
(a) Incurred any material uninsured obligation or liability (absolute,
accrued, contingent or otherwise), or any material adverse change except in
connection with the performance of this Agreement, other than in the ordinary
course of business.
(b) Discharged or satisfied any material lien or encumbrance, or paid
or satisfied any material obligation or liability (absolute, accrued, contingent
or otherwise) other than (i) liabilities shown or reflected on the Balance Sheet
or (ii) liabilities incurred since the date of the
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Balance Sheet in the ordinary course of business.
(c) Increased or established any reserve for taxes or any other
liability on its books or otherwise provided therefor, except as may have been
required due to income or operations of Seller.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the Assets, tangible or intangible.
(e) Sold or transferred any of the Assets, canceled any debts or claims
or waived any rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of
employees or any substantial increase in salary payable or to become payable by
Seller to any officer or employee, consultant or agent (other than normal merit
increases), or by means of any bonus or pension plan, contract or other
commitment, increased the compensation of any officer, employee, consultant or
agent.
(g) Authorized any capital expenditures in excess of $1,000.00.
(h) Except for this Agreement and any other agreement executed and
delivered pursuant to this Agreement, entered into any material transaction
other than in the ordinary course of business or permitted under other Sections
hereof.
(i) Issued any stock, bonds or other securities.
(j) Experienced damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting any of its properties, assets or
business, or experienced any other material adverse change in its financial
condition, assets, liabilities or business.
(k) Paid bonuses, distributions, or advanced loans to shareholders or
employees outside of the ordinary course of business consistent with past
practices of Seller.
2.16 ACCOUNTS RECEIVABLE. Exhibit 2.16 reflects the amount of Seller's
accounts receivable as of the date of the Balance Sheet, net of allowances for
uncollectible and doubtful accounts, all in conformity with generally accepted
accounting principles. Seller maintains its accounting records in sufficient
detail to substantiate the accounts receivable reflected on Exhibit 2.16 and has
given and will give to PSC full and complete access to those records, including
the right to make copies therefrom. Since the date of the Balance Sheet, Seller
has not changed any principle or practice with respect to the recordation of
accounts receivable or the calculation of reserves therefor, or any material
collection, discount or write-off policy or procedure. To the best of the
knowledge of the Seller and the Shareholders, the Seller is in substantial
compliance with the terms and conditions of such third-party payor arrangements,
and to Seller's knowledge the reserves established by Seller are adequate to
cover any liability resulting from lack of
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compliance.
2.17 TAX RETURNS. Seller has filed all tax returns required to be filed by
it, and made all payments required to be made by it, with respect to income
taxes, real property taxes, sales taxes, use taxes, employment taxes and similar
taxes due and payable on or before the date of this Agreement. Seller has no tax
liability, except for ad valorem taxes for the year ending December 31, 1996,
taxes being contested in good faith, as set forth on Exhibit 2.17 attached
hereto, and sales, use, employment and similar taxes for periods as to which
such taxes have not yet become due and payable.
2.18 COMMISSIONS AND FEES. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
PSC or Parent resulting from any action taken by Seller or Shareholders or their
respective agents or employees, or any of them.
2.19 MATERIAL LIABILITIES. Except as set forth on Exhibit 2.15, or to the
extent reflected or reserved against on the Balance Sheet, Seller did not have,
as of the Balance Sheet Date, and has not incurred since that date, any material
uninsured liabilities or obligations of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due which would have a
Material Adverse Effect, other than those incurred in the ordinary course of
business. Except as set forth on Exhibit 2.15, Seller and Shareholders do not
know, or have reasonable grounds to know, of any basis for the assertion against
Seller as of the Balance Sheet Date, of any material claim or liability of any
nature in any amount not fully reflected or reserved against on the Balance
Sheet, or of any material uninsured claim or liability of any nature arising
since that date which would have a Material Adverse Effect other than those
incurred in the ordinary course of business or contemplated by this Agreement.
2.20 INSURANCE POLICIES. Seller or each Shareholder maintains policies of
comprehensive general liability and professional liability insurance in amounts
of not less than $3 million per occurrence and $5 million aggregate on a claims
made basis and property damage insurance on the Assets to be sold hereunder.
Valid policies in such amounts are outstanding and duly in force and will remain
duly in force through the Closing Date. All such policies are described in
Exhibit 2.20 attached hereto.
2.21 EMPLOYEE BENEFIT PLANS. Except as set forth on Exhibit 2.21 attached
hereto, Seller has neither established, nor maintains, nor is obligated to make
contributions to or under or otherwise participate in, (a) any bonus or other
type of incentive compensation plan, program, agreement, policy, commitment,
contract or arrangement (whether or not set forth in a written document); (b)
any pension, profit sharing, retirement or other plan, program or arrangement;
or (c) any other employee benefit plan, fund or program, including, but not
limited to, those described in Section 3(3) of ERISA. All such plans listed on
Exhibit 2.21 (individually "Seller Plan," and collectively "Seller Plans") have
been operated and administered in all material respects in accordance with, as
applicable, ERISA, the Internal Revenue Code of 1986, as amended, title VII of
the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended,
the Age Discrimination in Employment Act of 1967, as amended, and the related
rules and regulations
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adopted by those federal agencies responsible for the administration of such
laws. No act or failure to act by Seller has resulted in a "prohibited
transaction" (as defined in ERISA) with respect to the Seller Plans. No
"reportable event" (as defined in ERISA) has occurred with respect to any of the
Seller Plans. Seller has not previously made, is not currently making, and is
not obligated in any way to make, any contributions to any multi-employer plan
within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980.
2.22 COMPLIANCE WITH LAWS IN GENERAL. Neither Seller nor any Shareholder
has knowledge of material violations of any federal, state and local laws,
regulations and ordinances relating to the operations of the Business and the
Assets, including, without limitation, the Federal Environmental Protection Act,
the Occupational Safety and Health Act, the Americans with Disabilities Act and
any Environmental Laws, and no notice of any pending inspection or violation of
any such law, regulation or ordinance has been received by Seller or any
Shareholder.
2.23 FRAUD AND ABUSE. Seller and Shareholders and all persons and entities
providing professional services for the Business have not, to the knowledge of
Seller and Shareholders, engaged in any activities which are prohibited under
Section 1320a-7b of Title 42 of the United States Code or the regulations
promulgated thereunder, 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 for use in
determining rights to any benefit or payment; (b) knowingly and willfully making
or causing to be made any false statement or representations of a material fact
for use in determining rights to any benefit or payment; (c) any failure by a
claimant to disclose knowledge 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 the intent to fraudulently secure such benefit or
payment; (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 (ii) in return for
purchasing, leasing or ordering or arranging for, or recommending, purchasing,
lease or ordering any good, facility, service or item for which payment may be
made in whole or in part by Medicare or Medicaid; (e) engaging in any activity
which is a basis for exclusion from the Medicare, Medicaid and other
federally-funded programs under Section 1320a-7a of Title 42 of the United
States Code; (f) any violation of the Medicare or Medicaid requirements,
including and fraud and abuse provisions, except where such circumstances would
not have a Material Adverse Effect.
2.24 MEDICARE, MEDICAID, AND OTHER THIRD-PARTY PAYOR PAYMENT LIABILITIES.
Except as described in Exhibit 2.24 neither Seller nor any Shareholder has, and
as of the Closing Date, will have, any liabilities to any third party fiscal
intermediary or carrier administering any state Medicaid program or the federal
Medicare program, or to any other third party payor for the recoupment of any
amounts previously paid to Seller (or any predecessor corporation) or any
Shareholder by any such third-party fiscal intermediary, carrier, Medicaid
program, Medicare program, or third party payor. There are no pending or
threatened actions by any third party fiscal intermediary or carrier
administering any state Medicaid or the federal Medicare program,
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by the Department of Health and Human Services, any state Medicaid agency, or
any third party payor to suspend payments to Seller or any Shareholder.
2.25 BILLING PRACTICES AND REFERRAL SOURCES. (a) Billing Practices
Generally. All billing practices by Seller and each Shareholder to all third
party payors, including, but not limited to, the federal Medicare program,
state Medicaid programs and private insurance companies, have been true, fair
and correct and in compliance with all applicable laws, regulations and
policies of all such third party payors, and neither Seller nor any Shareholder
has billed for or received any payment or reimbursement in excess amounts
allowed by law.
(b) Gratuitous Payments. Neither Seller nor any Shareholder, director,
or officer of Seller, nor to Seller's knowledge any employee or agent acting on
behalf of or for the benefit of Seller or any Shareholder, has directly or
indirectly (i) offered or paid any remuneration, in cash or in kind, to, or made
any financial arrangements with, any past or present customers, past or present
patients, past or present suppliers, contractors or third party payors of Seller
in order to obtain business or payments from such persons, other than
entertainment activities in the ordinary and lawful course of business; (ii)
given or agreed to give, or is aware that there has been made or that there is
any agreement to make, any gift or gratuitous payment of any kind, nature or
description (whether in money, property or services) to any customer or
potential customer, patient or potential patient, supplier or potential
supplier, contractors, third party payor or any other person other than in
connection with promotional or entertainment activities in the ordinary and
lawful course of business; (iii) made or agreed to make, or is aware that there
has been made or that there is any agreement to make, any contribution, payment
or gift of funds or property to, or for the private use of, any governmental
official, employee or agent where either the contribution, payment or gift or
the purpose of such contribution, payment or gift is or was illegal under the
laws of the United States or under the laws of any state thereof or any other
jurisdiction (foreign or domestic) under which such payment, contribution or
gift was made; (iv) established or maintained any unrecorded fund or asset for
any purpose or made any false or artificial entries on any of its books or
records for any reason or (v) made, or agreed to make, or is aware that there
has been made or that there is any agreement to make, any payment to any person
with the intention or understanding that any part of such payment would be used
for any purpose other than that described in the documents supporting such
payment.
(c) Transactions with Referral Sources. Neither Seller nor any Shareholder,
director, or officer thereof, nor to Seller's knowledge any employee of Seller,
is a party to any contract, lease, agreement or arrangement, including, but not
limited to, any joint venture or consulting agreement with any physician,
hospital, nursing facility, home health agency or other person who is in a
position to make or influence referrals to or otherwise generate business for
Seller or any Shareholder to provide services, lease space, lease equipment or
engage in any other venture activity.
2.26 PHYSICIAN SELF-REFERRALS. Neither Seller nor any Shareholder has
submitted any claims in connection with any referrals which violated any
applicable self-referral law, including the Stark Law (42 U.S.C. Section 1395nn)
or any applicable state self-referral law as those laws are currently
interpreted.
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2.27 NO UNTRUE REPRESENTATIONS. To the knowledge of Seller and
Shareholders, no representation or warranty by Seller or any Shareholder in this
Agreement, and no Exhibit or certificate issued by officers or Directors of
Seller or any Shareholder and furnished or to be furnished to PSC or Parent
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements or facts
contained therein not misleading. All information and information provided by
Seller or the Shareholders for valuation of the Business by PSC and Parent is
true, accurate and complete in all material respects.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PSC.
PSC and Parent hereby jointly and severally represent and warrant to Seller
and Shareholders as follows:
3.1 CORPORATE EXISTENCE; GOOD STANDING; QUALIFICATION. EACH OF PSC and
Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of PSC and Parent has all
necessary corporate power to own its properties and assets and to carry on its
business as presently conducted and is duly qualified to do business and is in
good standing in all jurisdictions in which the character of the property owned,
leased or operated or the nature of the business transacted by it makes
qualification necessary.
3.2 POWER AND AUTHORITY. Each of PSC and Parent has corporate power to
execute and deliver this Agreement and perform its obligations under this
Agreement and all agreements and other documents executed and delivered by it
pursuant to this Agreement, and has taken all actions required by law, its
Certificate of Incorporation, its By-laws or otherwise, to authorize the
execution, delivery and performance of this Agreement and such related
documents. The execution and delivery of this Agreement, and the agreements
related hereto executed and delivered pursuant to this Agreement do not and,
subject to the receipt of consents to assignments of leases and other contracts
where required and the receipt of regulatory approvals where required, the
consummation of the transactions contemplated hereby will not, violate any
provision of the Certificate of Incorporation or Bylaws of either PSC or Parent
or any provisions of, or result in the acceleration of, any obligation under any
mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment
or decree to which PSC or Parent is a party or by which either of them is bound,
or violate any restrictions of any kind to which PSC or Parent is subject. The
execution and delivery of this Agreement have been approved by the respective
Boards of Directors of PSC and Parent.
3.3 COMMISSIONS AND FEES. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
Seller or Shareholders resulting from any action taken by PSC or Parent or their
respective officers, Directors or agents, or any of them.
3.4 CAPITALIZATION. Parent has an authorized capitalization of 10,000
shares of Preferred Stock, par value $1.00 per share, of which no shares are
issued and outstanding, and no
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shares are held in treasury, and 50,000,000 shares of common stock, par value
$.001 per share, of which 561,225 shares are issued and outstanding, and no
shares are held in treasury. All of the Parent Common Stock to be issued
pursuant to this Agreement will, when so delivered, be duly and validly issued
and fully paid and nonassessable. Except as disclosed in the draft Registration
Statement (as hereinafter defined), and except as described on Exhibit 3.4,
there are no options, warrants or similar rights granted by Parent or any other
agreements to which Parent is a party providing for the issuance or sale by it
of any additional securities. There is no liability for dividends declared or
accumulated but unpaid with respect to any shares of Parent Common Stock. Parent
has not paid any dividends to any holder of Parent Common Stock or participated
in or effected any issuance, exchange or retirement of Parent Common Stock, or
otherwise changed the equity interests of holders of Parent Common Stock, in
contemplation of effecting the transaction contemplated by this Agreement within
the two years immediately preceding the Closing Date.
3.5 PSC COMMON STOCK. Parent owns, beneficially and of record, all of the
issued and outstanding shares of Common Stock of PSC, free and clear of all
liens and encumbrances. Parent has taken all such actions as may be required in
its capacity as the sole shareholder of PSC to approve this transaction.
3.6 PARENT DOCUMENTS. Parent has heretofore furnished Seller with a draft
of its Registration Statement S-1 dated November 23, 1996, relating to the offer
and sale of 2,000,000 shares of Parent Common Stock in the IPO (the
"Registration Statement").
3.7 LEGAL PROCEEDINGS. Except as disclosed in the Registration Statement,
there is no material litigation, governmental investigation or other proceeding
pending or, so far as is known to Parent threatened against or relating to
Parent, its properties or business, or the transaction contemplated by this
Agreement and, so far as is known to Parent, no basis for any such action
exists.
SECTION 4. ACCESS TO INFORMATION AND DOCUMENTS PRIOR TO CLOSING.
4.1 ACCESS TO SELLER'S INFORMATION. Seller and Shareholders shall give to
PSC and its counsel, accountants, engineers and other representatives full
access to all the requested properties, documents, contracts, personnel files
and other records of Seller and the Business hereunder and shall furnish PSC
with copies of such requested documents and with such information with respect
to the affairs of Seller as PSC shall from time to time reasonably request.
Seller and Shareholders shall disclose and make available to Parent and its
representatives all requested books, contracts, accounts, personnel records,
letters of intent papers, records, communications with regulatory authorities
and other documents relating to the Assets and to the Business.
4.2 ACCESS TO INFORMATION OF PSC AND PARENT. PSC and Parent shall give to
Seller and Shareholders and their respective counsel, accountants and other
representatives such access to the documents, contracts and other records of
PSC, Parent and PSC and shall furnish Seller and Shareholders with copies of
such documents and with such information with respect to the
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affairs of PSC, Parent and PSC as Seller and Shareholders shall from time to
time reasonably request.
4.3 RETENTION OF RECORDS. Without cost to Seller, PSC shall retain all
books and records of Seller ("Records") transferred to it pursuant to this
Agreement for the greater of four years from the Closing Date or such longer
periods of time as required by applicable statutes, rules and regulations. For a
period of four years after the Closing Date, and for such longer period as the
Records are maintained, each party will, during normal business hours and so as
not to unreasonably disrupt normal business, afford any other party, its
counsel, its accountants or other parties who have a reasonable need for such
access full access (and copying at the expense of the requesting party, if
desired) to the books and records relating to the Assets in the possession of
such party as such other party may reasonably request.
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SECTION 5. CONDITIONS TO OBLIGATION OF PARENT AND PSC TO CLOSE
The obligation of PSC and Parent to consummate the transactions to be
performed by them in connection with this Agreement is subject to satisfaction
of the following conditions precedent (any of which may be waived in writing by
PSC or Parent):
5.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties
set forth in Article 2 shall be true and correct in all material respects as of
the date made and at and as of the Closing, except as a result of changes
expressly permitted by this Agreement.
5.2 COVENANTS. The Shareholders and Seller shall have performed and
complied with all of their covenants and agreements in all material respects
through the Closing.
5.3 NO SUIT OR PROCEEDING. No action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction in which an unfavorable injunction,
judgment, order, decree, ruling, or charge would (i) prevent consummation of any
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (iii) affect adversely the right of PSC to operate the Business
(and no such injunction, judgment, order, decree, ruling, or charge shall be in
effect).
5.4 ABSENCE OF MATERIAL ADVERSE CHANGE.
(i) There shall have been no change in the condition (financial
or otherwise), business, assets, or prospects of Seller or the
Business from the Balance Sheet Date which has had or could
reasonably be expected to have a Material Adverse Effect on the
Seller, the Business, or the Assets.
(ii) Neither Seller nor the Assets shall have been, and shall
not be seriously threatened to be materially adversely affected in
any way as a result of fire, explosion, disaster, accident, labor
dispute, any action by the United States or any other government or
government authority, domestic or foreign, riot, act of war, civil
disturbance or Act of God.
5.5 CERTIFICATE. The Shareholders shall have delivered to PSC a certificate
to the effect that each of the conditions specified in Sections 5.1-5.4 is
satisfied in all respects.
5.6 CONSENTS AND APPROVALS. PSC and Parent shall have received all
authorizations, consents, and approvals of third parties and of governments and
governmental agencies, if any, that may be required for the acquisition of the
Assets by PSC, including, without limitation, the consent of the lessors to
transfer to PSC the leases listed on Exhibits 2.6 and/or 2.14.
5.7 COUNSEL OPINION. Parent and PSC shall have received from counsel to the
Seller and Shareholders an opinion dated as of the Closing Date, in form and
substance reasonably
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satisfactory to Parent and PSC.
5.8 OTHER AGREEMENTS EXECUTED. Each Shareholder and Other Physician
Practice Employees shall have executed and delivered an Employment Agreement
with Practice in the form required by the Management Services Agreement, which
will in the aggregate among all the physician shareholders of Practice provide
for liquidated damages in an amount equal to the Acquisition Price in the event
of breach by the physician of certain provisions therein, (ii) Practice shall
have executed and delivered the Management Services Agreement, and (iii) the
Shareholders shall have executed and delivered the Registration Rights Agreement
in substantially the form of Exhibit 5.8 (the "Registration Rights Agreement").
5.9 RELEASE OF LIENS. All liens encumbering the Assets other than those
listed on Exhibit 5.9, shall be duly released by the secured parties and other
lien holders, and UCC-3 release or termination statements and other lien release
documents, if any, shall have been recorded or the recording thereof provided
for.
5.10 CLOSING DATE FINANCIAL CERTIFICATE. Seller shall have delivered to PSC
a closing date financial certificate which shall certify as of the last day of
the month prior to the effective date of the Registration Statement an unaudited
cash basis balance sheet of Seller and for the period ended as of such date a
statement of operations of Seller, along with a detailed accounts receivable
aging analysis of Seller as of such date. The net worth of Practice as of the
Closing Date (defined as the net worth of assets acquired by PSC less assumed
liabilities) shall not be less than the amount shown on Practice's audited
balance sheet as of September 30, 1996.
5.11 CORPORATE DOCUMENTS. Seller shall have furnished PSC with copies of
the following documents: the Articles of Incorporation and all amendments
thereto of Seller and of Practice, duly certified by the Secretary of State of
the State of Georgia; certificates, executed by the proper officials of the
State of Georgia, as to the valid existence and good standing of Seller and of
Practice in the State of Georgia; resolutions authorizing this Agreement and the
transactions provided for herein, duly adopted by the Board of Directors or
other governing body of Seller and duly adopted by all the Shareholders, all as
duly certified by the Secretary of Seller; and resolutions of the Practice
authorizing the execution, delivery and performance of the Management Services
Agreement by the Practice, as duly certified by the Secretary of the Practice.
5.12 INSTRUMENTS OF CONVEYANCE. Simultaneously with the execution of this
Agreement and in order to effect the conveyance, transfer and assignment of the
Assets and the Business and the assumption of certain liabilities, Seller shall
have executed and delivered to PSC all such bills of sale, assignment and
assumption agreements and other documents or instruments of conveyance, transfer
or assignment as shall be necessary or appropriate to vest in or confirm to PSC
Seller's right, title and interest in and to the Assets, free and clear of all
obligations, security interests, liens and encumbrances whatsoever, except as
specifically assumed by PSC pursuant to Section 1.3(b).
5.13 PRACTICE ACQUISITION. The Practice shall have acquired from the Seller
the
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excluded assets referred to in Section 1.2(c) (other than those personally owned
items identified as such on Exhibit 1.2(c)) and (d) (the "Medical Excluded
Assets") for the purpose of acquiring and owning such assets, subject to and in
accordance with the provisions of a Bill of Sale and Assignment by and from the
Seller in form and substance reasonably satisfactory to PSC.
5.14 INVESTOR LETTER AND FINANCIAL DATA SHEET. Seller and each Shareholder
shall have provided to Parent prior to the Closing Date a fully-completed and
executed Investor Letter and Financial Data Sheet in form and substance
reasonably satisfactory to Parent.
5.15 LISTING OF SHARES IN NASDAQ. Shares of common stock of Parent shall
have been listed for trading on NASDAQ.
SECTION 6. CONDITIONS TO OBLIGATION OF SELLER AND THE SHAREHOLDERS
The obligation of Seller and the Shareholders to consummate the
transactions to be performed by them in connection with this Agreement is
subject to satisfaction of the following conditions (any one of which may be
waived in writing by Seller or the Shareholder);
6.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties set forth in Article 3 above shall be true and correct in all
material respects at and as of the Closing;
6.2 COVENANTS. Parent and PSC shall have performed and complied with all
of their covenants and agreements in all material respects through the Closing;
6.3 NO SUIT OR PROCEEDING. No action, suit or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (a) prevent consummation of any
of the transactions contemplated by this Agreement or (b) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
6.4 CERTIFICATE. PSC shall have delivered to Seller a certificate to the
effect that each of the conditions specified in Sections 6.1-6.3 is satisfied
in all respects;
6.5 GOVERNMENT APPROVALS. Seller, Parent and PSC shall have received all
authorizations, consents, and approvals of governments and governmental
agencies, if any, that may be required;
6.6 COUNSEL OPINION. The Seller shall have received from counsel to
Parent and PSC an opinion dated as of the Closing Date in form and substance
reasonably satisfactory to Seller;
6.7 OTHER AGREEMENTS EXECUTED. (i) The Practice shall have executed and
delivered an Employment Agreement with each Shareholder and Other Physicians
Practice Employees in the form required by the Management Services Agreement,
(ii) PSC shall have executed and delivered the Management Services Agreement,
and (iii) meeting the requirements of Section 5.8 above, Parent
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shall have executed and delivered the Registration Rights Agreement.
6.8 PARENT STOCK. Parent or PSC shall have delivered at the closing the
Parent Common Stock required as the Acquisition Price under Section 1.3(a).
6.9 CORPORATE DOCUMENTS. (a) PSC shall have furnished Seller with copies of
the following documents: the Certificate of Incorporation and all amendments
thereto of PSC, duly certified by the Delaware Secretary of State; certificates,
executed by the proper Delaware officials, as to the good standing of PSC in
Delaware; and resolutions authorizing this Agreement and the transactions
provided for herein, duly adopted by the Board of Directors of PSC and duly
certified by the Secretary of PSC.
(b) Parent shall have furnished Seller with copies of the following
documents; the Certificate of Incorporation and all amendments thereto of
Parent, duly certified by the Delaware Secretary of State; certificates,
executed by the proper Delaware officials, as to the good standing of Parent in
Delaware; and resolutions authorizing this Agreement and the transactions
provided for herein, duly adopted by the Board of Directors of Parent and duly
certified by the Secretary of Parent.
6.10 ASSUMPTION OF LIABILITIES. PSC shall have assumed the Obligations in
accordance with Section 1.3(b) pursuant to an assumption agreement in form and
substance reasonably satisfactory to Seller.
6.11 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall have been no change in
the condition (financial or otherwise), business, assets, or prospects of PSC or
Parent from the date of this Agreement which has had or could reasonably be
expected to have a material adverse effect on PSC or Parent.
6.12 LISTING OF SHARES. Shares of the common stock of Parent shall have
been listed for trading on NASDAQ.
SECTION 7. CERTAIN ADDITIONAL COVENANTS
7.1 CONDUCT OF BUSINESS PRIOR TO CLOSING. During the period from and
after the date of this Agreement and until the Closing Date:
(a) Seller and the Shareholders will carry on the Business in
substantially the same manner as heretofore carried on and will not make any
purchase or sale, incur any indebtedness or liens, or introduce any method of
management or operation in respect to such Business or otherwise engage in any
transaction except in the ordinary course of business and in the manner not
inconsistent with prior practice and the terms of this Agreement, other than
with the prior written consent of PSC;
(b) Neither Seller nor the Shareholders will permit any change to be
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made in the articles of incorporation or by-laws or, if applicable, shareholder
agreement of Seller, other than with the prior written consent of PSC.
(c) Neither Seller nor the Shareholders will acquire or dispose of any
capital assets having an initial cost or current value in excess of $1,000 other
than with the prior written consent of PSC;
(d) Neither Seller nor the Shareholders will increase the compensation
payable or to become payable to any of its employees or agents other than (a)
with the prior written consent of PSC or (b) cash bonuses by Seller to the
Shareholders consistent with the past practice of Seller;
(e) Neither Seller nor the Shareholders will take, or permit or suffer
to be taken, any action which is represented and warranted in Section 2.15 not
to have occurred since the Balance Sheet Date other than with the prior written
consent of PSC.
7.2 FUNDING OF ACCRUED EMPLOYEE BENEFITS. Except as set forth on Exhibit
7.2, Seller hereby covenants and agrees that it will take whatever steps are
necessary to pay or fund completely or reserve completely for any accrued
benefits, where applicable, or vested accrued benefits for which Seller or any
entity might have any liability whatsoever arising from any salary, wage,
benefit, bonus, vacation pay, sick leave, insurance, employment tax or similar
liability of Seller to any employee or other person or entity (including,
without limitation, any Seller Plan and any liability under employment contracts
with Seller) allocable to services performed prior to the Closing Date. Seller
acknowledges that the purpose and intent of this covenant is to assure that PSC
shall have no liability whatsoever at any time in the future with respect to any
of Seller's employees or similar persons or entities, including, without
limitation, any Seller Plan, except as indicated on Exhibit 7.2.
7.3 CREDITOR'S CLAIMS. Seller and Shareholders represent, covenant and
agree that all of the creditors with respect to the Business will be paid in
full by Seller prior to the Closing Date, or within such other period as is
normally permitted by such creditors in the ordinary course of business, except
to the extent that any liability to such creditors is assumed by PSC pursuant to
this Agreement. If required by PSC, Seller and Shareholders shall furnish PSC
with proof of payment of all creditors with respect to the Assets.
Notwithstanding the foregoing, Seller may dispute the amount or validity of any
such creditor's claim without being deemed to be in violation of this Section
7.3, provided that such dispute is in good faith.
7.4 AFFILIATE AGREEMENTS. Seller will use its reasonable, good faith
efforts to cause its Directors and its executive officers and "affiliates"
(within the meaning of Rule 145 under the Securities Act of 1933, as amended) to
execute and deliver to Parent as soon as practicable instructions in the form
attached hereto as Exhibit 7.4 relating to the disposition of the shares of
Parent issued to the Seller.
7.5 WAIVER OF BULK TRANSFER COMPLIANCE. Seller, the Shareholders and PSC
hereby waive any compliance with the Georgia Bulk Transfers Act. Seller and the
Shareholders jointly
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and severally represent, covenant and agree that all of the creditors with
respect to the Business will be paid in full by the Seller prior to the Closing
Date, or within such other period as is normally permitted by such creditors in
the ordinary course of business, except to the extent that any liability to such
creditors is assumed by PSC pursuant to this Agreement. If required by PSC, the
Seller and the Shareholders shall furnish PSC with proof of payment of all
creditors with respect to the Business. Notwithstanding the foregoing, the
Seller may dispute the amount of validity of any such creditor's claim without
being deemed to be in violation of this Section 7.5, provided that such dispute
is in good faith and does not unreasonably delay the resolution of the claim.
7.6 LIQUIDATION OF SELLER. As soon as practical, but in no event later than
12 months following the Closing Date, Seller will dissolve and liquidate in
accordance with applicable law.
7.7 COVENANT NOT TO COMPETE. For a period of five (5) years from and after
the Closing Date, each of Seller and the Shareholders agrees that it, he or she
will not (i) directly or indirectly, engage in, manage, operate, control,
conduct, consult for or be employed in a management capacity by, provide
services to or invest in any business or venture in competition with the
Business or PSC or Parent in the Geographic Territory (as defined below);
provided however, that ownership of less than 1% of the outstanding stock of any
publicly traded corporation shall not be deemed to violate this clause, (ii)
within the Geographic Territory, directly or indirectly, solicit or attempt to
solicit any customer or client of PSC or Parent or patient of Practice other
than in the course of a Shareholder's normal performance of services and duties
for Practice as a physician-shareholder thereof; or (iii) solicit or employ or
attempt to solicit or hire away or employ any employee of PSC or Parent or
Practice. If the final judgment of a court of competent jurisdiction declares
that any term or provision of this Section is invalid or unenforceable, the
Shareholders and PSC agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope, duration, or area,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified. The
parties agree that the Business currently serves territories each with greater
than an eight (8) mile radius of Seller's various office locations. Accordingly,
as used herein, the term "Geographic Territory" shall mean each area within an
eight (8) mile radius of each of the office locations of Seller. The parties
agree that the restraints set forth above in this Section 7.7 are reasonable in
respect to subject matter, length of time and geographic area. Each of Seller
and the Shareholders agrees that the restrictions on their activities contained
in this Section are reasonable and necessary to protect the goodwill and
relationships, economic advantage and other legitimate interests of PSC and
Parent, and that, were it, he or she to breach any of the covenants contained in
this Section 7.7, PSC would be harmed and the damage to PSC would be
irreparable. Accordingly, Seller and the Shareholders acknowledge and agree
that, as PSC's legal remedies may be inadequate in the event of a breach of the
covenants in this Section 7.7, in addition to damages and other remedies
available to PSC, such covenants may be enforced by injunction or other
equitable remedies.
7.8 CONFIDENTIALITY.
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(a) Seller and the Shareholders shall, and shall use their reasonable
efforts to cause their respective employees, agents and representatives to, for
a period of five (5) years after the Closing, hold in confidence all financial
information about Seller, the Business and the Assets, except such disclosure as
may be required by law or governmental order or regulation, or by subpoena or
other legal process (provided PSC will be provided advance notice of such
disclosure in order to afford it the opportunity to seek an appropriate
protective order).
(b) Seller and the Shareholders further agree to, and shall use their
reasonable efforts to cause their respective employees, agents and
representatives who are not hired by PSC at Closing, to keep confidential for a
period of five (5) years after the Closing, any and all information relating to
services, products, marketing information, sources of supply, pricing and
patients of Seller on the date hereof or developed by or for Seller, except such
disclosure as may be required by law or governmental order or regulation, or by
subpoena or other legal process (provided PSC will be provided advance notice of
such disclosure in order to seek an appropriate protective order).
(c) The restrictions in this Section 7.8 shall not apply to any
information that comes into the public domain through no fault of Seller or the
Shareholders.
7.9 POOLING AND TAX-FREE COMBINATION TREATMENT. Neither Parent, Seller or
Shareholders shall intentionally take or cause to be taken any action, which
would disqualify the combination as a "pooling of interests" under generally
accepted accounting principles and applicable SEC requirements or as a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code. Each
Shareholder represents and warrants to Parent that he or she has no present
intention or plan or design to dispose of the shares of Parent Common Stock that
he or she will receive pursuant to the liquidation of Seller. Further, each of
the Shareholders hereby covenants and agrees with Parent that he or she will not
sell, convey or otherwise transfer any shares of Parent Common Stock distributed
to such Shareholder pursuant to the liquidation of Seller until the expiration
of not less than one (1) month following the release by Parent of consolidated
financial statements of Parent to the public that reflect at least one (1) month
of joint operations of Parent and Seller's business. Each Party hereto agrees to
take such further action or action and to execute such other documents,
agreements, certificates or instruments as may be necessary or desirable to
maintain pooling of interests accounting treatment of the transactions
contemplated by this Agreement in accordance with all applicable financial
accounting standards.
SECTION 8. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
8.1 NATURE AND SURVIVAL. All statements contained in this Agreement or in
any Exhibit attached hereto, any agreement executed pursuant hereto, and any
certificate executed and delivered by any party pursuant to the terms of this
Agreement, shall constitute representations and warranties of Seller and
Shareholders, jointly and severally, or of PSC and Parent, jointly and
severally, as the case may be. All such representations and warranties, all
representations and warranties expressly labeled as such in this Agreement and
the obligations of the parties to indemnify any other party pursuant to Section
8.2 or 8.3(a), shall survive the date of
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this Agreement and the Closing Date (i) with respect to the representations and
warranties in Sections 2.1 through 2.4 and Sections 2.23 through 2.26, for the
period of the applicable statute of limitations, and (ii) with respect to all
other representations and warranties until the earlier of (A) a period of one
(1) year following the Closing Date or (B) the date of issuance of the first
audited consolidated financial statements for Parent and its subsidiaries which
contain combined operations of Parent and the Business. Each party covenants
with the other parties not to make any claim with respect to such
representations or warranties against any party after the date on which such
survival period shall terminate. No party shall be entitled to bring suit
against any other party pursuant to Section 8.2 or 8.3(a) hereof, unless such
party has timely given the notice required in Section 8.4 hereof. Each party
hereby releases, acquits and discharges the other party from any and all claims
and demands, actions and causes of action, damages, costs, expenses and rights
of setoff with respect to which the notice required by Section 8.4 is not timely
provided.
8.2 INDEMNIFICATION BY PSC AND PARENT. PSC and Parent jointly and severally
(for purposes of this Section 8.2 and, to the extent applicable, Section 8.4,
"Indemnitor"), shall indemnify and hold Seller and Shareholders, and their
respective agents, employees, legal representatives, successors and assigns
(each of the foregoing, including Seller and Shareholders, for purposes of this
Section 8.2 and, to the extent applicable, Section 8.4, an "Indemnified
Person"), harmless from and against any and all liabilities, losses, claims,
damages, actions, suits, costs, deficiencies and expenses (including, but not
limited to, reasonable fees and disbursements of counsel through appeal) arising
from or by reason of or resulting from any breach by Indemnitor of any
representation, warranty, agreement or covenant made by Indemnitor contained in
this Agreement (including the Exhibits hereto) and each document, certificate or
other instrument furnished or to be furnished by Indemnitor hereunder,
excluding, however, any and all liabilities of Seller or the Shareholders which
are not expressly assumed by PSC under this Agreement.
8.3 INDEMNIFICATION BY SELLER AND SHAREHOLDERS. (a) Seller and Shareholders
(for purposes of this Section 8.3(a) and, to the extent applicable, Section
8.3(b) and Section 8.4, "Indemnitor"), shall indemnify and hold PSC and Parent
and their respective officers, directors, shareholders, affiliates, agents,
employees, legal representatives, successors and assigns (each of the foregoing,
including PSC and Parent, for purposes of this Section 8.3(a) and, to the extent
applicable, Sections 8.3(b) and Section 8.4, an "Indemnified Person") harmless
from and against any and all liabilities, losses, claims, damages, actions,
suits, costs, deficiencies and expenses (including, but not limited to,
reasonable fees and disbursements of counsel through appeal), in an aggregate
amount not to exceed the Acquisition Price arising from or by reason of or
resulting from any breach by Indemnitor (or any of them) of any representation
or warranty contained in this Agreement (including the Exhibits hereto) and each
document, certificate or other instrument furnished or to be furnished by
Indemnitor hereunder, and with respect to all times prior to the Closing Date,
arising from or by reason of or resulting from the Indemnitor's management and
conduct of the ownership or operation of the Business or the Assets and from any
alleged act of negligence of Indemnitor or its employees, agents and independent
contractors in or about the Business or the Assets.
(b) The Seller and the Shareholders severally agree to indemnify and
hold
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harmless each Indemnified Person from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies and expenses,
including, but not limited to, reasonable fees and disbursements of counsel
through appeal, resulting from, arising out of, relating to or caused by any
breach of any covenant or agreement of the Seller or a Shareholder contained in
this Agreement.
(c) It is specifically acknowledged and agreed that the obligations of
the Shareholders under this Section 8.3 shall be several only and not joint and,
as to each Shareholder with respect to any claim arising under Section 8.3(a)
other than any claim based on or arising out of any breach of a representation
or warranty contained in Sections 2.23 through 2.26, shall be limited to 150% of
the value (such value to be the value set forth in Section 1.3(a)) of the shares
of the Parent Common Stock received by such Shareholder individually in the
liquidation and dissolution of Seller.
8.4 INDEMNIFICATION PROCEDURE. Within 60 days after Indemnified Person
receives written notice of the commencement of any action or other proceeding,
or otherwise becomes aware of any claim or other circumstance, in respect of
which indemnification or reimbursement may be sought under Section 8.2 or
Section 8.3(a), such Indemnified Person shall notify Indemnitor thereof. If any
such action or other proceeding shall be brought against any Indemnified Person,
Indemnitor shall, upon written notice given within a reasonable time following
receipt by Indemnitor of such notice from Indemnified Person, be entitled to
assume the defense of such action or proceeding with counsel chosen by
Indemnitor and reasonably satisfactory to Indemnified Person; provided, however,
that any Indemnified Person may at its own expense retain separate counsel to
participate in such defense. Notwithstanding the foregoing, Indemnified Person
shall have the right to employ separate counsel at Indemnitor's expense and to
control its own defense of such action or proceeding if, in the reasonable
opinion of counsel to such Indemnified Person, (a) there are or may be legal
defenses available to such Indemnified Person or to other Indemnified Persons
that are different from or additional to those available to Indemnitor and which
could not be adequately advanced by counsel chosen by Indemnitor, or (b) a
conflict or potential conflict exists between Indemnitor and such Indemnified
Person that would make such separate representation advisable; provided,
however, that in no event shall Indemnitor be required to pay fees and expenses
hereunder for more than one firm of attorneys in any jurisdiction in any one
action or proceeding or group of related actions or proceedings. Indemnitor
shall not, without the prior written consent of any Indemnified Person, settle
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding to which such Indemnified Person is a
party unless such settlement compromise or consent includes an unconditional
release of such Indemnified Person from all liability arising or potentially
arising from or by reason of such claim, action or proceeding.
8.5 LIMITATIONS UPON OBLIGATIONS. Anything in this Section 8 to the
contrary notwithstanding, it is expressly acknowledged and agreed that no
payment shall be made hereunder by PSC or Parent (individually and collectively
a "Parent Party") to Seller or Shareholders (individually and collectively a
"Selling Party") or, by a Selling Party to a Parent Party, on claims for
indemnification under Sections 8.2 or 8.3(a) until the aggregate of all such
claims of a Parent Party against a Selling Party under Section 8.3(a), or by a
Selling Party against
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a Parent Party under Section 8.2, shall exceed $25,000.00, in which event the
Party holding such claim shall be entitled to indemnification with respect to
all such claims in the aggregate; provided that the obligations of a Selling
Party under Section 8.3(a) shall be limited as set forth in Section 8.3(c)
above. In the event that such claims do not aggregate in excess of $25,000.00,
then neither the Parent Parties nor the Selling Parties shall have any claim for
indemnification against the other under Section 8.2 or Section 8.3(a).
SECTION 9. TERMINATION.
9.1 RIGHT TO TERMINATE. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by the mutual written consent of Parent, PSC and Seller;
(b) by either PSC, Parent or Seller upon prior written notice to the
other party
(i) if any court or governmental or regulatory agency,
authority or body shall have enacted, promulgated or issued any
statute, rule, regulation, ruling, writ or injunction, or taken any
other action, restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and all appeals and means of appeal
therefrom have been exhausted; or
(ii) if the Closing shall not have occurred on or before March
31, 1997 or such later date as the parties may agree to; provided,
however, that the right to terminate this Agreement pursuant to this
Section 9.1(b)(ii) shall not be available to any party whose breach
of any representation or warranty or failure to perform or comply
with any obligation or condition under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or
before such date;
(c) by PSC or Parent, upon prior written notice to Seller and the
Shareholders, if any of the conditions specified in Section 5 have not
been met or waived prior to the Closing Date (or any extension thereof
pursuant to Section 9.1(b)(ii) above); or
(d) by Seller, upon prior written notice to PSC, if any of the
conditions specified in Section 6 shall not have been met or waived prior
to the Closing Date (or any extension thereof pursuant to Section
9.1(b)(ii) above).
9.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
pursuant to this Section 9, this Agreement shall forthwith become null and void
and there shall be no liability on the part of any of the parties hereto or
their respective officers or directors with respect to this Agreement, except
for Section 1.7 which shall remain in full force and effect after any such
termination of this Agreement, and except that nothing herein shall relieve any
party from liability for a breach of this Agreement prior to the termination
thereof.
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SECTION 10. MISCELLANEOUS.
10.1 NOTICES. Any communications required or desired to be given hereunder
shall be deemed to have been properly given if sent by hand delivery, or by
facsimile and overnight courier, to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to PSC:
PSC MANAGEMENT CORP.
3414 Peachtree Road, Suite 238
Atlanta, Georgia 30326
Attention: Gerald R. Benjamin
Facsimile: (404) 816-1456
If to Parent:
PHYSICIANS SPECIALTY CORP.
3414 Peachtree Road, Suite 238
Atlanta, Georgia 30326
Attention: Gerald R. Benjamin
Facsimile: (404) 816-1456
with a copy of each notice directed to PSC or Parent to:
Richard H. Brody
Troutman Sanders LLP
5200 NationsBank Plaza
600 Peachtree Street, N.E.
Atlanta, GA 30308-2216
Facsimile: (404) 885-3900
If to Seller or Shareholders:
Atlanta Ear, Nose & Throat Associates, P.C.
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
with a copy to:
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Robert Goldberg
Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
3490 Piedmont Road, Suite 400
Atlanta, Georgia 30305
Facsimile: (404) 233-2188
All such communications shall be deemed to have been delivered on the date of
delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.2 FURTHER ASSURANCES. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Agreement. Seller and Shareholders will
execute and deliver from time to time thereafter, at the request of PSC, all
such further instruments of conveyance, assignment and further assurance as may
reasonably be required in order to vest in and confirm to PSC all of Seller's
right, title and interest in and to the Assets.
10.3 PUBLIC DISCLOSURES. Except as otherwise required by law, no party to
this Agreement shall make any public or other disclosure of this Agreement or
the transactions contemplated hereby (other than Parent's disclosures in the
Registration Statement) without the prior consent of the other parties. The
parties to this Agreement shall cooperate with respect to the form and content
of any such disclosures.
10.4 GOVERNING LAW. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of Georgia, applied without
giving effect to any conflict-of-laws principles.
10.5 "INCLUDING". The word "including," when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation," "but not limited to" or words of similar
import) is used with reference to the word "including" or the similar items or
matters, but rather shall be deemed to refer to all other items or matters that
could reasonably fall with the broadest possible scope of the general statement,
term or matter.
10.6 "KNOWLEDGE". "To the knowledge," "to the best knowledge, information
and belief' or any similar phrase, shall be deemed to include the assurance that
such knowledge is based upon a reasonable investigation, unless otherwise
expressly provided. Unless otherwise expressly provided herein, Seller shall be
deemed to have knowledge of any facts known to any Shareholder.
10.7 "MATERIAL". An individual claim, obligation or liability shall be
deemed to be "material" if the amount thereof exceeds $15,000.00 or involves the
violation of any federal, state or local statute, rule or regulation. A contract
or lease shall be deemed to be material if it requires a single payment in
excess of $15,000.00 or payment for any future 12-month period in excess of
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$15,000.00, except that no contract for the acquisition of inventory items or
consumable supplies shall be deemed material unless such contract cannot be
terminated without cause by Seller on not more than 30 days notice, or has, as
of the Closing Date, an amount payable with respect thereto of more than
$15,000.00.
10.8 "MATERIAL ADVERSE CHANGE" OR "MATERIAL ADVERSE EFFECT". "Material
Adverse Change" or "Material Adverse Effect" means, when used in connection with
the parties to this Agreement, any change, effect, event or occurrence that has,
or is reasonably likely to have individually or in the aggregate, a material
adverse impact on the business or financial position of such party and its
subsidiaries taken as a whole; provided, however, that "Material Adverse Change"
and "Material Adverse Effect" shall be deemed to exclude the impact of (i)
changes in generally accepted accounting principles, (ii) changes in applicable
law, and (iii) any changes resulting from any restructuring or other similar
charges or write-offs taken by Seller with the consent of PSC.
10.9 "HAZARDOUS MATERIALS". The term "Hazardous Materials" means any
material which is or may potentially be hazardous to the health or safety of
human or animal life or vegetation, regardless of whether such material is found
on or below the surface of the ground, in any surface or underground water,
airborne in ambient air or in the air inside any structure built or located upon
or below the surface of the ground or in building materials or in improvements
of any structures, or in any personal property located or used in any such
structure, including, but not limited to, all hazardous substances, imminently
hazardous substances, hazardous wastes, toxic substances, infectious wastes,
pollutants and contaminants from time to time defined, listed, identified,
designated or classified as such under any Environmental Laws (as defined in
Section 10.10) regardless of the quantity of any such material.
10.10 "ENVIRONMENTAL LAWS". The term "Environmental Laws" means any
federal, state or local statute, regulation, rule or ordinance, and any judicial
or administrative interpretation thereof, regulating the use, generation,
handling, storage, transportation, discharge, emission, spillage or other
release of Hazardous Materials or medical waste or relating to the protection of
the environment or the disposal of medical waste.
10.11 APPOINTMENT OF ATTORNEY-IN-FACT. Effective at the Closing, Seller
hereby constitutes and appoints PSC, and its successors and assigns, the true
and lawful attorneys for Seller, with full power of substitution, in the name of
Seller, but on behalf of and for the benefit of and at the expense of PSC, to
institute and prosecute, in the name of Seller or otherwise, all proceedings
which PSC may deem proper in order to collect, assert or enforce any claim,
right or title of any kind in or to the Assets, to defend and compromise any and
all actions, suits or proceedings in respect of any such Assets, and to do all
such acts and things in relation thereto as PSC shall deem advisable, subject to
applicable laws and regulations. Seller agrees that the foregoing powers shall
be coupled with an interest and shall be irrevocable by Seller or by its
dissolution or in any manner or for any reason. PSC shall retain for its own
account any amounts collected pursuant to the foregoing powers, including any
sums payable in respect thereof, and Seller shall pay to PSC, when received, any
amounts which shall be received by Seller in respect of any Assets.
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10.12 CAPTIONS. 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.
10.13 INTEGRATION OF EXHIBITS. All Exhibits attached to this Agreement are
integral parts of this Agreement as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced; provided, however, that any liabilities or obligations to be assumed
by PSC shall be set forth on Exhibit 1.3(b), and the inclusion of any
liabilities or obligations in any other Exhibits shall not be deemed or
construed to incorporate such liabilities or obligations into Exhibit 1.3(b).
10.14 ENTIRE AGREEMENT. This instrument, including all Exhibits attached
hereto, contains the entire agreement of the parties and supersedes any and all
prior or contemporaneous agreements between the parties, written or oral, with
respect to the transactions contemplated hereby. It may not be changed or
terminated orally, but may only be changed by an agreement in writing signed by
the party or parties against whom enforcement of any waiver, change,
modification, extension, discharge or termination is sought.
10.15 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which when so executed shall be deemed to be an original, and such
counterparts shall together constitute and be one and the same instrument.
10.16 BINDING EFFECT. This Agreement shall be binding on, and shall inure
to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. No party may assign any right or obligation hereunder without
the prior written consent of the other parties.
10.17 NO RULE OF CONSTRUCTION. The parties acknowledge that this Agreement
was initially prepared by PSC and that all parties have read and negotiated the
language used in this Agreement. The parties agree that, because all parties
participated in negotiating and drafting this Agreement, no rule of construction
shall apply to this Agreement which construes ambiguous language in favor of or
against any party by reason of that party's role in drafting this Agreement.
10.18 COSTS OF ENFORCEMENT. In the event that PSC or Parent on the one
hand, or Seller or Shareholders, on the other hand, file suit in any court
against any other party to enforce the terms of this Agreement against the other
party or to obtain performance by it hereunder, the prevailing party will be
entitled to recover all reasonable out of pocket costs, including reasonable
attorneys' fees, from the other party as part of any judgment in such suit. The
term "prevailing party" shall mean the party in whose favor final judgment after
appeal (if any) is rendered with respect to the claims asserted in the
Complaint. "Reasonable attorneys' fees" are those attorneys' fees actually
incurred in obtaining a judgment in favor of the prevailing party.
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10.19 TRANSFER OF ASSETS; ASSIGNMENT. The parties also hereby agree that
this Agreement shall not be assigned or transferred by either party without the
prior written consent of the other; provided, however, that this Agreement may
be assigned, in whole or in part, by PSC or Parent, in its sole discretion, to
any parent, subsidiary or affiliate of PSC or Parent or to any party acquiring
all or substantially all PSC's or Parent's assets. Any such assignment shall not
affect Parent's obligations hereunder or under any documents executed by Parent
pursuant to this Agreement.
<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"PSC"
PSC MANAGEMENT CORP.
By
Authorized Signature: Gerald R. Benjamin
Title:
"PARENT"
PHYSICIANS' SPECIALTY CORP.
By
Authorized Signature: Gerald R. Benjamin
Title:
"SELLER"
ATLANTA EAR, NOSE & THROAT
ASSOCIATES, P.C.
By
Title:
"SHAREHOLDERS"
Ramie A. Tritt, M.D.
Daniel M. Adams, III, M.D.
Michael J. Pickford, M.D.
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Keith Jackson, M.D.
Keith A. Kowal, M.D.
Ann K. White, M.D.
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Page 1
The purchase price for the AENT assets shall be $18,541,254 based upon an
anticipated IPO price of $9.50 per share. Should the IPO price differ, the
adjusted purchase price shall be computed as follows:
X=IPO price
A=Shares paid for ENT Networks ($7,750,000 / X)
B=Shares paid for AENT assets
C=Shares issued for both AENT and Networks (2,767,500 shares)
For example, an IPO price of $8.50 per share reduces the purchase price paid for
the AENT assets to $15,773,748, computed as follows:
X=$8.50 per share
A=911,765 ($7,750,000 / $8.50)
B=2,767,500 - 911,765 or 1,855,735
1,855,735 shares @ $8.50 per share =$15,773,748
<PAGE> 1
EXHIBIT 10.2
Page 1
ACQUISITION AGREEMENT
This Acquisition Agreement ("Agreement"), is made and entered into as of
this 26th day of November, 1996, by and between PSC ACQUISITION CORP., a
Delaware corporation ("PSC"); PHYSICIANS' SPECIALTY CORP., a Delaware
corporation ("Parent"), RAMIE A. TRITT, M.D. (the "Shareholder"), ATLANTA ENT
CENTER FOR PHYSICIANS, INC., a Georgia corporation ("Atlanta ENT Center"),
ATLANTA-AHP, INC., a Georgia corporation ("Atlanta-AHP") and ENT CENTER OF
ATLANTA, INC., a Georgia corporation ("ENT Center"). PSC, Parent, Shareholder,
Atlanta ENT Center, Atlanta-AHP, ENT Center may sometimes be referred to
collectively as the "Parties" or individually as a "Party."
W I T N E S S E T H:
WHEREAS, Shareholder is the owner of record of all of the issued and
outstanding capital stock of ENT Center, Atlanta ENT Center and Atlanta-AHP
(individually, a "Network," collectively, the "Networks").
WHEREAS, PSC is a wholly-owned subsidiary corporation of Parent, and wishes
to acquire, and Shareholder wishes to transfer, all of the issued and
outstanding stock of each of the Networks in a transaction intended to qualify
as a reorganization within the meaning of IRC Section 368 (a)(1)(B), as amended.
NOW, THEREFORE, PSC, Parent, Shareholder, ENT Center, Atlanta ENT Center
and Atlanta-AHP agree as follows:
SECTION 1 EXCHANGE OF STOCK
1.1 Transfer and Exchange of Shares. Shareholder agrees to transfer to
PSC at the Closing (as hereinafter defined):
(a) 1,000 shares of voting common stock of ENT Center, [without par
value] ("ENT Common Stock");
(b) 500 shares of voting common stock of Atlanta ENT Center, [without
par value] ("Atlanta ENT Common Stock"); and
(c) 500 shares of voting common stock of Atlanta-AHP Center, [without
par value] ("Atlanta-AHP Common Stock").
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As used herein, Atlanta-AHP Common Stock, Atlanta ENT Common Stock and ENT
Common Stock shall be sometimes collectively referred to as "Network Common
Stock."
In exchange for the shares of ENT Common Stock, Atlanta ENT Common Stock,
and Atlanta-AHP Common Stock to be transferred to PSC at the Closing, PSC shall
issue and deliver to the Shareholder at the Closing such number of shares of the
voting common stock of Parent, $.001 par value per share (the "Parent Common
Stock") as, when multiplied by the per share initial public offering price of
Parent Common Stock (as priced and sold on a gross basis before taking into
account the managing underwriter's commissions and costs) would equal the amount
of $7,750,000. For example, if such initial public offering price were $8.50 per
share, then Shareholder shall receive at Closing 911,765 shares of Parent Common
Stock in exchange for the Network Common Stock.
1.2 Delivery of Certificates by Shareholder. The exchange and transfer of
Network Common Stock by Shareholder shall be effected by the delivery to PSC at
the Closing of certificates representing the exchanged and transferred shares
endorsed in blank or accompanied by stock powers executed in blank, and with all
necessary transfer tax and other revenue stamps, acquired at the Shareholder's
expense, affixed.
1.3 Further Assurances. At the Closing and from time to time thereafter,
Shareholder shall execute such additional instruments and take such other action
as PSC may request in order more effectively to confirm PSC's title to the
exchanged and transferred stock.
1.4 Allocation. The Shares of Parent Common Stock delivered to Shareholder
at Closing in exchange for his Network Common Stock shall be allocated among the
shares of Atlanta-AHP Common Stock, Atlanta ENT Common Stock and ENT Common
Stock in the manner set forth on Exhibit 1.4 hereto.
SECTION 2 CLOSING
The consummation of the exchange of shares contemplated by this Agreement
shall take place at a closing (the "Closing") to be held at the principal
offices of Parent, 3414 Peachtree Road, Suite 238, Atlanta, Georgia on or before
March 31, 1997, at a time designated by PSC or Parent to Shareholder on at least
5 days' written notice, unless another place or time is agreed upon in writing
by the Parties.
SECTION 3 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Each of the Networks and Shareholder represent and warrant to PSC and
Parent as follows:
3.1 Corporate Status. Each of the Networks is a corporation duly organized,
validly
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existing, and in good standing under the laws of the State of Georgia and is
licensed or qualified to transact business as a foreign corporation in all
states in which the nature of its business or the character or ownership of its
properties makes such licensing or qualification necessary.
3.2 Capitalization. The authorized capital stock of:
(a) ENT Center consists of 10,000 shares of voting common stock, having a
par value of $1.00 per share, of which 1,000 shares are issued and outstanding
and comprise the ENT Common Stock, all of which are fully paid and
nonassessable;
(b) Atlanta ENT Center consists of 100,000 shares of voting common stock,
having a par value of $1.00 per share, of which 500 shares are issued and
outstanding and comprise the Atlanta ENT Common Stock, all of which are fully
paid and nonassessable; and
(c) Atlanta-AHP consists of 100,000 shares of voting common stock, having a
par value of $1.00 per share, of which 500 shares are issued and outstanding and
comprise the Atlanta-AHP Common Stock, all of which are fully paid and
nonassessable.
None of the Networks have other classes of stock of any kind authorized or
outstanding, nor do they have outstanding any notes, debentures, warrants,
options, or other securities exchangeable for or convertible into their
respective common stock.
3.3 Authorizations. Each of the Networks has received all authorizations,
consents, and approvals of governments and governmental agencies that may be
required to conduct its business as presently conducted.
3.4 Financial Statements. Attached as Exhibit 3.4 are the following
financial statements (collectively the "Financial Statements"):
(a) audited balance sheet and statement of income, changes in
stockholders' equity, and cash flow as of and for the fiscal
years ended December 31, 1993 (to the extent indicated on
Exhibit 3.4), December 31, 1994 and December 31, 1995 (the
December 31, 1995 fiscal year being the "Most Recent Fiscal
Year End") for the Networks; and
(b) unaudited balance sheet and statement of income, changes in
stockholders' equity, and cash flow (the "Most Recent Financial
Statements") as of and for the nine (9) months ended September
30, 1996 (the "Most Recent Fiscal Month End") for the Networks.
The Financial Statements (including the notes thereto) have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of each of the Networks as of such dates and the results of
operations of such Network for such periods, are correct and complete, and are
consistent with the books and records of such Network (which books and records
are
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correct and complete); provided, however, that the Most Recent Financial
Statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other
presentation items. As of the dates of the Financial Statements, none of the
Networks had any material liabilities or obligations (secured or unsecured,
whether accrued, absolute, direct, indirect, contingent or otherwise, and
whether due or to become due) which are not fully accrued or reserved against in
the Financial Statements in accordance with GAAP. The Financial Statements do
not contain any items of special or nonrecurring income, or other income not
earned in the ordinary course of business, individually in excess of $1,000 and
in the aggregate in excess of $10,000. None of the Networks has engaged in any
transaction, maintained any bank account, or used any of their funds, except for
transactions, bank accounts, and funds which have been and are reflected in
their normally maintained books and records. The books, records, and accounts of
each of the Networks accurately and fairly reflect, in reasonable detail, the
transactions and the assets and liabilities of such Network.
3.5 Title to Property. Each of the Networks has good and marketable title
to all properties and assets, real and personal, reflected in the Financial
Statements, except as since sold or otherwise disposed of in the ordinary course
of business, and each of the Networks' properties and assets are not subject to
any mortgage, pledge, lien, or encumbrance, except for day liens shown therein,
with respect to which no event of default or event which with the giving of
notice or passage of time, or both, would constitute an event of default,
exists.
3.6 Litigation. Except as disclosed on Exhibit 3.6, there is no litigation
or proceeding pending, or to Shareholder's knowledge threatened, against or
relating to any of the Networks, their properties or business.
3.7 Access to Records. From the date of this Agreement to the Closing,
Shareholder and the Networks will cause each of the Networks (1) to give to PSC
and Parent and their representatives full access during normal business hours to
all of its offices, books, records, contracts, and other corporate documents and
properties so that PSC may inspect and audit them; and (2) to furnish such
information concerning such Network and its business as PSC and Parent may
reasonably request.
3.8 Principal Contract. A true and correct copy of each of the contracts
between ENT Center and Cigna HealthCare of Georgia Inc. effective September 1,
1992, Atlanta-AHP and Aetna Health Management effective July 1, 1994, and
Atlanta ENT Center and United Health Care of Georgia effective June 1, 1995
(with respect to each of the Networks, its "Contract," collectively, the
"Contracts") have been delivered to PSC and certified as such by
Shareholder. The Contracts are in full force and effect and have not been
amended or modified and each of the Networks:
(a) is not in breach or default of any provision of its Contract;
(b) has not received notice of termination or cancellation under
its Contract;
(c) has fully performed all covenants and obligations required of
it under its
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Page 5
Contract;
(d) does not have, and is not aware of, any causes of
action against it under its Contract; and
(e) has not assigned or otherwise transferred any of
its rights or obligations under its Contract.
3.9 Contracts. Exhibit 3.9 lists the following contracts and other
agreements to which any of the Networks are a party:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any person providing for lease
payments in excess of $1,000 per annum;
(b) any agreement (or group of related agreements)
for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property, or for the
furnishing or receipt of services, the performance of which
will extend over a period of more than one year, or cannot be
terminated on 30 days notice, or which is expected to result
in a loss to any of the Networks, or involves consideration in
excess of $5,000;
(c) any agreement concerning a partnership or joint venture; any
distribution, dealer, representative, agent, franchise,
commission or other sales agreement;
(d) any agreement (or group of related agreements) under which any
of the Networks has created, incurred, assumed, or guaranteed
any indebtedness, or any capitalized lease obligation, in
excess of $5,000 or under which it has imposed a security
interest on any of its assets, tangible or intangible;
(e) any agreement concerning confidentiality,
non-solicitation or non-competition;
(f) any agreement involving Shareholder and his
affiliates;
(g) any profit sharing, phantom stock, stock option, stock
purchase, stock appreciation, deferred compensation, severance,
or other plan or arrangement for the benefit of its current or
former directors, officers, and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing
annual compensation in
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excess of $50,000 in the prior 12 months or expected
to exceed $50,000 in the current fiscal year, or providing
severance benefits other than in the ordinary course of
business;
(j) any agreement under which any of the Networks has advanced or
loaned any amount of money or its equivalent to any of its
directors, officers, and employees or any of their affiliates;
(k) any agreement under which the consequences of a default or
termination could have a material adverse effect on the
business, financial condition, operations, results of
operations, or future prospects of any of the Networks (it
being agreed that in the case of a monetary effect, the same
will be deemed material if in excess of $50,000);
(l) any agreement not in the ordinary course of business; and
(m) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of
$10,000.
Each of the Networks has delivered to Parent and PSC a correct and complete copy
of each written agreement listed in Exhibit 3.9 (as amended to date) and a
written summary setting forth the terms and conditions of each oral agreement
referred to in Exhibit 3.9. With respect to each such agreement as to any of the
Networks, and to the knowledge of Shareholder as to any other person: (i) the
agreement is legal, valid, binding, enforceable, and in full force and effect;
(ii) the agreement will continue to be legal, valid, binding, enforceable, and
in full force and effect on identical terms following the consummation of the
transactions contemplated in this Agreement; (iii) no person is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (iv) no person has repudiated any
provision of the agreement.
3.10 Insurance. Exhibit 3.10 sets forth the following information with
respect to each insurance policy (including, but not limited to, policies
providing professional liability, property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which any of the
Networks have been a party, a named insured, or otherwise the beneficiary of
coverage at any time within the past 5 years;
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policy holder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount
(including a description of
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how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (i) the policy is legal, valid,
binding, enforceable, and in full force and effect; (ii) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transaction in this
Agreement; (iii) neither the applicable Network nor any other party to the
policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (iv) no party
to the policy has repudiated any provision thereof. Exhibit 3.10 describes any
self-insurance arrangements affecting any of the Networks.
3.11 Title to Shares. Shareholder is the owner, free and clear of any and
all liens, claims, security interests, options and encumbrances of any kind, of
all the shares of Network Common Stock.
3.12 Investment Intent.
(a) Shareholder is acquiring the Parent Common Stock to be received by
him under this Agreement in exchange for his shares of Network Common
Stock for investment purposes only and not with a view to the sale or
distribution thereof.
(b) Shareholder has had the opportunity to discuss Parent's business,
management and financial affairs with Parent's management.
Shareholder has such knowledge and experience in financial matters
that he is capable of evaluating the merits and risks of an
investment in the Parent Common Stock. Shareholder's financial
condition is such that he is able to bear all economic
risks of investment in the Parent Common Stock, including the
risks of holding the Parent Common Stock for an indefinite period of
time.
(c) Shareholder understands that since the shares of Parent
Common Stock have not been registered under the 1933 Act, the shares
of Parent Common Stock must be held indefinitely unless they are
subsequently registered under the 1933 Act or an exemption from such
registration is available. Other than as set forth in the
Registration Rights Agreement, shareholder acknowledges that neither
Parent nor PSC is under any obligation to register under the 1933
Act any sale of the Parent Common Stock or to comply with any
provisions which would entitle any such sale to any exemption from
registration. Shareholder is fully familiar with Rule 144
promulgated under the 1933 Act.
(d) Each stock certificate representing the Parent Common Stock shall
bear a legend in, or substantially in, the following form and any
other legend required by any
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applicable state securities or Blue Sky laws:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be sold, pledged or
otherwise transferred without an effective registration under
said Act and any applicable state securities laws or unless
the company shall have received an opinion of counsel
satisfactory to the company that an exemption from
registration under such Act and any applicable state
securities laws is then available."
Shareholder agrees to abide by the terms of this legend. Parent may maintain a
"stop transfer order" against the Parent Common Stock.
3.13 Legal Compliance. Each of the Networks has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced or threatened against it alleging any failure so to
comply, and there is no basis for any such action.
3.14 Tax Matters.
(a) Each of the Networks has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by each of the
Networks (whether or not shown on any Tax Return)
have been paid. None of the Networks currently is the
beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority
against any of the Networks where such Network does not file
Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the
Networks' assets that arose in connection with any failure (or
alleged failure) to pay any Tax.
(b) Each of the Networks has properly withheld and paid all Taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party, including without
limitation, withholding of Taxes pursuant to Section 1441 or
1442 of the Internal Revenue Code.
(c) Shareholder does not expect any authority to
assess any additional Taxes against any of the Networks for
any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of any of the
Networks either (a) claimed or raised by any authority in
writing or
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(b) as to which Shareholder has knowledge. Exhibit
3.14 lists all federal, state, local, and foreign income Tax
Returns filed with respect to each of the Networks for all its
taxable periods, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are
the subject of audit. Each of the Networks has delivered to
PSC and Parent correct and complete copies of all federal
income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by such Network.
(d) None of the Networks have waived any statute of limitations in
respect of Taxes or granted any comparable consent or agreed to
any extension of time with respect to a Tax assessment or
deficiency.
(e) The unpaid Taxes of each of the Networks (a) did
not, as of the most recent fiscal month end, exceed the
reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the
Financial Statements (rather than in any notes thereto) and
(b) do not exceed that reserve as adjusted for the passage of
time through the Closing in accordance with the past custom
and practice of such Network in filing its Tax Returns.
(f) None of the Networks have filed (and will not
file prior to the Effective Date) a consent under
Internal Revenue Code Section 341(f) concerning collapsible
corporations, nor have they agreed to have Section 341(f)(2)
of the Internal Revenue Code apply to any disposition of any
subsection (f) asset (as such term is defined in Section
341(f)(4) of the Internal Revenue Code) owned by any of the
Networks. None of the Networks have made any payments, are
obligated to make any payments, or are a party to any
agreement that under certain circumstances could obligate them
to make any payments that will not be deductible under Code
Section 280G. None of the Networks have been a United States
real property holding corporation within the meaning of
Internal Revenue Code Section 897(c)(2) during the applicable
period specified in Internal Revenue Code Section
897(c)(1)(A)(ii). Each of the Networks has disclosed on its
federal income Tax Returns all positions taken that could give
rise to an understatement of federal income Tax within the
meaning of Internal Revenue Code Section 6662. None of the
Networks are a party to any Tax allocation or sharing
agreement. None of the Networks have: (a) been a member of an
Affiliated Group filing a consolidated federal income Tax
Return (other than a group the common parent of which was each
of the Networks); nor (b) have any Liability for the Taxes of
any person other than themselves under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign
law), as transferees or successors, by contract, or otherwise.
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(g) As used herein,
(i) "Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Internal Revenue Code
Section 59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar),
unemployment, disability, real property, personal property,
sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not;
(ii) "Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and
including any amendment thereof; and
(iii) "Tax Liability" means any liability (whether known or
unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, or due or to
become due) with respect to any Tax.
3.15 Non-contravention. Neither the execution and the delivery of this
Agreement, nor the consummation or performance of the transactions contemplated
in this Agreement, will:
(a) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to
which any of the Networks or Shareholder is subject or any
provision of the charter or bylaws of any of the Networks; or
(b) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which any of the
Networks or Shareholder is a party or by which it is bound or
to which any of its assets is subject (or result in the
imposition of any security interest upon any of its assets).
Neither any of the Networks nor Shareholder needs to give any
notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions
contemplated by the Agreement.
3.16 No Subsidiaries; Minute Books, etc.
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(a) None of the Networks have Subsidiaries. None of
the Networks have any direct or indirect equity participation
in any other corporation, partnership, trust, or other
business association;
(b) The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock
record books of each of the Networks are correct and complete.
None of the Networks are in default under or in violation of
any provision of their charter or bylaws; and
(c) None of the Networks have been a subsidiary or
division of another corporation at any time. None of the
Networks have any investment in the common stock of PSC or
Parent. None of the Networks have changed the equity interest
of their voting common stock, including by way of
distributions to Shareholder, or additional issuance, exchange
or retirement of securities, in contemplation of effecting the
transaction either within two years before July 29, 1996 or
between such date and the date of this Agreement.
3.17 Events Subsequent to the Most Recent Fiscal Year End. Since the date
of the Most Recent Fiscal Year End, there has not been any material adverse
change, singly or in the aggregate, in the business, financial condition,
operations, results of operations, liabilities, assets, earnings, or future
prospects of any of the Networks nor has there been any event which has had or
may reasonably be expected to have a material adverse effect on any of the
foregoing. Without limiting the generality of the foregoing, except as set forth
on Exhibit 3.17 and since the Most Recent Fiscal Year End:
(a) None of the Networks have sold, leased, transferred, or
assigned any of their assets, tangible or intangible, other
than for a fair consideration in the ordinary course of
business;
(b) None of the Networks have entered into any agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) outside the ordinary course of business;
(c) None of the Networks have accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series
of related agreements, contracts, leases, and licenses) to
which the Networks are a party or by which the Networks are
bound;
(d) None of the Networks have imposed any security
interest upon any of their assets, tangible or intangible;
(e) None of the Networks have made any capital expenditure (or
series of related capital expenditures) outside the ordinary
course of business;
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(f) None of the Networks have made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any
other person (or series of related capital investments, loans,
and acquisitions);
(g) None of the Networks have issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any
indebtedness or capitalized lease obligations either involving
more than $5,000 singly or $25,000 in the aggregate or incurred
any obligation or liability of any nature except in the
ordinary course of business;
(h) None of the Networks have delayed or postponed the payment of
accounts payable and other liabilities other than in the
ordinary course of business;
(i) None of the Networks have canceled, compromised, waived, or
released any right or claim (or series of related rights and
claims) either involving more than $1,000 or outside the
ordinary course of business;
(j) None of the Networks have granted, disposed of, or allowed to
lapse any license or sublicense of any rights under or with
respect to any of the Networks' intellectual property;
(k) There has been no change made or authorized in
the charter or bylaws of any of the Networks;
(l) None of the Networks have issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants,
or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of the Networks' capital
stock;
(m) None of the Networks have declared, set aside, or paid any
dividend or made any distribution with respect to their capital
stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of the Networks' capital stock;
(n) None of the Networks have experienced any damage,
destruction, or loss (whether or not covered by insurance) to
the Networks' property or assets;
(o) None of the Networks have made any loan or payment to, or
entered into any other transaction with, any of their
directors, officers, and employees outside the ordinary course
of business;
(p) None of the Networks have entered into any employment contract,
written or oral, or modified the terms of any existing such
contract or agreement, or made any change in employment terms
for any of the Networks'
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directors, officers, employees, except in the ordinary
course of business;
(q) None of the Networks have adopted, amended, modified or
terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of
the Networks' directors, officers, and employees (or taken any
such action with respect to any other employee benefit plan);
or
(r) None of the Networks have made or pledged to make any
charitable or other contribution outside the ordinary course of
business or in excess of $3,000;
(u) None of the Networks have paid any amount to any third party
with respect to any liability or obligation (including any
costs and expenses any of the Networks has incurred or may
incur in connection with this Agreement and the transactions
contemplated hereby) other than those paid and incurred in the
ordinary course of business;
3.18 Certain Business Relationships With each of the Networks. Except as
set forth on Exhibit 3.18, neither Shareholder nor his affiliates has been
involved in any business arrangement, contract, agreement, loan or relationship
with any of the Networks within the past twelve (12) months or received any
payments or benefits from any of the Networks, and neither Shareholder or his
affiliates owns any asset, tangible or intangible, which is used in the business
of any of the Networks.
3.19 Adequacy of each of the Networks' Assets. Each of the Networks' assets
include all rights, properties, and assets necessary to permit it to carry on
its business as presently conducted and presently proposed to be conducted.
3.20 Distributions to Shareholders. Except as in Schedule 3.20, during the
two (2) years prior to the date of this Agreement, none of the Networks have
disposed of, split off, or spun off or otherwise distributed to Shareholder or
any other shareholder of the Networks any material assets, divisions or
businesses of the Networks.
3.21 Disclosure. No representation or warranty of Shareholder in this
Agreement or in any statement, certificate or Exhibit furnished by Shareholder,
or in connection with the transactions contemplated hereby, contains any untrue
statement of fact or omits to state any fact necessary in order to make the
statements contained therein not misleading, and all such statements,
representations, warranties, certificates and Schedules are true and complete.
Nothing in any of the Networks' disclosures shall be deemed adequate to disclose
an exception to a representation or warranty unless the Networks' disclosures
identify the exception with reasonable particularly and describes the relevant
facts in reasonable detail. Without limiting the generality of the foregoing,
the mere listing (or inclusion of a copy) of a document or other item shall not
be deemed adequate to disclose an exception to a representation or warranty
unless the representation or warranty has to do with the existence of the
document or other item itself.
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3.22 Commissions and Fees. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
PSC or Parent resulting from any action taken by Shareholder or any of the
Networks or any of the Networks' respective officers, directors or agents, or
any of them.
3.23 No Disposition of Shares; Pooling of Interests. Shareholder represents
and warrants to Parent that he has no present intention or plan or design to
dispose of the shares of Parent Common Stock that he will receive pursuant to
the transactions contemplated by this Agreement. Further, Shareholder hereby
covenants and agrees with Parent that he will not sell, convey or otherwise
transfer any shares of Parent Common Stock distributed to him pursuant to the
acquisition until the expiration of not less than one (1) month following the
release by Parent of consolidated financial statements of Parent (including each
of the Networks) to the public that reflect at least one (1) month of joint
operations of Parent and the Networks. Parent may impose stop transfer
restrictions with respect to the Parent Common Stock subject to the foregoing
restriction until the end of the period set forth herein. Each Party hereto
agrees to take such further action or actions and to execute such other
documents, agreements, certificates or instruments as may be necessary or
desirable to maintain pooling of interests accounting treatment of the
transactions contemplated by this Agreement following the effective date in
accordance with all applicable financial accounting standards.
3.24 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of any of the Networks or Shareholder.
3.25 Shareholders' Approval. As required by any of the Networks' Articles
of Incorporation, Bylaws or otherwise, Shareholder has approved the
transactions contemplated under this Agreement.
3.26 Employees.
(a) To the knowledge of Shareholder, no executive,
key employee, or group of employees has any plans to terminate
employment with any of the Networks. None of the Networks are
a party to or bound by any collective bargaining agreement,
nor have they experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining
disputes. None of the Networks have committed or been charged
or threatened with a charge in the last three (3) years of any
unfair labor practice. Shareholder has no knowledge of any
organizational effort presently being made or threatened in
the last three (3) years by or on behalf of any labor union
with respect to employees of any of the Networks. Exhibit
3.26 is a complete list of all employees and consultants
receiving wages from any of the Networks for the most recent
month's end.
(b) Each of the Networks is in compliance with all
applicable federal, state,
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local and foreign laws and regulations concerning the
employer-employee relationship and with all agreements
relating to the employment of their employees, including
applicable wage and hour laws, fair employment laws, safety
laws, worker compensation statutes, unemployment laws, and
social security laws. There are no pending or threatened
claims, investigations, charges, citations, hearings, consent
decrees, or litigation concerning: wages, compensation,
bonuses, commissions, awards, or payroll deductions, equal
employment or human rights violations regarding race, color,
religion, sex, national origin, age, handicap, veteran's
status, marital status, disability, or any other recognized
class, status, or attribute under any federal, state, local or
foreign equal employment law prohibiting discrimination;
representation petitions or unfair labor practices; grievances
or arbitrations pursuant to current or expired collective
bargaining agreements; occupational safety and health; workers
compensation; wrongful termination, negligent hiring, invasion
of privacy or defamation; immigration or any other claim based
on the employment relationship or termination of the
employment relationship (collectively "Labor Claims"). None of
the Networks are liable for any unpaid wages, bonuses, or
commissions (other than those not yet due) or any tax,
penalty, assessment, or forfeiture for failure to comply with
any of the foregoing. There is no outstanding agreement or
arrangement with respect to severance payments with respect to
any employee of any of the Networks.
3.27 Employee Benefits.
(a) Exhibit 3.27 lists each Employee Benefit Plan that any of the
Networks maintains or to which any of the Networks
contributes.
(b) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation
in all respects with the applicable requirements of ERISA, the
Internal Revenue Code, and other applicable laws.
(c) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary
Plan Descriptions) have been filed or distributed with respect
to each such Employee Benefit Plan. The requirements of Part 6
of Subtitle B of Title I of ERISA and of Code Section 4980B
have been met with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan.
(d) As used in this Agreement,
(i) "Employee Benefits Plan" means (I) nonqualified deferred
compensation or retirement plan or arrangement which is an
employee Pension Benefit Plan, (II) qualified defined
contribution retirement plan or arrangement
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which is an Employee Pension Benefit Plan, (III)
qualified defined benefit retirement plan or arrangement which
is an Employee Pension Benefit Plan (including any
Multi-employer Plan), or (IV) Employee Welfare Benefit Plan or
material fringe benefit plan or program;
(ii) "Employee Pension Benefit Plan" has the meaning set forth
in ERISA Section 3(2).
(iii) "Employee Welfare Benefit Plan" has the meaning set
forth in ERISA Section 3(1).
SECTION 4 REPRESENTATIONS, WARRANTIES, AND COVENANTS OF PSC AND PARENT
PSC and Parent jointly and severally represent and warrant to each of the
Networks and Shareholder as follows:
4.1 Power and Authority. Each of PSC and Parent has corporate power to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered by it pursuant to this Agreement, and has taken
all actions required by law, its Certificate of Incorporation, its By-laws or
otherwise, to authorize the execution, delivery and performance of this
Agreement and such related documents. The execution and delivery of this
Agreement, and the agreements related hereto executed and delivered pursuant to
this Agreement do not and, subject to the receipt of consents to assignments of
leases and other contracts where required and the receipt of regulatory
approvals where required, the consummation of the transactions contemplated
hereby will not, violate any provision of the Certificate of Incorporation or
Bylaws of either PSC or Parent or any provisions of, or result in the
acceleration of, any obligation under any mortgage, lien, lease, agreement,
instrument, order, arbitration award, judgment or decree to which PSC or Parent
is a party or by which either of them is bound, or violate any restrictions of
any kind to which PSC or Parent is subject. The execution and delivery of this
Agreement have been approved by the respective Boards of Directors of PSC and
Parent.
4.2 Commissions and Fees. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
Shareholder resulting from any action taken by PSC or Parent or their respective
officers, Directors or agents, or any of them.
4.3 Capitalization. Parent has an authorized capitalization of 10,000
shares of Preferred Stock, par value $1.00 per share, of which no shares are
issued and outstanding, and no shares are held in treasury, and 50,000,000
shares of voting common stock, par value $.001 per share, of which 561,225
shares are issued and outstanding, and no shares are held in treasury. All of
the Parent Common Stock to be issued pursuant to this Agreement will, when so
delivered, be duly and validly issued and fully paid and nonassessable. Except
as described on Exhibit 4.3, there are no options, warrants or similar rights
granted by Parent or any other agreements to which Parent is a party providing
for the issuance or sale by it of any additional securities. There
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is no liability for dividends declared or accumulated but unpaid with respect to
any shares of Parent Common Stock. Parent has not made any distributions to any
holder of Parent Common Stock or participated in or effected any issuance,
exchange or retirement of Parent Common Stock, or otherwise changed the equity
interests of holders of Parent Common Stock, in contemplation of effecting the
transaction contemplated by this Agreement within the two years immediately
preceding the Closing except as described on Exhibit 4.3.
4.4 PSC Common Stock. Parent owns, beneficially and of record, all of the
issued and outstanding shares of Common Stock of PSC, free and clear of all
liens and encumbrances. Parent has taken all such actions as may be required in
its capacity as the sole shareholder of PSC to approve this transaction.
4.5 Legal Proceedings. Except as disclosed in Schedule 4.6, there is no
material litigation, governmental investigation or other proceeding pending or,
so far as is known to Parent threatened against or relating to Parent, its
properties or business, or the transaction contemplated by this Agreement and,
so far as is known to Parent, no basis for any such action exists.
4.6 Investment Intent. PSC is acquiring the shares of the Networks to be
transferred to it under this Agreement for investment purposes only and not with
a view to the sale or distribution thereof, and PSC has no commitment or present
intention to liquidate any of the Networks or to sell or otherwise dispose of
their stock.
SECTION 5 CONDUCT OF EACH OF THE NETWORKS PENDING THE CLOSING
Each of the Networks and Shareholder agrees to conduct themselves in the
following manner pending the Closing:
5.1 Certificate of Incorporation and Bylaws. None of the Networks will
change their Articles of Incorporation or Bylaws.
5.2 Capitalization. None of the Networks will make any change in their
authorized, issued, or outstanding capital stock; grant any stock option or
right to purchase shares of their capital stock; issue any security convertible
into shares of their capital stock; purchase, redeem, retire, or otherwise
acquire any shares of their capital stock; or agree to do any of the foregoing;
or declare, set aside, or pay any dividend or other distribution in respect of
their capital stock.
5.3 Business in Ordinary Course. Each of the Networks will carry on its
business in substantially the same manner as heretofore carried on and will use
its best efforts to maintain and preserve its business organization, employee
relationships, and goodwill intact, and will not, without the written consent of
PSC and Parent, enter into any material commitment except in the ordinary course
of business or increase, directly or indirectly, the compensation of any officer
or employee.
5.4 Employee Compensation. None of the Networks will institute, agree to,
or amend
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any employment contract or any bonus, stock option, profit sharing, pension,
retirement, incentive, or similar arrangement, except to grant normal individual
increases in compensation in accordance with established agreements or
procedures and except as agreed to by Parent.
5.5 Accounting Practices. Except as required by GAAP, none of the
Networks will make any changes in their accounting methods or practices.
5.6 Merger. None of the Networks will merge or consolidate with any other
corporation; sell or lease all or substantially all of their assets and
business; acquire all or substantially all of the stock of the business or
assets of any other person, corporation, or business organization; or agree or
enter into discussions or negotiations relating to any of the foregoing.
SECTION 6 CONDITIONS PRECEDENT TO PSC'S AND PARENT'S OBLIGATION TO CLOSE
All obligations of PSC and Parent under this Agreement are subject, at
PSC's or Parent's option, to the fulfillment, before or at the Closing, of each
of the following conditions:
6.1 Representations and Warranties True at Closing. Each of the Networks'
and Shareholder's representations and warranties contained in this Agreement
shall be deemed to have been made again at and as of the Closing and shall then
be true in all material respects.
6.2 Due Performance. Each of the Networks and Shareholder shall have
performed and complied with all the terms and conditions required by this
Agreement to be performed or complied with by such Party before the Closing.
6.3 Books and Records. Each of the Networks and Shareholder shall have
caused each of the Networks to make available to PSC and Parent all of its books
and records, including minute books and stock transfer records.
6.4 Revocation of Prior Authorizations. Shareholder shall have delivered to
PSC and Parent certified copies of resolutions of each of the Networks' board of
directors revoking as of the Closing all prior authorizations, powers of
attorney, designations, and appointments relating to the signing of checks,
borrowing of funds, access to corporate safe-deposit boxes and other similar
matters, to the extent requested by PSC and Parent.
6.5 No Material Adverse Change. There shall not have occurred any material
changes that would prejudice or adversely affect the ability of PSC to obtain
all the shares of each of the Networks. There shall not have occurred any
material adverse changes to the financial condition, business or prospects of
each of the Networks.
6.6 Contract in Full Force and Effect. The Contracts shall be in full
force and effect as of the date of Closing and each of the Networks:
(a) shall not be in breach or default of any
provision of its Contract;
<PAGE> 19
Page 19
(b) shall neither have received notice of termination
nor cancellation under its Contract;
(c) shall have fully performed all covenants and
obligations required of it under its Contract;
(d) shall not have, and shall not be aware of, any
causes of action against it; and
(e) shall not have assigned or otherwise transferred
any of its rights or obligations under its Contract.
6.7 Resignations. There shall have been delivered to PSC and Parent the
signed resignations of such directors of each of the Networks as PSC or Parent
shall request, dated as of the Closing.
6.8 Delivery of Certificate. Shareholder shall have caused each of the
Networks to deliver to PSC and Parent a certificate to the effect that each of
the conditions specified in Sections 6.1 and 6.2 is satisfied in all respects.
6.9 Registration Rights Agreement. Shareholder shall have executed and
delivered the Registration Rights Agreement, substantially in the form attached
as Schedule 6.10.
6.10 Satisfaction of Actions. All actions to be taken by Shareholder in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance to
PSC and Parent.
6.11 Counsel Opinion. Parent and PSC shall have received from counsel to
each of the Networks and Shareholder an opinion dated as of the Closing, in form
and substance reasonably satisfactory to Parent and PSC.
6.12 Authorizations. Each of the Networks shall have received all
authorizations, consents, and approvals of governments and governmental agencies
that may be required.
6.13 Financial Position. As of the date of Closing, the Networks shall have
a combined unaudited accrual basis net worth of not less than zero dollars ($0).
Further, as of the date of Closing, the combined aggregate balance of the
Networks cash and liquid investments shall not be less than the sum of (i)
accrued claims payable for the period prior to Closing; (ii) an accrual for
incurred but unreported claims ("IBNR"), computed by Arthur Andersen & Co. on a
basis consistent with each of the Networks' audited financial statements; and
(iii) all other accounts payable and accrued liabilities existing on the date of
Closing.
6.14 Termination of Medical Director Agreements. Each of the Networks
shall
<PAGE> 20
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terminate on or before Closing any and all Medical Director Agreement(s), verbal
or written, previously in effect.
6.15 Consummation of Initial Public Offering. There shall have occurred the
initial public offering ("IPO") of Parent Common Stock.
SECTION 7 CONDITIONS PRECEDENT TO SHAREHOLDER'S OBLIGATION TO CLOSE
All obligations of the Shareholder under this Agreement are subject, at his
option, to the fulfillment, before or at the Closing, of each of the following
conditions:
7.1 Representations and Warranties True at Closing. PSC's and Parent's
representations and warranties contained in this Agreement shall be deemed to
have been made again at and as of the Closing and shall then be true in all
material respects.
7.2 Due Performance. PSC and Parent shall have performed and complied
with all the terms and conditions required by this Agreement to be performed or
complied with by it before the Closing.
7.3 Delivery of Certificate. PSC and Parent shall deliver to Shareholder a
certificate to the effect that each of the conditions specified in Sections 7.1
and 7.2 is satisfied in all respects.
7.4 Registration Rights Agreement. Parent shall have executed and
delivered the Registration Rights Agreement.
7.5 Counsel Opinion. Shareholder shall have received from counsel to
Parent and PSC an opinion dated as of the Closing Date, in form and substance
reasonably satisfactory to Shareholder.
7.6 No Material Adverse Change. There shall not have occurred any material
changes that would prejudice or adversely affect the ability of PSC to obtain
all the shares of each of the Networks. There shall not have occurred any
material adverse changes to the financial condition, business or prospects of
PSC or Parent.
7.7 Consummation of Initial Public Offering. There shall have occurred
the initial public offering ("IPO") of Parent Common Stock.
<PAGE> 21
Page 21
SECTION 8 NATURE AND SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
8.1 Nature and Survival. All statements contained in this Agreement or in
any Exhibit attached hereto, any agreement executed pursuant hereto, and any
certificate executed and delivered by any Party pursuant to the terms of this
Agreement, shall constitute representations and warranties of Shareholder or of
PSC and Parent, jointly and severally, as the case may be. All such
representations and warranties, all representations and warranties expressly
labeled as such in this Agreement and the obligations of the parties to
indemnify any other party pursuant to Section 8.2 or 8.3(a), shall survive the
date of this Agreement and the Closing (i) with respect to the representations
and warranties in Sections 3.1 through 3.3, Sections 3.11 and 3.12 and Sections
3.14 through 3.16, for the period of the applicable statute of limitations, and
(ii) with respect to all other representations and warranties until the earlier
of (A) a period of one (1) year following the Closing or (B) the date of
issuance of the first audited consolidated financial statements for Parent and
its subsidiaries which contain combined operations of Parent and the Networks.
Each party covenants with the other parties not to make any claim with respect
to such representations or warranties against any party after the date on which
such survival period shall terminate. No party shall be entitled to bring suit
against any other party pursuant to Section 8.2 or 8.3(a) hereof, unless such
party has timely given the notice required in Section 8.4 hereof. Each Party
hereby releases, acquits and discharges the other Party from any and all claims
and demands, actions and causes of action, damages, costs, expenses and rights
of setoff with respect to which the notice required by Section 8.4 is not timely
provided.
8.2 Indemnification by PSC and Parent. PSC and Parent jointly and severally
(for purposes of this Section 8.2 and, to the extent applicable, Section 8.4,
"Indemnitor"), shall indemnify and hold Shareholder (and his respective agents,
employees, legal representatives, successors and assigns (each of the foregoing,
including Seller and Shareholders, for purposes of this Section 8.2 and, to the
extent applicable, Section 8.4, an "Indemnified Person") harmless from and
against any and all liabilities, losses, claims, damages, actions, suits, costs,
deficiencies and expenses (including, but not limited to, reasonable fees and
disbursements of counsel through appeal) arising from or by reason of or
resulting from any breach by Indemnitor of any representation, warranty,
agreement or covenant made by Indemnitor contained in this Agreement (including
the Exhibits hereto) and each document, certificate or other instrument
furnished or to be furnished by Indemnitor hereunder, excluding, however, any
and all liabilities of Shareholder which are not expressly assumed by PSC and
Parent under this Agreement.
8.3 Indemnification by Shareholder.
(a) Shareholder (for purposes of this Section 8.3(a) and, to the
extent applicable, Section 8.3(b) and Section 8.4,
"Indemnitor") shall indemnify and hold PSC and Parent and
their respective officers, directors, shareholders,
affiliates, agents, employees, legal representatives,
successors and assigns (each of the foregoing, including PSC
and Parent, for purposes of this Section 8.3(a) and, to the
extent applicable, Sections 8.3(b) and Section 8.4, an
"Indemnified Person") harmless from and against any and
<PAGE> 22
Page 22
all liabilities, losses, claims, damages, actions,
suits, costs, deficiencies and expenses (including, but not
limited to, reasonable fees and disbursements of counsel
through appeal), arising from or by reason of or resulting
from any breach by Indemnitor (or any of them) of any
representation or warranty contained in this Agreement
(including the Exhibits hereto) and each document,
certificate or other instrument furnished or to be furnished
by Indemnitor hereunder, and with respect to all times prior
to the Closing, arising from or by reason of or resulting
from the Indemnitor's management and conduct of the
ownership or operation of each of the Networks or the
performance of the Contracts and from any alleged act of
negligence of Indemnitor or its employees, agents and
independent contractors in or about any of the Networks or
the Contracts.
(b) Shareholder agrees to indemnify and hold harmless each
Indemnified Person from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies
and expenses, including, but not limited to, reasonable fees
and disbursements of counsel through appeal, resulting from,
arising out of, relating to or caused by any breach of any
covenant or agreement of Shareholder contained in this
Agreement.
(c) It is specifically acknowledged and agreed that the
obligations of Shareholder under this Section 8.3 shall be
limited to 100% of the value (such value to be the value set
forth in Section 1.1 of the shares of the Parent Common
Stock received by Shareholder under this Agreement).
8.4 Indemnification Procedure. Within 60 days after Indemnified Person
receives written notice of the commencement of any action or other proceeding,
or otherwise becomes aware of any claim or other circumstance, in respect of
which indemnification or reimbursement may be sought under Section 8.2 or
Section 8.3(a), such Indemnified Person shall notify Indemnitor thereof. If any
such action or other proceeding shall be brought against any Indemnified Person,
Indemnitor shall, upon written notice given within a reasonable time following
receipt by Indemnitor of such notice from Indemnified Person, be entitled to
assume the defense of such action or proceeding with counsel chosen by
Indemnitor and reasonably satisfactory to Indemnified Person; provided, however,
that any Indemnified Person may at its own expense retain separate counsel to
participate in such defense. Notwithstanding the foregoing, Indemnified Person
shall have the right to employ separate counsel at Indemnitor's expense and to
control its own defense of such action or proceeding if, in the reasonable
opinion of counsel to such Indemnified Person, (a) there are or may be legal
defenses available to such Indemnified Person or to other Indemnified Persons
that are different from or additional to those available to Indemnitor and which
could not be adequately advanced by counsel chosen by Indemnitor, or (b) a
conflict or potential conflict exists between Indemnitor and such Indemnified
Person that would make such separate representation advisable; provided,
however, that in no event shall Indemnitor be required to pay fees and expenses
hereunder for more than one firm of attorneys in any jurisdiction in any one
action or proceeding or group of related actions or proceedings. Indemnitor
shall not, without the prior written consent of any Indemnified Person,
<PAGE> 23
Page 23
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding to which such Indemnified Person is a
party unless such settlement, compromise or consent includes an unconditional
release of such Indemnified Person from all liability arising or potentially
arising from or by reason of such claim, action or proceeding.
8.5 Limitations Upon Obligations. Anything in this Section 8 to the
contrary notwithstanding, it is expressly acknowledged and agreed that no
payment shall be made hereunder by PSC or Parent (individually and collectively
a "Parent Party") to Shareholder or, by Shareholder to a Parent Party, on claims
for indemnification under Sections 8.2 or 8.3(a) until the aggregate of all such
claims of a Parent Party against Shareholder under Section 8.3(a), or by
Shareholder against a Parent Party under Section 8.2, shall exceed $25,000.00,
in which event the Party holding such claim shall be entitled to indemnification
with respect to all such claims in the aggregate; provided that the obligations
of Shareholder under Section 8.3(a) shall be limited as set forth in Section
8.3(c) above. In the event that such claims do not aggregate in excess of
$25,000.00, then neither the Parent Parties nor Shareholder shall have any claim
for indemnification against the other under Section 8.2 or Section 8.3(a).
SECTION 9 TERMINATION
9.1 Methods of Termination. This Agreement may be terminated:
(a) by mutual consent in writing;
(b) by either Shareholder, PSC or Parent if there has been a
material misrepresentation or material breach of any warranty
or covenant by the other party; or
(c) by either Shareholder, PSC or Parent if the Closing shall not
have taken place, unless adjourned to a later date by mutual
consent in writing, by March 31, 1997.
SECTION 10 GENERAL PROVISIONS
10.1 Georgia Law. This Agreement is made and entered into as a contract
for the exchange and transfer of stock, to be interpreted under and governed
and enforced according to the laws of the State of Georgia.
10.2 "Agreement" Defined. The term "Agreement" as used herein, as well as
the terms "herein", "hereof", "hereunder" and the like means this Agreement in
its entirety and all Exhibits attached hereto and made a part hereof. The
captions and section headings hereof are for reference and convenience only and
do not enter into or become a part of the context. All pronouns, singular or
plural, masculine, feminine or neuter, shall mean and include the person,
entity, firm, or corporation to which they relate as the context may require.
<PAGE> 24
Page 24
10.3 Severability. In the event any term, covenant, condition, agreement,
section or provision hereof shall be deemed invalid or unenforceable by a court
of competent and final jurisdiction in the premises, this Agreement shall not
terminate or be deemed void or voidable, but shall continue in full force and
effect and there shall be substituted for such stricken provision a like, but
legal and enforceable, provision which most nearly accomplishes the intention of
the parties hereto.
10.4 Notices. All notices, requests, demands, and other communications
hereunder shall be deemed to have been duly given if in writing and sent by
certified or registered mail, postage prepaid, to the appropriate address
indicated below or such other address as may be given in a notice sent to the
other parties hereto;
a. If to PSC or Parent: Physician's Acquisition Corp.
3414 Peachtree Road
Suite 238
Atlanta, Georgia 30326
b. With a copy to: Troutman Sanders LLP
NationsBank Plaza, Suite 5200
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attn: Richard H. Brody, Esq.
c. or Shareholder: Ramie A. Tritt, M.D.
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
d. With a copy to: Ellis Funk Goldberg Labovitz &
Dokson, P.C.
3490 Piedmont Road, Suite 400
Atlanta, Georgia 30305
Attn: Robert Goldberg, Esq.
<PAGE> 25
Page 25
e. or ENT Center ENT Center of Atlanta Inc.
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
f or Atlanta ENT Center Atlanta ENT Center for Physicians, Inc.
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
g. or Atlanta-AHP Atlanta-AHP, Inc.
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
10.5 Specific Performance. Each of the Parties acknowledges and agrees that
the other Party would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the other
Party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties and the
matter, in addition to any other remedy to which it may be entitled, at law or
in equity.
10.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
10.7 Exhibits. Each Exhibit referred to in this Agreement has been
initialed for identification by an officer of PSC, Parent, each of the Networks
and Shareholder and sets of such Exhibits have been delivered to the respective
Parties hereto. Such Exhibits are hereby incorporated by reference and made a
part hereof, and may be referred to in this Agreement and any other related
instrument or document without being attached thereto.
10.8 Conduct of the Parties. No conduct or course of action undertaken or
performed by the Parties shall have the effect, or be deemed to have the effect,
to modify, alter or amend the terms, covenants and conditions of this Agreement.
Failure of any Party to exercise any power or right given hereunder or to insist
upon strict compliance with the terms hereof shall not be, or be deemed to be, a
waiver of such Party's right to demand exact compliance with the terms of this
Agreement.
10.9 Binding Effect. The terms, covenants and conditions of this Agreement
shall be binding upon and shall inure to the benefit of PSC, Parent, each of the
Networks and Shareholder and their respective heirs, successors, assigns, and
legal representatives.
<PAGE> 26
Page 26
10.10 Modification and Amendment. This Agreement may not be modified,
altered or amended except by a written instrument executed by each of the
Parties hereto.
10.11 Entire Agreement. This Agreement and all Exhibits hereto constitutes
the entire and complete agreement of the Parties with respect to the subject
matter hereof, and no conversation, undertaking, representation, promise,
inducement, warranty, or statement, not reduced to writing and expressly set
forth herein shall be of any force or effect whatsoever.
10.12 Expenses. Each Party shall pay its own expenses in connection with
the preparation of this Agreement and the consummation of the transactions
contemplated hereby.
10.14 No Third Party Beneficiary. Nothing in this Agreement is intended
to create a benefit in favor of, or an obligation to, any person or entity not
a party to this Agreement.
SECTION 11 ACKNOWLEDGMENT OF RAMIE A. TRITT, M.D.
11.1 Acknowledgment and Waiver. Ramie A. Tritt, M.D. hereby acknowledges
and agrees that:
(a) he irrevocably and unconditionally consents to the consummation of
all transactions to be undertaken in connection with this Agreement, or in
connection with any document, instrument or agreement to be executed and
delivered in connection herewith;
(b) and effective at the closing irrevocably and unconditionally waives
and releases, as a result of the consummation of such transactions, any and all
rights which he has or may have, directly or indirectly, in or to the stock of
each of the Networks under corporate law in the State of Georgia.
<PAGE> 27
Page 27
IN WITNESS WHEREOF, the Parties have hereunto set their hands and seals the
day and year first above written, PSC, Parent and each of the Networks acting
through duly authorized officers and Shareholder acting on his own behalf.
"SHAREHOLDER"
Ramie A. Tritt, M.D., the owner of record of
all issued and outstanding shares of each of
the Networks.
"ENT Center"
ENT Center of Atlanta, Inc.
By:
Its:
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE> 28
Page 28
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
"Atlanta ENT Center"
Atlanta ENT Center for Physicians, Inc.
By:
Its:
"Atlanta-AHP"
Atlanta-AHP, Inc.
By:
Its:
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE> 29
Page 29
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
"PSC"
PSC Acquisition Corp., a Delaware
corporation
By:
Its:
"Parent"
Physicians' Specialty Corp., a Delaware
corporation
By:
Its:
<PAGE> 30
Page 30
EXHIBIT 1.4
Altanta ENT Center: 60%
Atlanta-AHP: 20%
ENT Center: 20%
<PAGE> 1
Page 1
EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), made and entered
into this 26th day of November, 1996, by and between RAMIE A. TRITT, M.D.,
an individual resident of the State of Georgia (hereinafter referred to as
"Executive"), and PHYSICIANS' SPECIALTY CORP., a corporation organized under
the laws of the State of Delaware (hereinafter referred to as "Company");
W I T N E S S E T H:
WHEREAS, Company is engaged in the business (the "Business") of
providing management and business services to, and acquiring assets of,
physician practices;
WHEREAS, the Board of Directors of Company (the "Board of Directors")
recognizes Executive's substantial skills and expertise in the Business and
desires to provide for the employment of Executive on the terms and conditions
herein provided;
WHEREAS, Executive is willing to commit himself to serve Company on
the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, Company and Executive wish
to enter into an employment agreement on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
<PAGE> 2
Page 2
SECTION 1. SCOPE OF EMPLOYMENT.
1.1 EMPLOYMENT. Subject to terms hereof, Company hereby agrees to
the employment of Executive during the "Term" (as defined in Section 2.1), and
Executive hereby accepts such employment. Executive shall hold the offices of
Chairman and President and, as such, shall perform the executive-level services
(collectively, "Services") described in Company's Bylaws and as delegated to
him by the Board of Directors. Such duties shall include, among others,
initiating, evaluating and consummating strategic acquisitions on behalf of
Company. Company agrees to nominate Executive for membership on the Board of
Directors (and as Chairman of the Board) for the duration of the Term, and, if
Executive is elected as a director, he shall be entitled to serve on the
Compensation and Executive Committees of the Board of Directors (if such
committees are established). Executive's serving on the Board of Directors
shall be deemed to be part of the "Services". Executive shall initially devote
approximately fifty percent (50%) of Executive's business time, energy and
skill (subject to increases as outlined in Section 3 as approved by the
Company's Board of Directors) to performing his obligations hereunder and shall
perform his obligations hereunder diligently, faithfully and to the best of his
abilities.
1.2 PLACE OF PERFORMANCE. During the Term, Executive shall be
based in Atlanta, Georgia at the principal executive offices of Company, except
for reasonably required travel on business.
1.3 COMPLIANCE WITH POLICIES. Subject to the terms of this
Agreement, during the Term Executive shall comply in all material respects with
all policies and procedures applicable to senior executives of Company
generally and to Executive specifically.
SECTION 2. TERM; TERMINATION.
2.1 TERM. The initial term of Executive's employment under this
Agreement (the "Initial Term") shall be a five (5) year period commencing on
the date when the registration statement for the issuance of shares of common
stock of the Company is declared effective by the Securities and Exchange
Commission (the "Effective Date"). If the Effective Date shall not have
occurred by March 31, 1997, either Executive or Company may terminate this
Agreement on written notice to the other. After the Initial Term, Executive's
employment under this Agreement shall automatically renew for successive
additional one (1) year ("Renewal Terms") terms (the Initial Term and any
Renewal Terms being collectively referred to as the "Term"). The Term shall
be subject to termination in accordance with Section 2.2.
2.2 TERMINATION.
(a) DEATH. This Agreement shall automatically and
immediately terminate upon the death of Executive.
(b) DISABILITY. This Agreement may be terminated by
either party hereto upon written notice to the other in the event Executive
becomes "Disabled" (as hereinafter defined).
<PAGE> 3
Page 3
For purposes of this Agreement, "Disabled" shall be defined as either: (a) the
reasonable, good faith determination by an independent physician selected by
the Board of Directors of Company that due to a mental or physical impairment
or disability, Executive has been incapable or unable, even with reasonable
accommodations, to fully perform the material duties performed by Executive for
Company immediately prior to such disability for a period of at least one
hundred eighty (180) days in the aggregate (although not necessarily
consecutively) within any consecutive three hundred sixty- five (365)-day
period; or (b) a determination that Executive is disabled pursuant to the terms
of any long-term disability insurance policy which Company or Executive has
purchased and which covers Executive.
(c) CAUSE. In addition to any other rights or remedies
available to Company at law, in equity or pursuant hereto, Company may, in its
sole discretion, terminate Executive's employment for "Cause" (as hereinafter
defined) effective immediately upon delivery of written notice to Executive.
For purposes of this Agreement, "Cause" shall mean any of:
(i) the imposition by any governmental authority
of any material restriction or limitation on Executive's ability to
perform his services hereunder;
(ii) (A) Executive has committed an act
constituting fraud, deceit or intentional material misrepresentation
with respect to Company or any client, customer or supplier of
Company; (B) Executive has embezzled funds or assets from Company or
any client or customer of Company; or (C) Executive has engaged in
willful misconduct or gross negligence;
(iii) Executive's breach or default in the
performance of any material provision of this Agreement which
Executive has not cured or corrected to Company's reasonable
satisfaction within thirty (30) days after receiving notice of such
breach or default (provided that any breach by Executive of any
obligation under Section 5.4 shall be grounds for immediate
termination "For Cause" without any notice or right to cure or
correct); or
(iv) Executive's conduct is materially detrimental
to the reputation, character or standing of Company which Executive
has not cured or corrected to Company's reasonable satisfaction within
ten (10) days after receiving notice thereof.
(d) DISCRETIONARY TERMINATION.
(i)Either Company or Executive may terminate the Term
effective as of the end of the Initial Term or the then-current
Renewal Term by providing the other with written notice of termination
at least sixty (60) days prior to the end of the Initial Term or then
current Renewal Term, as the case may be. In the event of Termination
under this Section 2.2(d)(i), Executive shall not be entitled to any
severance benefit under Section 6.
(ii) The Company shall have the right to terminate
the Term and Executive's employment hereunder without cause at any
time upon notice to
<PAGE> 4
Page 4
Executive. In such event, Executive shall be entitled to the
severance benefit provided in Section 6(b), unless such termination
without cause follows a Change of Control, in which event Executive
shall be entitled to the severance benefit provided in Section 6(c).
(e) CHANGE OF CONTROL. Executive may terminate the Term following
a Change of Control (as defined in Section 6(c)), by providing Company at least
thirty (30) days prior written notice of termination.
(f) GOOD REASON. Executive shall have the right to terminate this
Employment Agreement for "Good Reason." For purposes hereof, Good Reason shall
be limited to the repeated material breach by the Company of its material
obligations to Executive which the Company fails to correct or cure within a
period of forty-five (45) days after being provided with written notice by
Executive of such material breach.
SECTION 3. CASH COMPENSATION; EXPENSE.
3.1 BASE SALARY. Executive shall be paid a base salary (the "Base
Salary") during the Term at an initial rate of Three Hundred Fifty Thousand
Dollars ($350,000) per twelve (12) month period. The Base Salary shall be (a)
payable in equal installments on the schedule that Company may implement from
time to time for general payroll purposes, and (b) subject to any withholdings
and deductions required by applicable law. The $350,000 Base Salary assumes
that Executive will devote approximately fifty percent (50%) of his business
time each week (2.5 days) to performing the Services (as opposed to performing
clinical work). If Executive, with the approval of the Board of Directors,
increases the proportion of business time devoted to performing the Services,
then his Base Salary shall be increased as follows:
<TABLE>
<CAPTION>
Executive Work
Base Salary % Services Week Days
----------- ---------- ---------
<S> <C> <C>
$350,000 50% 2.5
$410,000 70% 3.5
$470,000 90% 4.5
$500,000 100% 5.0
</TABLE>
In the event Executive provides full time (100%) services to the Company and
the Company has achieved quarterly pre-tax income of $1.750 million,
Executive's Base Salary for full-time services will be increased to $600,000
per annum.
3.2 BONUS. During the Term, Executive shall be eligible to be
considered for a periodic bonus (the "Bonus") of up to 50% of his Base Salary
per annum, based on Company's meeting certain milestones relating to such
matters as practice acquisitions, consolidated operating income levels,
consummation of follow-on financings and management team development;
provided, however, that the Bonus shall be subject to the Compensation
Committee of the Board of Directors adopting and ratifying such a bonus program
and approving
<PAGE> 5
Page 5
the periodic Bonus grants to Executive.
SECTION 4. ADDITIONAL EXECUTIVE BENEFITS.
4.1 BENEFIT PLANS. During the Term, Executive shall be entitled
to participate in the group medical, 401k and the other employee benefit plans
adopted by the Board of Directors (or appropriate committee thereof) for
participation by Executive subject to the terms and conditions of such plans
(collectively, the "Benefit Plans"). Company shall have the right to purchase
in Executive's name a "key man" life insurance policy naming Company as sole
beneficiary under the policy. Company shall be the sole owner of such policy.
4.2 VACATION. Executive shall be entitled to three (3) paid weeks
of vacation per year during the Term, to be accrued and taken in accordance
with a policy that is consistent with Company's normal vacation policy
applicable to senior executive employees.
5. NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION COVENANTS.
5.1 DEFINITIONS. For purposes of this Section 5, the following
terms shall have the following respective meanings:
(a) "Competitive Position" shall mean (i) the direct or
indirect equity ownership (excluding ownership of less than 5% of the
equity of an entity whose equity is listed on a major U.S. exchange or
traded on the NASDAQ over-the-counter market) or control of all or any
portion of a "Competitor" (as hereinafter defined), or (ii) any
employment, consulting, partnership, advisory, directorship, agency,
promotional or independent contractor arrangement between Executive
and any Competitor whereby Executive is required to perform services
substantially similar to those that he is to perform for Company
hereunder. A Competitive Position shall not include, however,
Executive's employment by New Atlanta Ear, Nose & Throat Associates,
P.C. ("NAENT") to the extent his services are limited to practicing
medicine and administering NAENT's practice as an employee of NAENT.
(b) "Competitor" shall refer to any person or entity
engaged, wholly or partly, in the Business.
(c) "Confidential Information" shall mean any and all
proprietary and confidential data or information of Company or any of
its affiliates, other than "Trade Secrets" (as hereinafter defined),
which is of tangible or intangible value to Company or any of its
affiliates and is not public information or is not generally known or
available to Company's competitors but is known only to Company or its
affiliates and their employees, independent contractors or agents to
whom it must be confided in order to apply it to the uses intended.
(d) "Restricted Territory" shall mean all areas within
a twenty (20) mile radius
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of the Company's principal office in Atlanta, Georgia. The Parties
intend for the "Restricted Territory" during the entire Term to
include a twenty (20) mile radius of all other United States cities
where Company is engaged in the Business, throughout which territory
the parties acknowledge Executive will be performing his employment
responsibilities on behalf of Company. As of the Effective Date,
those cities include Atlanta, Georgia. If applicable law permits a
deemed or automatic amendment to the definition of Restricted
Territory," then as soon as Company begins to engage in the Business
in any additional city, the definition of "Restricted Territory" under
this Agreement shall be deemed automatically amended to include the
city limits of any such additional cities and a twenty (20) mile
radius of those cities. If applicable law does not permit a deemed or
automatic amendment to the definition of Restricted Territory" under
those circumstances, then the Parties agree that when Company begins
to engage in Business in additional cities, they will promptly execute
amendments to this Agreement to include those additional cities in the
definition of "Restricted Territory."
(e) "Trade Secrets" shall mean all knowledge, data and
information of Company or any of its affiliates which is defined as a
"trade secret" under applicable law.
(f) "Work Product" shall mean all work product, property,
data, documentation, "know-how", concepts, plans, inventions,
improvements, techniques, processes or information of any kind,
prepared, conceived, discovered, developed or created by Executive in
connection with the performance of his services hereunder.
5.2 ACKNOWLEDGMENTS. Executive hereby acknowledges and agrees
that during the term of this Agreement (i) Executive will frequently be exposed
to certain Trade Secrets and Confidential Information; (ii) Executive's
responsibilities on behalf of Company will extend to all geographical areas of
the Restricted Territory; and (iii) any competitive activity on Executive's
part during the Term, or any competitive activity on Executive's part in the
Restricted Territory for a reasonable period thereafter, would necessarily
involve Executive's use of Company's Trade Secrets and Confidential Information
and would unfairly threaten Company's legitimate business interests, including
its substantial investment in the proprietary aspects of its business and its
associated goodwill. Moreover, Executive acknowledges that, in the event of
the termination of this Agreement, Executive would have sufficient skills to
find alternative, commensurate work in his field of expertise that would not
involve a violation of any of the provisions of this Section 5. Therefore,
Executive acknowledges and agrees that it is reasonable for Company to require
Executive to abide by the covenants set forth in this Section 5. The parties
acknowledge and agree that if the nature of Executive's responsibilities for
or on behalf of Company or the geographical areas in which Executive must
fulfill such responsibilities materially change, the parties will execute
appropriate amendments to the scope of the covenants in this Section 5.
5.3 NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY.
(a) In recognition of Company's need to protect its
legitimate business interests, Executive hereby covenants and agrees
that: (A) with regard to each item constituting a Trade
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Secret, at all times during which such item shall constitute a Trade
Secret (before or after the Term); and (B) with regard to any
Confidential Information, at all times during the term of this
Agreement and for a period of three (3) years following the expiration
or termination of the Term for any reason, Executive shall regard and
treat each item constituting a Trade Secret and all Confidential
Information as strictly confidential and wholly owned by Company and
will not, for any reason, in any fashion, either directly or
indirectly, use, sell, lend, lease, distribute, license, give,
transfer, assign, show, disclose, disseminate, reproduce, copy,
misappropriate or otherwise communicate any such item or information
to any third party for any purpose other than in connection with his
performance of services for the Company or as required by applicable
law.
(b) Executive shall immediately notify Company of any
intended or unintended, unauthorized disclosure or use of any Trade
Secrets or Confidential Information by Executive or any other person
or entity of which Executive becomes aware. Executive shall cooperate
fully with Company in the procurement of any protection of Company's
rights to or in any of the Trade Secrets or Confidential Information.
(c) Immediately upon expiration or termination of the
Term for any reason, or if notice of termination is required
hereunder, upon receipt of such notice, or at any time after such
termination or notice upon the specific request of Company, Executive
shall return to Company all written or descriptive materials of any
kind in Executive's possession or to which Executive has access that
constitute or contain any Confidential Information or Trade Secrets,
and the confidentiality obligations described in this Agreement shall
continue until their expiration under the terms of this Agreement.
(d) To the greatest extent possible, any Work Product
shall be deemed to be "work made for hire" (as defined in the
Copyright Act, 17 U.S.C.A. Section 101 et seq., as amended) and owned
exclusively by Company. Executive hereby unconditionally and
irrevocably transfers and assigns to Company all rights, title and
interest Executive currently has or in the future may have, by
operation of law or otherwise, in or to any Work Product, including,
without limitation, all patents, copyrights, trademarks, service marks
and other intellectual property rights. Executive agrees to execute
and deliver to Company any transfers, assignments, documents or other
instruments which Company may deem necessary or appropriate to vest
complete title and ownership of any Work Product, and all rights
therein, exclusively in Company.
5.4 NON-COMPETITION. In recognition of Company's need to protect
its legitimate business interests, Executive hereby covenants and agrees that
during the Term, Executive will not, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
furtherance of a Competitive Position. Executive further agrees that for
eighteen (18) months following expiration or termination of the Term for any
reason other than termination by Executive for Good Reason, Executive will not,
either directly or indirectly, alone or in conjunction with any other party,
accept, enter into or take any action in furtherance of a Competitive Position
within the Restricted Territory (other than action to reject an offer of a
Competitive Position or to notify Company of the offer pursuant to the
requirements of the next sentence of this Section 5.4). Executive shall notify
Company promptly in writing if Executive
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receives an offer of a Competitive Position within eighteen (18) months
following expiration or termination of the Term for any reason, and such notice
shall describe all salient terms of such offer.
5.5 NON-SOLICITATION OF CUSTOMERS. Executive hereby covenants and
agrees that (i) during the Term, Executive will not, either directly or
indirectly, alone or in conjunction with any other party, solicit, divert or
appropriate or attempt to solicit, divert or appropriate any medical practice
managed by Company (a "Managed Practice") or actively sought prospective
Managed Practice for the purpose of providing such Managed Practice or actively
sought prospective Managed Practice with management services competitive with
those offered by Company; and (ii) for a period of two (2) years following
expiration or termination of the Term for any reason other than termination by
Executive for Good Reason, Executive will not, either directly or indirectly,
alone or in conjunction with a Competitor or any other party, solicit, divert
or appropriate, or attempt to solicit, divert or appropriate any Managed
Practice or actively sought prospective Managed Practice for the purpose of
providing (or having a Competitor or any other person provide) such Managed
Practice or actively sought prospective Managed Practice with management
services competitive with those offered by Company. Executive shall promptly
notify Company in writing if: (A) during the two (2) years following the
expiration or termination of the Term for any reason, Executive is contacted by
any Managed Practice or actively sought prospective Managed Practice with a
request that Executive provide Managed Practice with any management services;
and (B) provision of such services, as requested, would constitute a violation
of Executive's covenants in this Section 5. Such notice shall include all
salient information associated with such customer's request, including, without
limitation, the identity of such Managed Practice, the exact services or
products requested and the party or parties on behalf of such Managed Practice
who contacted Executive.
5.6 NONSOLICITATION OF COMPANY PERSONNEL. Executive hereby agrees
that during the Term, except to the extent that he is required to do so in
connection with his responsibilities hereunder, Executive will not, either
directly or indirectly, alone or in conjunction with any other party, solicit
or attempt to solicit any employee, consultant, contractor or other personnel
of Company to terminate, alter or lessen such party's affiliation with Company
or to violate the terms of any agreement or understanding between such party
and Company. Executive further agrees that during the two (2) year period
following expiration or termination of the Term for any reason other than
termination by Executive for Good Reason, Executive will not, either directly
or indirectly, alone or in conjunction with any other party, solicit or attempt
to solicit any "key" (as that term is hereinafter defined) employee,
consultant, contractor or other personnel of Company located in the Restricted
Territory to terminate, alter or lessen that party's affiliation with Company
or to violate the terms of any agreement or understanding between such party
and Company. For purposes of the preceding sentence "key" employees,
consultants, contractors or other personnel of Company are those with knowledge
of or access to Company's Trade Secrets or Confidential Information.
5.7 REMEDIES. Executive agrees that damages at law for
Executive's violation of any of the covenants in this Section 5 would not be an
adequate or proper remedy and that, should Executive violate or threaten to
violate any of the provisions of such covenants, Company or its
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successors or assigns shall be entitled to obtain a temporary or permanent
injunction against Executive in any court having jurisdiction prohibiting any
further violation of any such covenants, in addition to any award or damages
(compensatory, exemplary or otherwise) for such violation.
5.8 PARTIAL ENFORCEMENT. Company has attempted to limit the
rights of Executive to compete only to the extent necessary to protect Company
from unfair competition. Company, however, agrees that, if the scope of
enforceability of any of these restrictive covenants is in any way disputed at
any time, a court or other trier of fact may modify and enforce such covenant
to the extent that it believes to be reasonable under the circumstances
existing at the time.
5.9 SURVIVAL. Notwithstanding any expiration or termination of
this Agreement, the provisions of this Section 5 shall survive and remain in
full force and effect, as shall any other provision hereof that, by its terms
or reasonable interpretation thereof, sets forth obligations that extend beyond
the termination of this Agreement.
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SECTION 6. RIGHTS ON TERMINATION
(a) If Executive voluntarily resigns his employment or is
terminated for Cause, or dies or is terminated due to becoming
Disabled, Executive shall be entitled only to receive any salary and
bonus amounts that have accrued prior to the effective date of
termination of the Term (the Termination Date).
(b) If Company terminates the Term pursuant to Section
2.2(d)(ii), or if Executive terminates the Term following a
Change of Control pursuant to Section 2.2(e), Executive shall be
entitled to: (a) all salary and bonus amounts accrued through the
Termination Date, and (b) payment, for a period of twelve (12) months
following the Termination Date, of an amount equal to: (i) Executive's
base salary as of the Termination Date (with such payments to be made
at such times as they would be made if Executive's employment continued
for an additional year) LESS (ii) any salary or other amounts that
Executive is paid by any other person during that twelve month period
other than salary or amounts paid to Executive by NAENT (and in the
event Executive does not increase his work time at NAENT, Executive
hereby agrees to take reasonably diligent action to secure employment
as soon as practicable after any such termination from Company and to
otherwise mitigate his losses resulting from the loss of salary from
Company). Executive's rights to any of the compensation or benefits
identified in the preceding sentence shall be subject to Executive's
compliance in all respects of each of Executive's obligations under
this Agreement.
(c) In the event that Company (or Company's successor)
following a Change of Control (as defined below) terminates
Executive's employment other than pursuant to an express termination
right under Sections 2.2(a), (b) or (c) of this Agreement, Executive
shall be entitled to severance compensation in the form of a lump sum
payment in an amount equal to two (2) times the taxable compensation
received by Executive during the most recently concluded fiscal year of
Company. For purposes of this Agreement, "Change of Control" shall mean
the acquisition by any single person or entity or related persons or
entities of more than fifty percent (50%) of the outstanding and issued
common stock of Company following an initial public offering of
Company's common stock.
SECTION 7. MISCELLANEOUS.
7.1 BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, representatives, heirs, and permitted assigns.
7.2 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia.
7.3 HEADINGS. The titles, captions and headings contained in this
Agreement are inserted by convenience of reference only and are not intended to
be a part of or to affect in any
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way the meaning or interpretation of this Agreement.
7.4 NOTICES.
(a) All notices, consents, requests and other communications
hereunder shall be in writing and shall be sent by hand delivery, by certified
or registered mail (return-receipt requested), by facsimile or by a recognized
national overnight courier service as set forth below:
If to Company: Physicians' Specialty Corporation
3414 Peachtree Road, Suite 238
Atlanta, Georgia 30326
Fax No.: (404) 816-1456
Attn: Gerald R. Benjamin
with a copy to: Troutman Sanders LLP
600 Peachtree Street, N.E.
5200 NationsBank Plaza
Atlanta, Georgia 30308-2216
Fax No.: 404-885-3900
Attn: Richard H. Brody, Esq.
If to Executive: Ramie A. Tritt, M.D.
5555 Peachtree Dunwoody Road, Suite 235
Atlanta, Georgia 30342
Fax No.: (404) 250-0162
with a copy to: Robert Goldberg, Esq.
Ellis, Funk, Goldberg, Labovitz &
Dokson, P.C.
3490 Piedmont Road, Suite 400
Atlanta, Georgia 30305
Fax No.: (404) 233-2188
(b) Notices delivered pursuant to this Section 7.4(a) hereof shall
be deemed given: at the time delivered, if personally delivered, three (3)
business days after being deposited in the mail, if mailed; one (1) business
day after being sent, if faxed; and one (1) business day after timely delivery
to the courier, if by overnight courier service.
(c) Either party hereto may change the address to which notice is
to be sent by written notice to the other party hereto in accordance with this
Section 7.4
7.5 COUNTERPARTS; FAX SIGNATURES. This Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute the same Agreement. Any signature
page of any such counterpart, or any electronic facsimile thereof, may be
attached or appended to any other counterpart to complete a fully
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executed counterpart of this Agreement, and any telecopy or other facsimile
transmission of any signature shall be deemed an original and shall bind such
party.
7.6 ENTIRE AGREEMENT. This Agreement is intended by the parties
hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement may be modified only by a written
instrument signed by each of the parties hereto.
7.7 SEVERABILITY. The unenforceability or invalidity of any
provision of this Agreement shall not affect the validity or enforceability of
the remaining provisions hereof, but such remaining provisions shall be
construed and interpreted in such a manner as to carry out fully the intent of
the parties hereto; provided, however, that should any judicial body
interpreting this Agreement deem any provision hereof to be unreasonably broad
in time, territory, scope or otherwise, it is the intent and desire of the
parties hereto that such judicial body, to the greatest extent possible, reduce
the breadth of such provision to the maximum legally allowable parameters
rather than deeming such provision totally unenforceable or invalid.
7.8 WAIVER. No waiver, termination or discharge of this
Agreement, or any of the terms or provisions hereof, shall be binding upon
either party hereto unless confirmed in writing. No waiver by either party
hereto of any term or provision of this Agreement or of any default hereunder
shall affect such party's right thereafter to enforce such term or provision or
to exercise any right or remedy in the event of any other default, whether or
not similar.
7.9 INTERPRETATION. Should a provision of this Agreement require
judicial interpretation, it is agreed that the judicial body interpreting or
construing the Agreement shall not apply the assumption that the terms hereof
shall be more strictly construed against one party by reason of the rule of
construction that an instrument is to be construed more strictly against the
party which itself or through its agents prepared the agreement, it being
agreed that all parties and/or their agents have participated in the
preparation of this Agreement equally.
7.10 APPLICABLE LAW. Should any provision of this Agreement,
including, without limitation, any provision relating to compensation, be found
to be in violation of any applicable law, rule or regulation, the parties
hereto agree to execute an amendment to this Agreement to bring such provision
into compliance with any such law, rule or regulation, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date first above written.
"Company"
PHYSICIANS' SPECIALTY CORP.
By:
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Name:
Its:
"Executive"
RAMIE A. TRITT, M.D.
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EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), made and entered into
and effective this 26th day of November, 1996 (the "Effective Date"), by and
between RICHARD D. BALLARD, an individual resident of the State of Georgia
(hereinafter referred to as "Executive"), and PHYSICIANS' SPECIALTY CORP., a
corporation organized under the laws of the State of Delaware (hereinafter
referred to as "Company");
W I T N E S S E T H:
WHEREAS, Company is engaged in the business (the "Business") of providing
management and business services to, and acquiring assets of, physician
practices;
WHEREAS, the Board of Directors of Company (the "Board of Directors")
recognizes Executive's substantial skills and expertise in the Business and
desires to provide for the employment of Executive on the terms and conditions
herein provided;
WHEREAS, Executive is willing to commit himself to serve Company on the
terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, Company and Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
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SECTION 1. SCOPE OF EMPLOYMENT.
1.1 EMPLOYMENT. Subject to terms hereof, Company hereby agrees to the
employment of Executive during the "Term" (as defined in Section 2.1), and
Executive hereby accepts such employment. Executive shall hold the office of
Chief Executive Officer of Company and, as such, shall perform the
executive-level services (collectively, "Services") described in Company's
Bylaws and as delegated to him by the Board of Directors. Such duties shall
include, among others, initiating, evaluating and consummating strategic
acquisitions on behalf of Company. Company agrees to nominate Executive for
membership on the Board of Directors for the duration of the Term, and, if
Executive is elected as a director, he shall be entitled to serve on the
Compensation and Executive Committees of the Board of Directors (if such
committees are established). Executive's serving on the Board of Directors shall
be deemed to be part of the "Services". Executive shall devote substantially all
of Executive's business time, energy and skill to performing his obligations
hereunder and shall perform his obligations hereunder diligently, faithfully and
to the best of Executive's abilities.
1.2 PLACE OF PERFORMANCE. During the Term, Executive shall be based in
Atlanta, Georgia at the principal executive offices of Company, except for
reasonably required travel on business.
1.3 COMPLIANCE WITH POLICIES. Subject to the terms of this Agreement,
during the Term Executive shall comply in all material respects with all
policies and procedures applicable to senior executives of Company generally and
to Executive specifically.
SECTION 2. TERM; TERMINATION.
2.1 TERM. The initial term of Executive's employment under this Agreement
(the "Initial Term") shall be a three (3) year period commencing on the
Effective Date. After the Initial Term, Executive's employment under this
Agreement shall automatically renew for successive additional one (1) year
("Renewal Terms") terms (the Initial Term and any Renewal Terms being
collectively referred to as the "Term"). The Term shall be subject to
termination in accordance with Section 2.2.
2.2 TERMINATION.
(A) DEATH. This Agreement shall automatically and immediately terminate
upon the death of Executive.
(B) DISABILITY. This Agreement may be terminated by either party hereto
upon written notice to the other in the event Executive becomes "Disabled" (as
hereinafter defined). For purposes of this Agreement, "Disabled" shall be
defined as either: (a) the reasonable, good faith determination by an
independent physician selected by the Board of Directors of Company that due to
a mental or physical impairment or disability, Executive has been incapable or
unable, even with reasonable accommodations, to fully perform the material
duties performed by Executive for Company immediately prior to such disability
for a period of at least one hundred
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eighty (180) days in the aggregate (although not necessarily consecutively)
within any consecutive three hundred sixty-five (365)-day period; or (b) a
determination that Executive is disabled pursuant to the terms of any long-term
disability insurance policy which Company or Executive has purchased and which
covers Executive.
(C) CAUSE. In addition to any other rights or remedies available to Company
at law, in equity or pursuant hereto, Company may, in its sole discretion,
terminate Executive's employment for "Cause" (as hereinafter defined) effective
immediately upon delivery of written notice to Executive. For purposes of this
Agreement, "Cause" shall mean any of:
(i) the imposition by any governmental authority of any material
restriction or limitation on Executive's ability to perform his services
hereunder;
(ii) (A) Executive has committed an act constituting fraud, deceit or
intentional material misrepresentation with respect to Company or any
client, customer or supplier of Company; or (B) Executive has embezzled
funds or assets from Company or any client or customer of Company;
(iii) Executive's breach or default in the performance of any
material provision of this Agreement which Executive has not cured or
corrected to Company's reasonable satisfaction within thirty (30) days
after receiving notice of such breach or default (provided that any breach
by Executive of any obligation under Section 5.4 shall be grounds for
immediate termination "For Cause" without any notice or right to cure or
correct); or
(iv) (A) Executive has engaged in willful misconduct or fraud or
gross negligence; or (B) Executive's conduct is materially detrimental to
the reputation, character or standing of Company.
(D) DISCRETIONARY TERMINATION.
(i) Either Company or Executive may terminate the Term effective as of the
end of the Initial Term or the then-current Renewal Term by providing the
other with written notice of termination at least sixty (60) days prior to
the end of the Initial Term or then current Renewal Term, as the case may
be. In the event of Termination under this Section 2.2(d)(i), Executive
shall not be entitled to any severance benefit under Section 6.
(ii) The Company shall have the right to terminate the Term and
Executive's employment hereunder without cause at any time upon notice to
Executive. In such event, Executive shall be entitled to the severance
benefit provided in Section 6(b), unless such termination without cause
follows a Change of Control, in which event Executive shall be entitled to
the severance benefit provided in Section 6(c).
(E) CHANGE OF CONTROL. Executive may terminate the Term following a Change
of Control (as defined in Section 6(c)), by providing Company at least thirty
(30) days prior written
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notice of termination.
(F) GOOD REASON. Executive shall have the right to terminate this
Employment Agreement for "Good Reason." For purposes hereof, Good Reason shall
be limited to the repeated material breach by the Company of its material
obligations to Executive which the Company fails to correct or cure within a
period of forty-five (45) days after being provided with written notice by
Executive of such material breach.
SECTION 3. CASH COMPENSATION; EXPENSE.
3.1 BASE SALARY. Executive shall be paid a base salary (the "Base Salary")
during the Term at an initial rate of One Hundred Fifty Thousand Dollars
($150,000) per twelve (12) month period. The Base Salary shall be (a) payable in
equal installments on the schedule that Company may implement from time to time
for general payroll purposes, and (b) subject to any withholdings and deductions
required by applicable law.
3.2 BONUS. During the Term, Executive shall be eligible to be considered
for a periodic bonus (the "Bonus") of up to 50% of his Base Salary per annum,
based on Company's meeting certain milestones relating to such matters as
practice acquisitions, consolidated operating income levels, consummation of
follow-on financings and management team development; provided, however, that
the Bonus shall be subject to the Compensation Committee of the Board of
Directors adopting and ratifying such a bonus program and approving the periodic
Bonus grants to Executive.
SECTION 4. ADDITIONAL EXECUTIVE BENEFITS.
4.1 BENEFIT PLANS. During the Term, Executive shall be entitled to
participate in the group medical, 401k and the other employee benefit plans
adopted by the Board of Directors (or appropriate committee thereof) for
participation by Executive subject to the terms and conditions of such plans
(collectively, the "Benefit Plans"). Company shall have the right to purchase in
Executive's name a "key man" life insurance policy naming Company as sole
beneficiary under the policy. Company shall be the sole owner of such policy.
4.2 VACATION. Executive shall be entitled to three (3) paid weeks of
vacation per year during the Term, to be accrued and taken in accordance with a
policy that is consistent with Company's normal vacation policy applicable to
senior executive employees.
5. NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION COVENANTS.
5.1 DEFINITIONS. For purposes of this Section 5, the following terms shall
have the following respective meanings:
(a) "Competitive Position" shall mean (i) the direct or indirect
equity ownership (excluding ownership of less than 5% of the equity of an
entity whose equity is listed on a major U.S. exchange or traded on the
NASDAQ over-the-counter market) or
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control of all or any portion of a "Competitor" (as hereinafter
defined), or (ii) any employment, consulting, partnership, advisory,
directorship, agency, promotional or independent contractor arrangement
between Executive and any Competitor whereby Executive is required to
perform services substantially similar to those that he is to perform for
Company hereunder.
(b) "Competitor" shall refer to any person or entity engaged, wholly
or partly, in the Business.
(c) "Confidential Information" shall mean any and all proprietary and
confidential data or information of Company or any of its affiliates,
other than "Trade Secrets" (as hereinafter defined), which is of tangible
or intangible value to Company or any of its affiliates and is not public
information or is not generally known or available to Company's
competitors but is known only to Company or its affiliates and their
employees, independent contractors or agents to whom it must be confided
in order to apply it to the uses intended.
(d) "Restricted Territory" shall mean all areas within a twenty (20)
mile radius of the Company's principal office in Atlanta, Georgia. The
Parties intend for the "Restricted Territory" during the entire Term to
include a twenty (20) mile radius of all other United States cities where
Company is engaged in the Business, throughout which territory the parties
acknowledge Executive will be performing his employment responsibilities
on behalf of Company. As of the Effective Date, those cities include
Atlanta, Georgia. If applicable law permits a deemed or automatic
amendment to the definition of "Restricted Territory," then as soon as
Company begins to engage in the Business in any additional city, the
definition of "Restricted Territory" under this Agreement shall be deemed
automatically amended to include the city limits of any such additional
cities and a twenty (20) mile radius of those cities. If applicable law
does not permit a deemed or automatic amendment to the definition of
"Restricted Territory" under those circumstances, then the Parties
agree that when Company begins to engage in Business in additional cities,
they will promptly execute amendments to this Agreement to include those
additional cities in the definition of "Restricted Territory."
(e) "Trade Secrets" shall mean all knowledge, data and information of
Company or any of its affiliates which is defined as a "trade secret"
under applicable law.
(f) "Work Product" shall mean all work product, property, data,
documentation, "know-how", concepts, plans, inventions, improvements,
techniques, processes or information of any kind, prepared, conceived,
discovered, developed or created by Executive in connection with the
performance of his services hereunder.
5.2 ACKNOWLEDGMENTS. Executive hereby acknowledges and agrees that during
the term of this Agreement (i) Executive will frequently be exposed to certain
Trade Secrets and Confidential Information; (ii) Executive's responsibilities on
behalf of Company will extend to all geographical areas of the Restricted
Territory; and (iii) any competitive activity on Executive's
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part during the Term, or any competitive activity on Executive's part in the
Restricted Territory for a reasonable period thereafter, would necessarily
involve Executive's use of Company's Trade Secrets and Confidential Information
and would unfairly threaten Company's legitimate business interests, including
its substantial investment in the proprietary aspects of its business and its
associated goodwill. Moreover, Executive acknowledges that, in the event of the
termination of this Agreement, Executive would have sufficient skills to find
alternative, commensurate work in his field of expertise that would not involve
a violation of any of the provisions of this Section 5. Therefore, Executive
acknowledges and agrees that it is reasonable for Company to require Executive
to abide by the covenants set forth in this Section 5. The parties acknowledge
and agree that if the nature of Executive's responsibilities for or on behalf of
Company or the geographical areas in which Executive must fulfill such
responsibilities materially change, the parties will execute appropriate
amendments to the scope of the covenants in this Section 5.
5.3 NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY.
(a) In recognition of Company's need to protect its legitimate
business interests, Executive hereby covenants and agrees that: (A) with
regard to each item constituting a Trade Secret, at all times during which
such item shall constitute a Trade Secret (before or after the Term); and
(B) with regard to any Confidential Information, at all times during the
term of this Agreement and for a period of three (3) years following the
expiration or termination of the Term for any reason, Executive shall
regard and treat each item constituting a Trade Secret and all
Confidential Information as strictly confidential and wholly owned by
Company and will not, for any reason, in any fashion, either directly or
indirectly, use, sell, lend, lease, distribute, license, give, transfer,
assign, show, disclose, disseminate, reproduce, copy, misappropriate or
otherwise communicate any such item or information to any third party for
any purpose other than in connection with his performance of services for
the Company or as required by applicable law.
(b) Executive shall immediately notify Company of any intended or
unintended, unauthorized disclosure or use of any Trade Secrets or
Confidential Information by Executive or any other person or entity of
which Executive becomes aware. Executive shall cooperate fully with
Company in the procurement of any protection of Company's rights to or in
any of the Trade Secrets or Confidential Information.
(c) Immediately upon expiration or termination of the Term for any
reason, or if notice of termination is required hereunder, upon receipt of
such notice, or at any time after such termination or notice upon the
specific request of Company, Executive shall return to Company all written
or descriptive materials of any kind in Executive's possession or to which
Executive has access that constitute or contain any Confidential
Information or Trade Secrets, and the confidentiality obligations
described in this Agreement shall continue until their expiration under
the terms of this Agreement.
(d) To the greatest extent possible, any Work Product shall be deemed
to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A.
Section 101 et seq., as amended) and owned exclusively by Company.
Executive hereby unconditionally and
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irrevocably transfers and assigns to Company all rights, title and
interest Executive currently has or in the future may have, by operation
of law or otherwise, in or to any Work Product, including, without
limitation, all patents, copyrights, trademarks, service marks and other
intellectual property rights. Executive agrees to execute and deliver to
Company any transfers, assignments, documents or other instruments which
Company may deem necessary or appropriate to vest complete title and
ownership of any Work Product, and all rights therein, exclusively in
Company.
5.4 NON-COMPETITION. In recognition of Company's need to protect its
legitimate business interests, Executive hereby covenants and agrees that during
the Term, Executive will not, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
furtherance of a Competitive Position. Executive further agrees that for
eighteen (18) months following expiration or termination of the Term for any
reason other than termination by Executive for Good Reason, Executive will not,
either directly or indirectly, alone or in conjunction with any other party,
accept, enter into or take any action in furtherance of a Competitive Position
within the Restricted Territory (other than action to reject an offer of a
Competitive Position or to notify Company of the offer pursuant to the
requirements of the next sentence of this Section 5.4). Executive shall notify
Company promptly in writing if Executive receives an offer of a Competitive
Position within eighteen (18) months following expiration or termination of the
Term for any reason, and such notice shall describe all salient terms of such
offer.
5.5 NON-SOLICITATION OF CUSTOMERS. Executive hereby covenants and agrees
that (i) during the Term, Executive will not, either directly or indirectly,
alone or in conjunction with any other party, solicit, divert or appropriate or
attempt to solicit, divert or appropriate any medical practice managed by
Company (a "Managed Practice") or actively sought prospective Managed Practice
for the purpose of providing such Managed Practice or actively sought
prospective Managed Practice with management services competitive with those
offered by Company; and (ii) for a period of two (2) years following expiration
or termination of the Term for any reason other than termination by Executive
for Good Reason, Executive will not, either directly or indirectly, alone or in
conjunction with a Competitor or any other party, solicit, divert or
appropriate, or attempt to solicit, divert or appropriate any Managed Practice
or actively sought prospective Managed Practice for the purpose of providing (or
having a Competitor or any other person provide) such Managed Practice or
actively sought prospective Managed Practice with management services
competitive with those offered by Company. Executive shall promptly notify
Company in writing if: (A) during the two (2) years following the expiration or
termination of the Term for any reason, Executive is contacted by any Managed
Practice or actively sought prospective Managed Practice with a request that
Executive provide Managed Practice with any management services; and (B)
provision of such services, as requested, would constitute a violation of
Executive's covenants in this Section 5. Such notice shall include all salient
information associated with such customer's request, including, without
limitation, the identity of such Managed Practice, the exact services or
products requested and the party or parties on behalf of such Managed Practice
who contacted Executive.
5.6 NONSOLICITATION OF COMPANY PERSONNEL. Executive hereby agrees that
during the
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Term, except to the extent that he is required to do so in connection with his
responsibilities hereunder, Executive will not, either directly or indirectly,
alone or in conjunction with any other party, solicit or attempt to solicit any
employee, consultant, contractor or other personnel of Company to terminate,
alter or lessen such party's affiliation with Company or to violate the terms of
any agreement or understanding between such party and Company. Executive further
agrees that during the two (2) year period following expiration or termination
of the Term for any reason other than termination by Executive for Good Reason,
Executive will not, either directly or indirectly, alone or in conjunction with
any other party, solicit or attempt to solicit any "key" (as that term is
hereinafter defined) employee, consultant, contractor or other personnel of
Company located in the Restricted Territory to terminate, alter or lessen that
party's affiliation with Company or to violate the terms of any agreement or
understanding between such party and Company. For purposes of the preceding
sentence "key" employees, consultants, contractors or other personnel of Company
are those with knowledge of or access to Company's Trade Secrets or Confidential
Information.
5.7 REMEDIES. Executive agrees that damages at law for Executive's
violation of any of the covenants in this Section 5 would not be an adequate or
proper remedy and that, should Executive violate or threaten to violate any of
the provisions of such covenants, Company or its successors or assigns shall be
entitled to obtain a temporary or permanent injunction against Executive in any
court having jurisdiction prohibiting any further violation of any such
covenants, in addition to any award or damages (compensatory, exemplary or
otherwise) for such violation.
5.8 PARTIAL ENFORCEMENT. Company has attempted to limit the rights of
Executive to compete only to the extent necessary to protect Company from unfair
competition. Company, however, agrees that, if the scope of enforceability of
any of these restrictive covenants is in any way disputed at any time, a court
or other trier of fact may modify and enforce such covenant to the extent that
it believes to be reasonable under the circumstances existing at the time.
5.9 SURVIVAL. Notwithstanding any expiration or termination of this
Agreement, the provisions of this Section 5 shall survive and remain in full
force and effect, as shall any other provision hereof that, by its terms or
reasonable interpretation thereof, sets forth obligations that extend beyond the
termination of this Agreement.
SECTION 6. RIGHTS ON TERMINATION
(a) If Executive voluntarily resigns his employment or is terminated
for Cause, or dies or is terminated due to becoming Disabled, Executive
shall be entitled only to receive any salary and bonus amounts that have
accrued prior to the effective date of termination of the Term (the
"Termination Date").
(b) If Company terminates the Term pursuant to Section 2.2(d)(ii), or
if Executive terminates the Term following a Change of Control
pursuant to Section 2.2(e), Executive shall be entitled to: (a) all salary
and bonus amounts accrued through the Termination Date, and (b) payment,
for a period of twelve (12) months following the Termination Date, of an
amount equal to: (i) Executive's base salary as of the Termination Date
(with
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such payments to be made at such times as they would be made if
Executive's employment continued for an additional year) LESS (ii) any
salary or other amounts that Executive is paid by any other person during
that twelve month period (and Executive hereby agrees to take reasonably
diligent action to secure employment as soon as practicable after any such
termination from Company and to otherwise mitigate his losses resulting
from the loss of salary from Company). Executive's rights to any of the
compensation or benefits identified in the preceding sentence shall be
subject to Executive's compliance in all respects of each of Executive's
obligations under this Agreement.
(c) In the event that Company (or Company's successor) following a
Change of Control (as defined below) terminates Executive's employment
other than pursuant to an express termination right under Sections 2.2(a),
(b) or (c) of this Agreement, Executive shall be entitled to severance
compensation in the form of a lump sum payment in an amount equal to two
(2) times the taxable compensation received by Executive during the most
recently concluded fiscal year of Company. For purposes of this Agreement,
"Change of Control" shall mean the acquisition by any single person or
entity or related persons or entities of more than fifty percent (50%) of
the outstanding and issued common stock of Company following an initial
public offering of Company's common stock.
SECTION 7. MISCELLANEOUS.
7.1 BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors,
representatives, heirs, and permitted assigns.
7.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
7.3 HEADINGS. The titles, captions and headings contained in this Agreement
are inserted by convenience of reference only and are not intended to be a part
of or to affect in any way the meaning or interpretation of this Agreement.
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7.4 NOTICES.
(a) All notices, consents, requests and other communications hereunder
shall be in writing and shall be sent by hand delivery, by certified or
registered mail (return-receipt requested), by facsimile or by a recognized
national overnight courier service as set forth below:
If to Company: Physicians' Specialty Corporation
3414 Peactree Road, Suite 238
Atlanta, Georgia 30326
Fax No.: (404) 816-1456
Attn: Gerald R. Benjamin
with a copy to: Troutman Sanders LLP
600 Peachtree Street, N.E.
5200 NationsBank Plaza
Atlanta, Georgia 30308-2216
Fax No.: 404-885-3900
Attn: Richard H. Brody, Esq.
If to Executive: Richard D. Ballard
5555 Peactree Dunwoody Road, Suite 235
Atlanta, Georgia 30342
Fax No.: (404) 233-2188
(b) Notices delivered pursuant to this Section 7.4(a) hereof shall be
deemed given: at the time delivered, if personally delivered, three (3) business
days after being deposited in the mail, if mailed; one (1) business day after
being sent, if faxed; and one (1) business day after timely delivery to the
courier, if by overnight courier service.
(c) Either party hereto may change the address to which notice is to be
sent by written notice to the other party hereto in accordance with this Section
7.4
7.5 COUNTERPARTS; FAX SIGNATURES. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute the same Agreement. Any signature page of any
such counterpart, or any electronic facsimile thereof, may be attached or
appended to any other counterpart to complete a fully executed counterpart of
this Agreement, and any telecopy or other facsimile transmission of any
signature shall be deemed an original and shall bind such party.
7.6 ENTIRE AGREEMENT. This Agreement is intended by the parties hereto to
be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof,
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
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7.7 SEVERABILITY. The unenforceability or invalidity of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions hereof, but such remaining provisions shall be construed and
interpreted in such a manner as to carry out fully the intent of the parties
hereto; provided, however, that should any judicial body interpreting this
Agreement deem any provision hereof to be unreasonably broad in time, territory,
scope or otherwise, it is the intent and desire of the parties hereto that such
judicial body, to the greatest extent possible, reduce the breadth of such
provision to the maximum legally allowable parameters rather than deeming such
provision totally unenforceable or invalid.
7.8 WAIVER. No waiver, termination or discharge of this Agreement, or any
of the terms or provisions hereof, shall be binding upon either party hereto
unless confirmed in writing. No waiver by either party hereto of any term or
provision of this Agreement or of any default hereunder shall affect such
party's right thereafter to enforce such term or provision or to exercise any
right or remedy in the event of any other default, whether or not similar.
7.9 INTERPRETATION. Should a provision of this Agreement require judicial
interpretation, it is agreed that the judicial body interpreting or construing
the Agreement shall not apply the assumption that the terms hereof shall be more
strictly construed against one party by reason of the rule of construction that
an instrument is to be construed more strictly against the party which itself or
through its agents prepared the agreement, it being agreed that all parties
and/or their agents have participated in the preparation of this Agreement
equally.
7.10 APPLICABLE LAW. Should any provision of this Agreement, including,
without limitation, any provision relating to compensation, be found to be in
violation of any applicable law, rule or regulation, the parties hereto agree to
execute an amendment to this Agreement to bring such provision into compliance
with any such law, rule or regulation, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
"Company"
PHYSICIANS' SPECIALTY CORP.
By:
Name:
Its:
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"Executive"
RICHARD D. BALLARD
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EXHIBIT 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), made and entered into
this 26th day of November, 1996, by and between GERALD R. BENJAMIN, an
individual resident of the State of Georgia (hereinafter referred to as
"Executive"), and PHYSICIANS' SPECIALTY CORP., a corporation organized under
the laws of the State of Delaware (hereinafter referred to as "Company");
W I T N E S S E T H:
WHEREAS, Company is engaged in the business (the "Business") of providing
management and business services to, and acquiring assets of otolaryngology
("ENT") and complementary specialty physician practices;
WHEREAS, the Board of Directors of Company (the "Board of Directors")
recognizes Executive's substantial skills and expertise in the Business and
desires to provide for the employment of Executive on the terms and conditions
herein provided;
WHEREAS, Executive is willing to commit himself to serve Company on the
terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, Company and Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
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SECTION 1. SCOPE OF EMPLOYMENT.
1.1 EMPLOYMENT. Subject to terms hereof, Company hereby agrees to the
employment of Executive during the "Term" (as defined in Section 2.1), and
Executive hereby accepts such employment. Executive shall hold the office of
Vice Chairman of Company and, as such, shall perform the executive-level
services (collectively, "Services") described in Company's Bylaws and as
delegated to him by the Board of Directors. Such duties shall include, among
others, initiating, evaluating and consummating strategic acquisitions in
concert with Company personnel and consultants on behalf of Company. Company
agrees to nominate Executive for membership on the Board of Directors for the
duration of the Term, and, if Executive is elected as a director, he shall be
entitled to serve on the Audit and Executive Committees of the Board of
Directors (if such committees are established). Executive's serving on the
Board of Directors shall be deemed to be part of the "Services".
1.2 PLACE OF PERFORMANCE. During the Term, Executive shall be based in
Atlanta, Georgia at the principal executive offices of Company, except for
reasonably required travel on business.
1.3 COMPLIANCE WITH POLICIES. Subject to the terms of this Agreement,
during the Term Executive shall comply in all material respects with all
policies and procedures applicable to senior executives of Company generally
and to Executive specifically.
1.4 ACKNOWLEDGEMENT OF POSSIBLE ENGAGEMENT OF PREMIER HEALTHCARE.
Executive's employment pursuant to this Agreement shall in no way preclude the
Company from engaging Executive's investment banking firm, Premier Healthcare,
from performing corporate finance, corporate development and/or merger and
acquisition advisory services on behalf of the Company. The engagement of
Premier Healthcare by the Company, if engaged, shall be memorialized in
writing, and shall be separate and apart from the terms of this Employment
Agreement.
SECTION 2. TERM; TERMINATION.
2.1 TERM. The initial term of Executive's employment under this Agreement
(the "Initial Term") shall be a three (3) year period commencing on the date
when the registration statement for the issuance of shares of common stock of
the Company is declared effective by the Securities and Exchange Commission
(the "Effective Date). If the Effective Date shall not have occurred by March
31, 1997, either Executive or Company may terminate this Agreement on written
notice to the other. After the Initial Term, Executive's employment under this
Agreement shall automatically renew for successive additional one (1) year
("Renewal Terms") terms (the Initial Term and any Renewal Terms being
collectively referred to as the "Term"). The Term shall be subject to
termination in accordance with Section 2.2.
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2.2 TERMINATION.
(A) DEATH. This Agreement shall automatically and immediately terminate
upon the death of Executive.
(B) DISABILITY. This Agreement may be terminated by either party hereto
upon written notice to the other in the event Executive becomes "Disabled" (as
hereinafter defined). For purposes of this Agreement, "Disabled" shall be
defined as either: (a) the reasonable, good faith determination by an
independent physician selected by the Board of Directors of Company that due to
a mental or physical impairment or disability, Executive has been incapable or
unable, even with reasonable accommodations, to fully perform the material
duties performed by Executive for Company immediately prior to such disability
for a period of at least one hundred eighty (180) days in the aggregate
(although not necessarily consecutively) within any consecutive three hundred
sixty-five (365)-day period; or (b) a determination that Executive is disabled
pursuant to the terms of any long-term disability insurance policy which
Company or Executive has purchased and which covers Executive.
(C) CAUSE. In addition to any other rights or remedies available to
Company at law, in equity or pursuant hereto, Company may, in its sole
discretion, terminate Executive's employment for "Cause" (as hereinafter
defined) effective immediately upon delivery of written notice to Executive.
For purposes of this Agreement, "Cause" shall mean any of:
(i) the imposition by any governmental authority of any material
restriction or limitation on Executive's ability to perform his services
hereunder;
(ii) (A) Executive has committed an act constituting fraud, deceit
or material misrepresentation with respect to Company or any client,
customer or supplier of Company; or (B) Executive has embezzled funds or
assets from Company or any client or customer of Company;
(iii) Executive's breach or default in the performance of any
material provision of this Agreement which Executive has not cured or
corrected to Company's reasonable satisfaction within thirty (30) days
after receiving notice of such breach or default (provided that any
breach by Executive of any obligation under Section 5.4 shall be grounds
for immediate termination "For Cause" without any notice or right to cure
or correct); or
(iv) (A) Executive has engaged in willful misconduct or fraud or
gross negligence; or (B) Executive's conduct is materially detrimental to
the reputation, character or standing of Company.
(D) DISCRETIONARY TERMINATION.
(i) Either Company or Executive may terminate the Term effective as
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of the end of the Initial Term or the then-current Renewal Term by
providing the other with written notice of termination at least sixty
(60) days prior to the end of the Initial Term or then current Renewal
Term, as the case may be. In the event of Termination under this Section
2.2(d)(i), Executive shall not be entitled to any severance benefit under
Section 6.
(ii) The Company shall have the right to terminate the Term and
Executive's employment hereunder without cause at any time upon notice to
Executive. In such event, Executive shall be entitled to the severance
benefit provided in Section 6(b), unless such termination without cause
follows a Change of Control, in which event Executive shall be entitled
to the severance benefit provided in Section 6(c).
(E) CHANGE OF CONTROL. Executive may terminate the Term following a
Change of Control (as defined in Section 6(c)), by providing Company at least
thirty (30) days prior written notice of termination.
(F) GOOD REASON. Executive shall have the right to terminate this
Employment Agreement for "Good Reason." For purposes hereof, Good Reason shall
be limited to the repeated material breach by the Company of its material
obligations to Executive which the Company fails to correct or cure within a
period of forty-five (45) days after being provided with written notice by
Executive of such material breach.
SECTION 3. CASH COMPENSATION; EXPENSE.
3.1 BASE SALARY. Executive shall be paid a base salary (the "Base
Salary") during the Term at an initial rate of Sixty Thousand Dollars ($60,000)
per twelve (12) month period. The Base Salary shall be (a) payable in equal
installments on the schedule that Company may implement from time to time for
general payroll purposes, and (b) subject to any withholdings and deductions
required by applicable law.
3.2 BONUS. During the Term, Executive shall be eligible to be considered
for a periodic bonus (the "Bonus") of up to 50% of his Base Salary per annum,
based on Company's meeting certain milestones relating to such matters as
practice acquisitions, consolidated operating income levels, consummation of
follow-on financings and management team development; provided, however, that
the Bonus shall be subject to the Compensation Committee of the Board of
Directors adopting and ratifying such a bonus program and approving the
periodic Bonus grants to Executive.
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SECTION 4. ADDITIONAL EXECUTIVE BENEFITS.
4.1 BENEFIT PLANS. During the Term, Executive shall be entitled to
participate in the group medical, 401k and the other employee benefit plans
adopted by the Board of Directors (or appropriate committee thereof) for
participation for Executive subject to the terms and conditions of such plans
(collectively, the "Benefit Plans"). Company shall have the right to purchase
in Executive's name a "key man" life insurance policy naming Company as sole
beneficiary under the policy. Company shall be the sole owner of such policy.
4.2 VACATION, BENEFITS. Executive shall be entitled to three (3) paid
weeks of vacation per year during the Term, to be accrued and taken in
accordance with a policy that is consistent with Company's normal vacation
policy applicable to senior executive employees. Executive shall be entitled
to have his reasonable travel expenses reimbursed by Company provided such
expenses are incurred solely in connection with the Services and provided
Executive furnishes Company with reasonable supporting documentation.
5. NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION COVENANTS.
5.1 DEFINITIONS. For purposes of this Section 5, the following terms
shall have the following respective meanings:
(a) "Competitive Position" shall mean (i) the direct or indirect
equity ownership (excluding ownership of less than 5% of the equity of an
entity whose equity is listed on a major U.S. exchange or traded on the
NASDAQ over-the-counter market) or control of all or any portion of a
"Competitor" (as hereinafter defined), or (ii) any employment,
consulting, partnership, advisory, directorship, agency, promotional or
independent contractor arrangement between Executive and any Competitor
whereby Executive is required to perform services substantially similar
to those that he is to perform for Company hereunder. Notwithstanding
anything to the contrary, Executive shall continue to serve as Chief
Executive Officer of Premier Healthcare, and will regularly represent
clients affiliating with physician practice management companies
("PPM's"), along with representing PPM's focusing on primary care and
specialty physician practice acquisitions other than ENT practice and
physician practices in complementary specialty fields.
(b) "Competitor" shall refer to any person or entity engaged, wholly
or partly, in the Business.
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(c) "Confidential Information" shall mean any and all proprietary
and confidential data or information of Company or any of its affiliates,
other than "Trade Secrets" (as hereinafter defined), which is of tangible
or intangible value to Company or any of its affiliates and is not public
information or is not generally known or available to Company's
competitors but is known only to Company or its affiliates and their
employees, independent contractors or agents to whom it must be confided
in order to apply it to the uses intended.
(d) "Restricted Territory" shall mean all areas within a twenty (20)
mile radius of the Company's principal office in Atlanta, Georgia. The
Parties intend for the "Restricted Territory" during the entire Term to
include a twenty (20) mile radius of all other United States cities where
Company is engaged in the Business, throughout which territory the
Parties acknowledge Executive will be performing his employment
responsibilities on behalf of Company. As of the Effective Date, those
cities include Atlanta, Georgia and Memphis, Tennessee. If applicable
law permits a deemed or automatic amendment to the definition of
"Restricted Territory," then as soon as Company begins to engage in the
Business in any additional city, the definition of "Restricted Territory"
under this Agreement shall be deemed automatically amended to include the
city limits of any such additional cities and a twenty (20) mile radius
of those cities. If applicable law does not permit a deemed or automatic
amendment to the definition of "Restricted Territory" under those
circumstances, then the Parties agree that when Company begins to engage
in Business in additional cities, they will promptly execute amendments
to this Agreement to include those additional cities in the definition of
"Restricted Territory."
(e) "Trade Secrets" shall mean all knowledge, data and information
of Company or any of its affiliates which is defined as a "trade secret"
under applicable law.
(f) "Work Product" shall mean all work product, property, data,
documentation, "know-how", concepts, plans, inventions, improvements,
techniques, processes or information of any kind, prepared, conceived,
discovered, developed or created by Executive in connection with the
performance of his services hereunder.
5.2 ACKNOWLEDGMENTS. Executive hereby acknowledges and agrees that during
the term of this Agreement (i) Executive will frequently be exposed to certain
Trade Secrets and Confidential Information; (ii) Executive's responsibilities
on behalf of Company will extend to all geographical areas of the Restricted
Territory; and (iii) any competitive activity on Executive's part during the
Term, or any competitive activity on Executive's part in the Restricted
Territory for a reasonable period thereafter, would necessarily involve
Executive's use of Company's Trade Secrets and Confidential Information and
would unfairly threaten Company's legitimate business interests, including its
substantial investment in the proprietary aspects of its business and its
associated goodwill. Moreover, Executive acknowledges that, in the event of the
termination of this Agreement, Executive would have sufficient skills to find
alternative, commensurate work in his field of expertise that would not involve
a violation of any of the provisions of this Section 5.
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Therefore, Executive acknowledges and agrees that it is reasonable for Company
to require Executive to abide by the covenants set forth in this Section 5.
The parties acknowledge and agree that if the nature of Executive's
responsibilities for or on behalf of Company or the geographical areas in which
Executive must fulfill such responsibilities materially change, the parties
will execute appropriate amendments to the scope of the covenants in this
Section 5.
5.3 NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY.
(a) In recognition of Company's need to protect its legitimate
business interests, Executive hereby covenants and agrees that: (A) with
regard to each item constituting a Trade Secret, at all times during
which such item shall constitute a Trade Secret (before or after the
Term); and (B) with regard to any Confidential Information, at all times
during the term of this Agreement and for a period of three (3) years
following the expiration or termination of the Term for any reason,
Executive shall regard and treat each item constituting a Trade Secret
and all Confidential Information as strictly confidential and wholly
owned by Company and will not, for any reason, in any fashion, either
directly or indirectly, use, sell, lend, lease, distribute, license,
give, transfer, assign, show, disclose, disseminate, reproduce, copy,
misappropriate or otherwise communicate any such item or information to
any third party for any purpose other than in connection with his
performance of services for the Company or as required by applicable law.
(b) Executive shall immediately notify Company of any intended or
unintended, unauthorized disclosure or use of any Trade Secrets or
Confidential Information by Executive or any other person or entity of
which Executive becomes aware. Executive shall cooperate fully with
Company in the procurement of any protection of Company's rights to or in
any of the Trade Secrets or Confidential Information.
(c) Immediately upon expiration or termination of the Term for any
reason, or if notice of termination is required hereunder, upon receipt
of such notice, or at any time after such termination or notice upon the
specific request of Company, Executive shall return to Company all
written or descriptive materials of any kind in Executive's possession or
to which Executive has access that constitute or contain any Confidential
Information or Trade Secrets, and the confidentiality obligations
described in this Agreement shall continue until their expiration under
the terms of this Agreement.
(d) To the greatest extent possible, any Work Product shall be
deemed to be "work made for hire" (as defined in the Copyright Act, 17
U.S.C.A. Section 101 et seq., as amended) and owned exclusively by
Company. Executive hereby unconditionally and irrevocably transfers and
assigns to Company all rights, title and interest Executive currently has
or in the future may have, by operation of law or otherwise, in or to any
Work Product, including, without limitation, all patents, copyrights,
trademarks, service marks and other intellectual property rights.
Executive agrees to execute and deliver to Company any transfers,
assignments, documents or other instruments which Company may deem
necessary or appropriate to vest complete title and ownership of any Work
Product, and all rights therein, exclusively in Company.
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5.4 NON-COMPETITION. In recognition of Company's need to protect its
legitimate business interests, Executive hereby covenants and agrees that
during the Term, Executive will not, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
furtherance of a Competitive Position. Executive further agrees that for
eighteen (18) months following expiration or termination of the Term for any
reason other than termination by Executive for Good Reason, Executive will not,
either directly or indirectly, alone or in conjunction with any other party,
accept, enter into or take any action in furtherance of a Competitive Position
within the Restricted Territory (other than action to reject an offer of a
Competitive Position or to notify Company of the offer pursuant to the
requirements of the next sentence of this Section 5.4). Executive shall notify
Company promptly in writing if Executive receives an offer of a Competitive
Position within eighteen (18) months following expiration or termination of the
Term for any reason, and such notice shall describe all salient terms of such
offer.
5.5 NON-SOLICITATION OF CUSTOMERS. Executive hereby covenants and agrees
that (i) during the Term, Executive will not, either directly or indirectly,
alone or in conjunction with any other party, solicit, divert or appropriate or
attempt to solicit, divert or appropriate any medical practice managed by
Company (a "Managed Practice") or actively sought prospective Managed Practice
for the purpose of providing such Managed Practice or actively sought
prospective Managed Practice with management services competitive with those
offered by Company; and (ii) for a period of two (2) years following expiration
or termination of the Term for any reason other than termination by Executive
for Good Reason, Executive will not, either directly or indirectly, alone or in
conjunction with a Competitor or any other party, solicit, divert or
appropriate, or attempt to solicit, divert or appropriate any Managed Practice
or actively sought prospective Managed Practice for the purpose of providing
(or having a Competitor or any other person provide) such Managed Practice or
actively sought prospective Managed Practice with management services
competitive with those offered by Company. Executive shall promptly notify
Company in writing if: (A) during the two (2) years following the expiration or
termination of the Term for any reason, Executive is contacted by any Managed
Practice or actively sought prospective Managed Practice with a request that
Executive provide Managed Practice with any management services; and (B)
provision of such services, as requested, would constitute a violation of
Executive's covenants in this Section 5. Such notice shall include all salient
information associated with such customer's request, including, without
limitation, the identity of such Managed Practice, the exact services or
products requested and the party or parties on behalf of such Managed Practice
who contacted Executive.
5.6 NONSOLICITATION OF COMPANY PERSONNEL. Executive hereby agrees that
during the Term, except to the extent that he is required to do so in
connection with his responsibilities hereunder, Executive will not, either
directly or indirectly, alone or in conjunction with any other party, solicit
or attempt to solicit any employee, consultant, contractor or other personnel
of Company to terminate, alter or lessen such party's affiliation with Company
or to violate the terms of any agreement or understanding between such party
and Company. Executive further agrees that during the two (2) year period
following expiration or termination of the Term for any reason other than
termination by Executive for Good Reason, Executive will not, either directly
or
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indirectly, alone or in conjunction with any other party, solicit or attempt
to solicit any "key" (as that term is hereinafter defined) employee,
consultant, contractor or other personnel of Company located in the Restricted
Territory to terminate, alter or lessen that party's affiliation with Company
or to violate the terms of any agreement or understanding between such party
and Company. For purposes of the preceding sentence "key" employees,
consultants, contractors or other personnel of Company are those with knowledge
of or access to Company's Trade Secrets or Confidential Information.
5.7 REMEDIES. Executive agrees that damages at law for Executive's
violation of any of the covenants in this Section 5 would not be an adequate or
proper remedy and that, should Executive violate or threaten to violate any of
the provisions of such covenants, Company or its successors or assigns shall be
entitled to obtain a temporary or permanent injunction against Executive in any
court having jurisdiction prohibiting any further violation of any such
covenants, in addition to any award or damages (compensatory, exemplary or
otherwise) for such violation.
5.8 PARTIAL ENFORCEMENT. Company has attempted to limit the rights of
Executive to compete only to the extent necessary to protect Company from
unfair competition. Company, however, agrees that, if the scope of
enforceability of any of these restrictive covenants is in any way disputed at
any time, a court or other trier of fact may modify and enforce such covenant
to the extent that it believes to be reasonable under the circumstances
existing at the time.
5.9 SURVIVAL. Notwithstanding any expiration or termination of this
Agreement, the provisions of this Section 5 shall survive and remain in full
force and effect, as shall any other provision hereof that, by its terms or
reasonable interpretation thereof, sets forth obligations that extend beyond
the termination of this Agreement.
SECTION 6. RIGHTS ON TERMINATION
(a) If Executive voluntarily resigns his employment or is
terminated for Cause, or dies or is terminated due to becoming disabled,
Executive shall be entitled only to receive any salary and bonus amounts
that have accrued prior to the effective date of termination of the Term
(the "Termination Date").
(b) If Company terminates the Term pursuant to Section 2.2(d)(ii),
or if Executive terminates the Term following a Change of Control
pursuant to Section 2.2(e), Executive shall be entitled to: (a) all
salary and bonus amounts accrued through the Termination Date, and (b)
payment, for a period of twelve (12) months following the Termination
Date, of an amount equal to: (i) Executive's base salary as of the
Termination Date (with such payments to be made at such times as they
would be made if Executive's employment continued for an additional year)
less (ii) any salary or other amounts that Executive is paid by any other
person during that twelve month period other than salary or amounts paid
to Executive by Bock, Benjamin & Co. (and Executive hereby agrees to take
reasonably diligent action to secure employment as soon as practicable
after any such termination from Company and to otherwise mitigate his
losses resulting from the loss of salary from Company). Executive's
rights to any of the compensation or benefits
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identified in the preceding sentence shall be subject to Executive's
compliance in all respects of each of Executive's obligations under this
Agreement.
(c) In the event that Company (or Company's successor) following a
Change of Control (as defined below) terminates Executive's employment
other than pursuant to an express termination right under Sections
2.2(a), (b) or (c) of this Agreement, Executive shall be entitled to
severance compensation in the form of a lump sum payment in an amount
equal to two (2) times the taxable compensation received by Executive
during the most recently concluded fiscal year of Company. For purposes
of this Agreement, "Change of Control" shall mean the acquisition by any
single person or entity or related persons or entities of more than fifty
percent (50%) of the outstanding and issued common stock of Company
following an initial public offering of Company's common stock.
SECTION 7. MISCELLANEOUS.
7.1 BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors,
representatives, heirs, and permitted assigns.
7.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
7.3 HEADINGS. The titles, captions and headings contained in this
Agreement are inserted by convenience of reference only and are not intended to
be a part of or to affect in any way the meaning or interpretation of this
Agreement.
7.4 NOTICES.
(a) All notices, consents, requests and other communications hereunder
shall be in writing and shall be sent by hand delivery, by certified or
registered mail (return-receipt requested), by facsimile or by a recognized
national overnight courier service as set forth below:
If to Company Physicians' Specialty Corporation
or Executive: 3414 Peachtree Road, Suite 238
Atlanta, Georgia 303
Fax No.: (404) 816-1456
Attn: Gerald R. Benjamin
with a copy to: Troutman Sanders LLP
600 Peachtree Street, N.E.
5200 NationsBank Plaza
Atlanta, Georgia 30308-2216
Fax No.: 404-885-3900
Attn: Richard H. Brody, Esq.
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(b) Notices delivered pursuant to this Section 7.4(a) hereof shall be
deemed given: at the time delivered, if personally delivered, three (3)
business days after being deposited in the mail, if mailed; one (1) business
day after being sent, if faxed; and one (1) business day after timely delivery
to the courier, if by overnight courier service.
(c) Either party hereto may change the address to which notice is to be
sent by written notice to the other party hereto in accordance with this
Section 7.4.
7.5 COUNTERPARTS; FAX SIGNATURES. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute the same Agreement. Any signature page of
any such counterpart, or any electronic facsimile thereof, may be attached or
appended to any other counterpart to complete a fully executed counterpart of
this Agreement, and any telecopy or other facsimile transmission of any
signature shall be deemed an original and shall bind such party.
7.6 ENTIRE AGREEMENT. This Agreement is intended by the parties hereto to
be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof,
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
7.7 SEVERABILITY. The unenforceability or invalidity of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions hereof, but such remaining provisions shall be construed and
interpreted in such a manner as to carry out fully the intent of the parties
hereto; provided, however, that should any judicial body interpreting this
Agreement deem any provision hereof to be unreasonably broad in time,
territory, scope or otherwise, it is the intent and desire of the parties
hereto that such judicial body, to the greatest extent possible, reduce the
breadth of such provision to the maximum legally allowable parameters rather
than deeming such provision totally unenforceable or invalid.
7.8 WAIVER. No waiver, termination or discharge of this Agreement, or any
of the terms or provisions hereof, shall be binding upon either party hereto
unless confirmed in writing. No waiver by either party hereto of any term or
provision of this Agreement or of any default hereunder shall affect such
party's right thereafter to enforce such term or provision or to exercise any
right or remedy in the event of any other default, whether or not similar.
7.9 INTERPRETATION. Should a provision of this Agreement require judicial
interpretation, it is agreed that the judicial body interpreting or construing
the Agreement shall not apply the assumption that the terms hereof shall be
more strictly construed against one party by reason of the rule of construction
that an instrument is to be construed more strictly against the party which
itself or through its agents prepared the agreement, it being agreed that all
parties and/or their agents have participated in the preparation of this
Agreement equally.
7.10 APPLICABLE LAW. Should any provision of this Agreement, including,
without limitation, any provision relating to compensation, be found to be in
violation of any applicable
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law, rule or regulation, the parties hereto agree to execute an amendment to
this Agreement to bring such provision into compliance with any such law, rule
or regulation, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
"Company"
PHYSICIANS' SPECIALTY CORP.
By:
Name:
Its:
"Executive"
GERALD R. BENJAMIN
--------------------------------
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EXHIBIT 10.6
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by an * and [ ], have been
separately filed with the Commission.
MANAGEMENT SERVICES AGREEMENT
by and among
New Atlanta Ear, Nose & Throat Associates, P.C.,
PSC Management Corp.
and
Physicians' Specialty Corp.
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MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT, effective as of ________, 1996 (the
"Effective Date"), by and among NEW ATLANTA EAR, NOSE & THROAT ASSOCIATES,
P.C., a Georgia professional corporation (the "Practice"); PSC MANAGEMENT
CORP., a Delaware corporation ("Manager"); and PHYSICIANS' SPECIALTY CORP., a
Delaware corporation ("Parent").
WITNESSETH:
WHEREAS, Manager is a wholly-owned subsidiary of Parent and is in the
business of managing medical practices and providing management services to
individual physicians and physician practice groups;
WHEREAS, pursuant to an Asset Purchase Agreement dated as of November 26,
1996, between Atlanta Ear, Nose & Throat Associates, P.C. and its shareholders
and Manager (the "Asset Purchase Agreement"), Manager has purchased
substantially all the assets utilized by Practice in connection with the
medical practice conducted by Atlanta Ear, Nose & Throat Associates, P.C.
WHEREAS, subject to the terms and conditions of this Agreement, Practice
desires to engage Manager to provide to Practice management services,
facilities, personnel, equipment and supplies necessary for the medical
practice conducted by Practice, and Manager desires to accept such engagement;
WHEREAS, the basis for the financial considerations provided in this
Agreement are derived from the revenues to be generated by the medical practice
of Practice, the basis for which has been documented by Atlanta Ear, Nose &
Throat Associates, P.C. and delivered to Manager prior to the formation and
agreement of such financial considerations; and
WHEREAS, Parent joins in this Agreement to guarantee the performance by
Manager of its obligations hereunder.
NOW THEREFORE, in consideration of the premises and the covenants
contained in this Agreement, and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties to this Agreement, Practice, Manager and Parent (collectively, the
"Parties") hereby agree as follows:
SECTION 1. KEY DEFINITIONS.
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For purposes of this Agreement, the following are certain important
defined terms used in this Agreement (a complete list of defined terms is set
forth on Appendix A.
1.1 GAAP. The term "GAAP" shall mean generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants, in
statements and pronouncements of the Financial Accounting Standards Board, in
such other statements by such other entity, or other practices and procedures
as may be approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of determination. For
purposes of this Agreement, GAAP shall be applied in a manner consistent with
the practices used by Parent and Manager.
1.2 NET PRACTICE REVENUES. The term "Net Practice Revenues" shall mean
all revenues, computed on an accrual basis as defined by GAAP, (after taking
into account adjustments for uncollectible accounts, discounts, Medicare,
Medicaid, workers' compensation, professional courtesy discounts and other
write-offs) generated by or on behalf of Practice or its employees as a result
of professional medical services furnished to patients, and other fees or
income generated by such persons in their capacity as Physician Shareholders,
Practice Employees and employees of Practice, whether rendered in an inpatient
or outpatient setting and whether generated from health maintenance
organizations, preferred provider organizations, Medicare, Medicaid or rendered
to other patients, including, but not limited to, payments received under any
capitation arrangement. The term "Net Practice Revenues" shall also include
any ancillary services revenues for services provided at the Medical Offices.
1.3 PHYSICIAN EXPENSES. The term "Physician Expenses" is defined in
Section 4.1 of this Agreement.
1.4 PHYSICIAN SHAREHOLDERS. The term "Physician Shareholders" shall mean
those individuals who are duly licensed to practice medicine in the State and
who are shareholders of Practice.
1.5 PRACTICE EMPLOYEES. The term "Practice Employees" shall mean: (a)
those individuals who are duly licensed to practice medicine in the State and
who are employees of Practice (other than Physician Shareholders), or those
individuals who are otherwise under contract with Practice to provide physician
and/or medical services to patients, specifically including nurse
practitioners, certified registered nurse anesthetists, physician assistants,
Fellows, surgical assistants, certified nurse midwives, individuals with a
Masters in Social Work degree, physical therapists, and psychologists with a
Masters or a Doctorate degree; and (b) those individuals (other than those
described in Section 1.5(a)) required by law, regulatory authority or policy as
of the Effective Date, who must be billed through and by a licensed physician
and who are therefore required to be employees of the Practice.
1.6 PRACTICE EXPENSES. The term "Practice Expenses" shall mean all
expenses incurred in the operation of the medical practice of Practice at the
Medical Offices (as defined in Section 3.1) or otherwise, whether by Manager or
by Practice, including, but not limited to: (a)
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The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
depreciation, amortization, salaries, benefits and other direct costs of all
employees and independent contractors of Practice (but not including salaries,
benefits or other direct costs of Practice Employees (as defined in Section
1.5) or Physician Shareholders (as defined in Section 1.4)); (b) rent and other
obligations under leases or subleases for the Medical Offices and equipment
used by Practice; (c) personal property taxes and intangible taxes assessed
against assets used by Practice (d) charitable contributions budgeted and
approved by Manager and Practice; (e) interest expense on indebtedness of or
specifically related to the medical practice of Practice, including, without
limitation, capital expenditures; (f) utility expenses relating to the Medical
Offices; (g) subject to the limitation of Section 3.18, [*] of Net Practice
Revenues (as defined in Section 1.2), such amount to be retained by Manager as
payment for its services and non-allocable costs incurred by Manager
attributable to the provision of management services; (h) other expenses
incurred by Practice or Manager in carrying out their respective obligations
under this Agreement, except as otherwise provided herein; (i) amounts paid by
Manager in reimbursement of Practice, pursuant to Section 4.1, for salaries and
benefits paid by Practice for those individuals described in Section 1.5(b);
and (j) any reserves reasonably deemed prudent by Manager for anticipated costs
or expenses of the medical practice of Practice.
The term "Practice Expenses" shall not include, among other things: (1)
any federal, state or local income taxes of Practice or Manager, or the costs
of preparing federal, state or local tax returns; (2) any salaries or benefits
payable to Practice Employees or Physician Shareholders, except as covered
under subsection (i) above; (3) physician licensure fees, board certification
fees and costs of membership in professional associations for Practice
Employees and Physician Shareholders; (4) costs of continuing professional
education for Practice Employees and Physician Shareholders; (5) costs
associated with legal, accounting and professional services incurred by or on
behalf of Practice other than as described in the first sentence of Section
3.11; (6) liability judgments assessed against Practice, Practice Employees or
Physician Shareholders in excess of policy limits; (7) direct personal expenses
of Physician Shareholders or Practice Employees of a kind which are customarily
charged to physician shareholders and practice employees (including, but not
limited to, cellular phone expenses, car allowances, costs of employees
providing personal services to particular Physician Shareholders or Practice
Employees, and like expenses personal in nature); (8) capital expenditures
except to the extent of depreciation and amortization; or (9) any costs or
expenses not designated in this Agreement as being Practice Expenses or costs
and expenses designated as the responsibility of Manager.
Practice Expenses incurred in any budget period in excess of 120% of
budgeted amounts (measured on an aggregate, not line item, basis) resulting in
more than a 20% decrease in the budgeted pre-tax income of Practice shall be
the sole obligation of Manager, unless incurrence of such expenses is approved
by the Advisory Board described in Section 2.1 below, such approval not to be
unreasonably withheld if the expenses are commercially reasonable in nature and
amount under the circumstances.
1.7 STATE. The term "State" shall mean the State of Georgia, which is
where the medical practice of Practice is located.
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SECTION 2. ADVISORY BOARD.
2.1 FORMATION AND OPERATION OF THE ADVISORY BOARD. Manager and Practice
shall establish an Advisory Board responsible for advising Manager in
connection with the development of management and administrative policies for
the overall operation of the medical practice of Practice. The Advisory Board
shall consist of four (4) members. Manager shall designate, in its sole
discretion and from time to time, two (2) members of the Advisory Board.
Practice shall designate, in its sole discretion and from time to time, two (2)
members of the Advisory Board. Except as may otherwise be provided, the act of
a majority of the members of the Advisory Board shall be the act of the
Advisory Board.
2.2 FUNCTIONS OF THE ADVISORY BOARD. The Advisory Board shall review,
evaluate and make recommendations to Practice and Manager with respect to the
following matters:
(a) Annual Budgets. All annual capital and operating budgets
prepared by Manager, as set forth in Sections 3.4 and 3.19, shall be subject to
review and approval by the Advisory Board, which shall make recommendations to
Manager with respect to proposed changes therein.
(b) Physician Employment and Recruitment. The Advisory Board shall
advise Manager and Practice with respect to the types of physicians required
for the efficient operation of the medical practice of Practice and the content
of all physician employment and recruitment contracts to be utilized by
Practice.
(c) Strategic Planning. The Advisory Board shall make
recommendations to Manager regarding the development of long-term strategic
planning objectives for Practice.
(d) Capital Expenditures. The Advisory Board shall make
recommendations to Manager regarding the priority of major capital expenditures
for the medical practice of Practice.
(e) Capital Improvements and Expansion. Any renovation and expansion
plans and capital equipment expenditures with respect to the operations of the
medical practice of Practice shall be reviewed by the Advisory Board and shall
be based, in the judgment of Manager, upon economic feasibility, physician
support, productivity and then-current market conditions.
(f) Provider and Payor Relationships. The Advisory Board shall
review and advise Manager and Practice with respect to the establishment or
maintenance of relationships with institutional healthcare providers and
payors.
(g) Ancillary Services. The Advisory Board shall review and make
recommendations to Manager and Practice regarding the provision of ancillary
services based upon the pricing, access to and quality of such services.
(h) Patient Fees, Collection Policies. At least annually, the
Advisory Board shall review and advise Manager and Practice with respect to the
fee schedule for all physicians
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and ancillary services rendered by Practice.
(i) Advertising. The Advisory Board shall advise Manager with
respect to all advertising and other marketing of services performed at the
Medical Offices of Practice, including design and erection of exterior signs.
(j) Exceptions to Inclusion in Net Practice Revenues. The Advisory
Board will review and make recommendations to Manager and Practice with respect
to the proposed exclusion of any revenue from Net Practice Revenues.
(k) Grievance Referrals. The Advisory Board shall consider, review
and make recommendations to Manager and Practice with respect to any matters
arising in connection with the operations of Practice that are not specifically
addressed in this Agreement and as to which Manager or Practice requests
consideration by the Advisory Board.
Notwithstanding any contrary provision of this Agreement, it is acknowledged
and agreed that other than as provided in Section 2.2(a), recommendations of
the Advisory Board are intended for the advice and guidance of Manager and
Practice and that the Advisory Board does not have the power to bind Manager or
Practice. Where discretion with respect to any matter is vested in Manager
under the terms of this Agreement, Manager shall have ultimate responsibility
for the exercise of such discretion, notwithstanding any recommendation of the
Advisory Board. Manager and Practice shall, however, take such recommendations
of the Advisory Board into account in good faith in the exercise of such
discretion.
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SECTION 3. OBLIGATIONS OF MANAGER.
3.1 PROVISION OF SERVICES. Practice hereby engages Manager for the term
of this Agreement, and Manager hereby accepts such engagement, to provide to
Practice the business management and services, personnel, equipment and
supplies provided for in this Section 3 (collectively "Management Services").
Manager shall provide the Management Services at the medical offices located at
those locations set forth on Exhibit 3.1, or at such other place or places as
may be agreed upon by the parties. The medical offices or such other places
at which the Management Services are to be provided are referred to as the
"Medical Offices."
3.2 MEDICAL OFFICES. Manager shall pay out of Net Practice Revenues all
rent due from the Effective Date forward with respect to the Medical Offices,
and all costs of repairs, maintenance and improvements, telephone, electric,
gas and water utility expenses, insurance, normal janitorial services, refuse
disposal and all other costs and expenses reasonably incurred in connection
with the operations of Practice including, but not limited to, related real or
personal property lease payments and expenses, taxes and insurance. Manager
shall consult with Practice with respect to the condition, use and needs of the
Medical Offices, as expanded, improved or relocated from time to time.
3.3 FURNITURE, FIXTURES AND EQUIPMENT. Manager agrees to provide or have
provided to medical offices those supplies and items of furniture, fixtures and
equipment as are determined by Manager, after consultation with Practice, to be
necessary and/or appropriate for Practice's operations at the Medical Offices
during the term of this Agreement (all such items of furniture, fixtures and
equipment are collectively referred to hereinafter as the "FFE") subject,
however, to the following conditions:
(a) Practice shall have the use of the FFE only during the term of
this Agreement and title to the FFE shall be and remain in Parent, Manager
and/or PSC at all times during such term.
(b) Manager shall be responsible for, and pay for out of Net Practice
Revenues, all repairs, maintenance and replacement of the FFE, except for
repairs, maintenance and replacement necessitated by the negligence of
Practice, its employees and agents.
3.4 FINANCIAL PLANNING AND GOALS. Manager will prepare, in consultation
with Practice, annual capital and operating budgets reflecting, in reasonable
detail anticipated revenues and sources and uses of capital for growth in the
medical practice of Practice.
3.5 BUSINESS OFFICE SERVICES. Practice hereby appoints Manager as its
sole and exclusive manager and administrator of all business functions and
services related to Practice's services during the term of this Agreement.
Without limiting the generality of the foregoing, in providing the Management
Services, Manager shall perform the following functions:
(a) Manager shall evaluate, negotiate and administer all managed care
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contracts on behalf of Practice and shall consult with Practice on all
professional or clinical matters relating thereto.
(b) Manager shall provide ongoing assessment of business activity
including product line analysis, outcomes monitoring and patient satisfaction.
(c) Manager shall be responsible for ordering and purchasing all
medical and office supplies reasonably required in the day-to-day operation of
the medical practice of Practice at the Medical Offices.
(d) Manager shall make application and negotiate for the
procurement of professional liability insurance covering persons in the
coverage amounts set forth in Section 8.1. This coverage shall be made
available to Practice. Practice, however, shall have the right to obtain
coverage from an alternative provider reasonably acceptable to Manager.
(e) Manager shall bill and collect from patients all professional
fees for medical services and for ancillary services performed at the Medical
Offices by Practice and Practice's employees and agents, including, but not
limited to, Physician Shareholders and Practice Employees. Practice hereby
appoints Manager for the term of this Agreement as its true and lawful
attorney-in-fact for the following purposes:
(i) To bill patients in Practice's name and on Practice's
behalf, and in the name and on behalf of all Physician Shareholders and
Practice Employees;
(ii) To collect accounts receivable that are generated by such
billings in Practice's name and on Practice's behalf, and in the name and on
behalf of all Physician Shareholders and Practice Employees;
(iii) Following receipt by Practice, to take possession of
payments from patients, Blue Shield, insurance companies, Medicare, Medicaid
and all other payors with respect to services rendered by Practice, Physician
Shareholders and Practice Employees, and Practice hereby covenants to forward
such payments to Manager for deposit;
(iv) To endorse in the name of Practice, or any Physician
Shareholder or Practice Employee, any notes, checks, money orders, insurance
payments and any other instruments received by Practice as payment of such
accounts receivable; and
(v) To collect in Practice's name and on its behalf, and in
the name and on behalf of all Physician Shareholders and Practice Employees,
all Net Clinic Revenues.
3.6 DEPOSIT OF NET PRACTICE REVENUES. During the term of this Agreement,
all Net Practice Revenues collected shall be received directly by Practice at
the Practice location, and each business day Practice will transfer all
collected Net Practice Revenues into a bank account as specifically directed by
Manager, of which Manager shall be the owner and from which Manager shall have
the sole right to make withdrawals to pay Practice Expenses and Incentive
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Compensation (as defined in Section 5.1) on a monthly basis and, at the
direction of Practice, to transfer pursuant to Section 5.2 remaining Net
Practice Revenues by the fifteenth day of each month in arrears to an account
designated by Practice from which Practice will pay Physician Expenses.
Manager shall maintain its accounting records in such a way as to clearly
segregate Net Practice Revenues from other funds of Manager. Practice and
Manager hereby agree to execute from time to time such documents and
instructions as shall be required by the Credit Facility Lender (as defined in
Section 5.4(b)) and mutually agreed upon to effectuate the foregoing
provisions and to extend or amend such documents and instructions.
3.7 REVENUE REPORTS. Manager shall maintain revenue reports, as
determined by the books and records of Manager, with respect to the operations
of Practice. Revenue reports shall reflect the total gross revenues and Net
Practice Revenues generated by or on behalf of the medial practice of Practice.
Manager shall provide Practice with monthly revenue reports and shall provide
a year-end revenue report for Practice within ninety (90) days after the end of
each calendar year.
3.8 SUPPORT SERVICES. Manager shall provide all reasonable and necessary
computer, management information, bookkeeping, billing and collection services,
accounts receivable and accounts payable management services, laundry, linen,
janitorial and cleaning services and management services to improve efficiency
and workflow systems and procedures, as determined by Manager after
consultation with Practice.
3.9 ADMINISTRATOR. Manager shall provide an Administrator to manage and
administer all of the day-to-day business functions and services of the medical
practice of Practice. The Administrator will be selected by Manager after
prior consultation with Practice, and Manager shall determine the salary and
fringe benefits of the Administrator, but shall consult with Practice with
respect thereto.
3.10 PERSONNEL. Manager shall provide such non-physician personnel as
determined by Manager, after consultation with Practice, to be reasonably
necessary for the effective operation of the medical practice of Practice at
the Medical Offices, subject, however, to the following:
(a) Manager shall provide to Practice all nurses, medical records
personnel and other medical support personnel as requested by Practice and as
shall be reasonably necessary for the operation of Practice's medical practice
at the Medical Offices. As to the nursing and non-physician medical support
personnel provided under this Section 3.10(a), Manager shall determine the
salaries and benefits of all such personnel, but shall consult with Practice
with respect thereto. Manager shall also recommend the assignment of all such
personnel to perform services at the Medical Offices; provided, however, that
Practice shall have the right to approve, based primarily on professional
competence, the assignment of all non-physician medical support personnel to
provide services at the Medical Offices and Manager shall, at Practice's
request, reassign and replace such personnel from time to time who are not, in
Practice's reasonable and good faith judgment, adequately performing the
required professional services.
(b) Manager shall provide to Practice all business office personnel
(i.e.,
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clerical, secretarial, bookkeeping and collection personnel) reasonably
necessary for the maintenance of patient records, collection of accounts
receivable and upkeep of the financial books of account to the extent that same
are required for, and directly related to, the operation of the medical
practice by Practice. As to the personnel provided under this Section, Manager
shall determine the salaries and fringe benefits of all such personnel, but
shall consult with Practice with respect thereto.
(c) In exercising its judgment with regard to personnel as provided in
Section 3.9 and this Section 3.10, Practice agrees not to discriminate against
such personnel on the basis of race, religion, age, sex, disability or national
origin.
(d) In recognition of the fact that personnel provided to Practice
under this Agreement may perform services from time to time for others, this
Agreement shall not prevent Manager from performing such services for others or
restrict Manager from so using such personnel. Manager will make every effort
consistent with sound business practices to honor the specific requests of
Practice with regard to the assignment of such personnel; provided, however,
that except for non-physician medical support personnel, Manager hereby retains
the sole and exclusive decision-making authority regarding all such personnel
assignments.
(e) If Practice requests secretarial, clerical, bookkeeping,
management and non-physician medical support personnel in addition to personnel
determined to be necessary and/or appropriate by Manager, and such personnel
and/or services are provided by mutual agreement between Manager and Practice,
all costs and expenses incurred by Manager in providing such additional
personnel shall be paid to Manager by Practice.
3.11 PROFESSIONAL SERVICES. Manager shall use reasonable efforts to
arrange for or render to Practice such business, legal and financial management
consultation and advice as may be reasonably required or requested by Practice
and directly related to the operations of Practice. Manager shall not be
responsible for any services requested by or rendered to any individual,
employee or agent of Practice not directly related to the operations of
Practice nor shall Manager be responsible for rendering any legal or tax advice
or services or personal financial services to Practice or any employee or agent
of Practice.
3.12 PATIENT AND FINANCIAL RECORDS. Manager shall maintain all files and
records relating to the operation of Practice including, but not limited to,
customary financial records and patient files. The management of all files and
records shall comply with all applicable federal, state and local laws,
statutes, rulings, orders, ordinances and regulations ("Laws"), and all files
and records shall be located so that they are readily accessible for patient
care, consistent with ordinary records management practices. Practice shall
supervise the preparation of, and direct the contents of, patient medical
records, all of which shall be and remain confidential and the property of
Practice. Manager shall have reasonable access to such records and, subject to
applicable Laws and accreditation policies, Manager shall be permitted to
retain true and complete copies of such records. Manager hereby agrees to
preserve the confidentiality of such patient medical records and to use the
information in such records only for the limited purposes necessary to perform
the Management Services and, within the limits of its responsibilities
hereunder, to ensure that
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provision is made for appropriate care for patients of Practice.
3.13 MARKETING SERVICES. Manager shall use its commercially reasonable
efforts to market the medical services provided by Practice. Such marketing
shall be undertaken in a tasteful and professional manner, shall be in
compliance with applicable Laws relating to advertising by the medical
profession, and shall be subject to review by the Advisory Board as set forth
in Section 2.2(i). The parties agree that, at the option of Manager, the
"Physicians' Specialty Corp." name may be included on any or all signage,
letterhead, professional announcements and the like relating to Practice
subject to state law restrictions on the corporate practice of medicine.
3.14 PHYSICIAN RECRUITMENT. At the request of Practice, Manager shall
perform administrative services relating to the recruitment of physicians for
Practice. Practice shall determine the need for additional physicians in
consultation with Manager. All such physicians recruited by Manager and
accepted by Practice shall be shareholders or employees of Practice (if such
physicians are hired as employees) and not of Manager. Any expenses incurred
in the recruitment of physicians shall be treated as Practice Expenses.
Practice agrees that all physicians hired by the Practice shall execute a
Physician Employment Agreement in a form approved by Manager (the "Physician
Employment Agreements"). Practice agrees not to change the form of the
Physician Employment Agreement without Manager's prior written consent.
3.15 EXPANSION OF PRACTICE. Manager will assist Practice in attempting to
add additional office-based procedures, in establishing new satellite office(s)
that are commercially reasonable and beneficial to Practice, as determined by
Practice and Manager to be beneficial to Practice, and in developing
relationships and affiliations with physicians and other specialists,
hospitals, networks, health maintenance organizations, preferred provider
organizations, etc., to assist in the continued growth and development of the
medical practice of Practice. Practice will cooperate with Manager in such
efforts and use its best efforts to assist Manager with respect thereto.
Without limiting the generality of the foregoing, Practice will not enter into
any agreements with respect to any such matters without the prior consent of
Manager.
3.16 PERFORMANCE OF BUSINESS OFFICE SERVICES. Manager is hereby expressly
authorized to perform its business office services hereunder in whatever
reasonable manner it deems appropriate to meet the day-to-day requirements of
the non-medical business functions of Practice's medical practice at the
Medical Offices. Manager may perform some or all of the business office
functions of Practice at locations other than at the Medical Offices.
3.17 FORCE MAJEURE. Manager shall not be liable to Practice for failure
to perform any of the services required under this Agreement in the event of
strikes, lockouts, calamities, acts of God, unavailability of supplies or other
events over which Manager has no control for so long as such event continues
and for a reasonable period of time thereafter.
3.18 PAYMENT OF PRACTICE EXPENSES. Manager shall pay all Practice
Expenses as they become due out of Net Practice Revenues; provided, however,
that Manager may, in the name of and on behalf of Practice, contest in good
faith any claimed Practice Expenses as to which there is any dispute regarding
the nature, existence or validity thereof. Manager shall be entitled, on a
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The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
monthly basis, as a Practice Expense payable to itself, to retain from Net
Practice Revenues the amount specified in Section 1.6(g). The amounts retained
pursuant to Section 1.6(g) will not exceed [*] on an annual basis, unless
Practice expands its number of Physician Shareholders or physician Practice
Employees in connection with an asset or practice acquisition consummated by
Manager or Parent (or affiliate thereof). In such case the amount of [*] in the
preceding sentence shall be increased by an amount equal to the product of (x)
[*], (y) the trailing twelve (12) months of net practice revenues of said
acquisition target and (z) [*]. For example, an acquisition of assets by
Manager or Parent (or affiliate thereof) of a practice which has physicians join
the Practice as Physician Shareholders or Practice Employees and has trailing
twelve months net practice revenue of [*] will result in an increase in the [*]
amount described above by [*], which would result an aggregate retained amount
on an annual basis of [*] after such acquisition. Practice acknowledges and
agrees that the amount to be retained by Manager pursuant to Section 1.6(g) is
reasonable and fair, given the undertakings of Manager as set forth in this
Agreement and the other benefits and value that accrue to Practice as a result
of this Agreement.
3.19 BUDGETS.
(a) As part of the Manager's responsibilities under this Agreement,
the Manager shall prepare annual capital and operating budgets for the Practice
for each budget period in accordance with the provisions of this Section 3.19.
As used herein, a budget period means a fiscal year of Practice unless
otherwise provided.
With respect to each budget period following the initial budget
period, the Manager shall prepare and deliver a preliminary draft of each such
budget to the Advisory Board at least 30 days prior to the commencement of the
budget period to which such budget relates. The Advisory Board shall provide
any comments or suggested changes to such preliminary drafts to the Manager
within 15 days after receipt thereof. The Manager shall then submit a revised
budget to the Advisory Board for approval by the Advisory Board no later than
15 days after the end of the 15-day period referred to in the immediately
preceding sentence. The Advisory Board shall then approve or disapprove of,
but not modify or amend the budget within 15 days of receiving it. The
foregoing time periods during which drafts of the budget are to be delivered
and approved shall be subject to adjustment from time to time as determined
appropriate by the Advisory Board and Manager.
If prior to the commencement of any budget period, the Advisory
Board has not yet approved the budget, then the Manager and the Advisory Board
will work diligently in good faith to obtain such approvals, and until such
approvals are obtained, with respect to the budget, (i) as to any disputed line
items, the immediately preceding budget period's budget shall be controlling
until such time, if any as agreement is reached on the amounts to be allocated
to such disputed line items, specifically as follows: (A) non-recurring or
extraordinary items shall not be continued from the budget for the immediately
preceding budget period, (B) if the previous budget was for a budget period of
less than 12 months, it shall be annualized, (C) all items subject to an
automatic increase, such as rent and taxes, shall be budgeted at the increased
rate (D) for items such as employee salaries and benefits, the total salary and
benefits number shall be adjusted to take into account changes in the number
and classifications of employees employed or
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contracted, and (ii) as to any line items which are not in dispute, the revised
budgets submitted by the Manager shall control.
(b) The parties agree that the Manager shall have the authority and
discretion to reallocate cost and expense line items within the budget, so long
as the pre-tax income targets within such budgets are not adversely impacted.
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SECTION 4. OBLIGATIONS OF PRACTICE.
4.1 PHYSICIAN EXPENSES. Practice shall be solely responsible for the
payment, when due, of all costs and expenses incurred in connection with
Practice's operations that are not Practice Expenses ("Physician Expenses"),
including, but not limited to, insurance premiums for policies of malpractice
insurance, deductibles under such policies of malpractice insurance, any and
all costs and expenses incurred with respect to claims under such policies of
malpractice insurance, salaries and benefits, workers' compensation, retirement
plan contributions, health, disability and life insurance premiums, payroll
taxes, cellular phone and automobile expenses incurred by or in connection with
the employment of all Physician Shareholders and Practice Employees. Practice
shall be responsible for paying as a Physician Expense salaries, benefits and
other similar direct costs for all Practice Employees and Physician
Shareholders. Practice shall pay all Physician Expenses as they become due.
However, Practice shall pay the salaries and benefits for those individuals
described in Section 1.5(b), but Manager shall reimburse Practice for all such
salaries and benefits and such reimbursement amounts shall be a Practice
Expense under Section 1.6.
4.2 PROFESSIONAL STANDARDS.
(a) It is expressly acknowledged by the parties to the Agreement
that all medical services provided at the Medical Offices shall be performed
solely by physicians and allied health care professionals duly licensed to
practice medicine in the State. The professional services provided by Practice
and its Physician Shareholders and Practice Employees shall at all times be
provided in accordance with applicable ethical standards and Laws applying to
the medical profession. Practice shall at all times during the term of this
Agreement be and remain legally organized and authorized to provide medical
care and services in a manner consistent with all state and federal laws.
Practice will cooperate with Manager in taking steps to resolve any utilization
review or quality assurance issues which may arise in connection with the
medical practice of Practice. If any disciplinary actions or professional
liability actions are initiated against any Physician Shareholder or Practice
Employee, Practice shall immediately inform Manager of such action and the
underlying facts and circumstances. Practice agrees to implement and maintain
a program to monitor the quality of medical care provided by Practice, and
Manager shall render administrative assistance to Practice on an as-requested
basis to assist Practice in implementing and maintaining such program.
(b) Practice shall at all times during the term of this Agreement
assure that each physician of the Practice shall:
(i) maintain an unrestricted license to practice medicine in
the State and maintain good standing with the Medical Board of the State;
(ii) maintain a federal Drug Enforcement Administration
certificate without restrictions, to prescribe controlled substances as are
customarily prescribed by physicians practicing in Physician's practice
specialties;
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(iii) maintain hospital medical staff memberships and clinical
privileges at those facilities set forth on Part Three of Exhibit A of the
Physician Employment Agreement as amended from time to time;
(iv) perform all professional services through Practice and
in accordance with all Laws and with prevailing standards of care and medical
ethics and with practice protocols and policies as adopted from time to time by
Practice;
(v) maintain Physician's skills through continuing education
and training, including participation in those programs designated by Practice
from time to time;
(vi) maintain eligibility for insurance under the
professional liability policy or policies at a commercially reasonable cost as
determined by Practice carried by or on behalf of Practice for Physician's
practice specialties, to the extent Physician is covered by such policy or
policies pursuant to Section 5.2 of the Physician Employment Agreement;
(vii) maintain Physician's board-certified or board-eligible
status in Physician's practice specialties;
(viii) qualify and maintain Physician's qualification as a
participating provider in the Medicare and State of Georgia Medicaid programs;
(ix) abide by the Principles of Medical Ethics of the
American Medical Association and the Medical Society of the State;
(x) comply with all Laws applicable to the conduct of
Physician's activities, as well as with the articles of incorporation, bylaws
and other corporate governance documents of Practice and other rules or
regulations adopted from time to time by Practice;
(xi) promptly disclose to Practice (i) the commencement or
pendency of any legal action, administrative proceeding or investigation,
medical staff or professional disciplinary actions against Physician or (ii)
the existence of any circumstances that could reasonably be expected to form
the basis of or lead to any such action, proceeding or investigation;
(xii) abide by any guidelines adopted by Practice or any
person or entity providing management services to Practice designed to
encourage the appropriate, efficient and cost-effective delivery of medical
services, subject always to the clinical judgment of Physician, and cooperate
with and participate in all Practice programs regarding quality assurance,
utilization review, risk management and peer review;
(xiii) maintain appropriate and accurate medical records in
accordance with accepted medical standards and Practice policies with respect
to all patients evaluated and treated; and
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(xiv) satisfy such other reasonable requirements as are
established from time to time by Practice.
4.3 PROVIDER AND PAYOR RELATIONSHIPS. Practice shall advise Manager on
matters relating to the establishment or maintenance of relationships with
institutional healthcare providers and third-party payors, including, but not
limited to, managed care programs, health maintenance organizations and
preferred provider organizations. Without limiting the generality of the
foregoing, Practice shall cooperate with Manager in the development and
operation of integrated healthcare delivery systems developed from time to time
by Manager for the benefit of Manager's affiliates.
4.4 PHYSICIAN CONTRACTS AND POWERS OF ATTORNEY. (a) During the term of
this Agreement Practice shall maintain Employment Agreements substantially in
the form of Exhibit A hereto with all Physician Shareholders and other
physician practitioners employed or otherwise retained by Practice as Practice
Employees. Practice shall not amend any of the Employment Agreements or waive
any rights thereunder without the prior consent of Manager.
(b) Practice shall require all Physician Shareholders and physician
Practice Employees to execute and deliver to Manager powers of attorney,
satisfactory in form and substance to Manager, appointing Manager as
attorney-in-fact for each such Physician Shareholder and physician Practice
Employee for the purposes set forth in Section 3.5(e) to the extent authorized
by law.
4.5 RESTRICTIVE COVENANTS.
(a) Practice acknowledges and agrees that the services to be provided
by Manager hereunder are feasible only if Practice operates a vigorous medical
practice to which its Physician Shareholders and Practice Employees devote
their full time and attention (other than Physician Shareholders or Practice
Employees employed on a part-time basis with the consent of Manager which
consent will not be unreasonably withheld where it is in the best interest of
the Practice due to the approaching retirement of a physician or will not
adversely affect Net Practice Revenues). Accordingly, Practice agrees that,
during the term of this Agreement, it shall not, without the prior written
consent of Manager, establish, operate or provide physician services at any
medical office, clinic or other healthcare facility in the State which provides
services substantially similar to those offered by Practice at the Medical
Offices other than services at healthcare facilities in a manner consistent
with past practices of Practice or, prior to the date hereof, Atlanta Ear, Nose
& Throat Associates, P.C.
(b) During the term of this Agreement and for a period of eighteen (18)
months following the termination or expiration of this Agreement, Practice
shall not, in the State, alone or in conjunction with any other person or
entity, without the prior written consent of Manager, solicit or attempt to
solicit any employee, consultant, contractor or other personnel affiliated with
Manager (or who was affiliated with Manager at any point during the six months
prior to termination of this Agreement) to terminate, alter or lessen that
party's affiliation with
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Manager or to violate the terms of any agreement or understanding between such
employee, consultant, contractor or other person and Manager.
(c) If this Agreement is terminated for any reason other than by Practice
pursuant to Section 6.2 (b) below, Practice shall not for a period of eighteen
(18) months following the effective date of such termination, engage or
contract with any person, firm or entity (or group of affiliated entities) for
the provision of comprehensive management services to Practice at the Medical
Offices (or at any new or replacement medical offices of Practice in the State)
substantially of the kind contemplated by this Agreement.
(d) The intellectual and other property rights in any work product,
discoveries or inventions developed or acquired by Practice, the Physician
Shareholders or Practice Employees or any other personnel or agents of such
parties during the term of this Agreement (the "Practice IP") shall be deemed
to be owned exclusively by the Manager. The Practice hereby unconditionally
and irrevocably transfers and assigns to Manager all rights, title and interest
the Practice may currently have (or in the future may have) by operation of law
or otherwise in or to any Practice IP, including, without limitation, all
patents, copyrights, trademarks, service marks and other intellectual property
rights. Practice agrees to execute and deliver to Manager any transfers,
assignments, documents or other instruments which Manager may deem necessary or
appropriate to vest complete title and ownership of any Practice IP, and all
associated rights, exclusively in Manager. The Physician Employment Agreements
shall have a provision comparable to this paragraph (d) assigning these
Practice IP rights from the Practice physicians to Practice, in contemplation
of their reassignment from Practice to Manager as herein provided, subject only
to such exclusions as are provided in the form of Physician Employment
Agreement approved by Manager.
(e) Practice acknowledges and agrees that Manager's Trade Secrets and
Confidential Information (both as defined below) represent a substantial
investment by Manager. Practice also acknowledges and agrees that any
unauthorized disclosure or use of any of Manager's Trade Secrets or
Confidential Information would be wrongful and would likely result in immediate
and irreparable injury to Manager. Except as required in order to perform
Practice's obligations under this Agreement, Practice shall not, without the
express prior written consent of Manager, redistribute, market, publish,
disclose or divulge to any other person or entity, or use or modify for use,
directly or indirectly in any way for any person or entity: (i) any
Confidential Information during the term of this Agreement and for a period of
three (3) years after the final date of the term of this Agreement; and (ii)
any Trade Secrets at any time (during or after the term of this Agreement)
during which such information or data shall continue to constitute a "trade
secret" under applicable law. Practice further agrees to cooperate with (and
require its physicians and other personnel to comply with) any reasonable
confidentiality requirements of Manager. Practice shall immediately notify
Manager of any unauthorized disclosure or use of any of the Trade Secrets or
Confidential Information of Manager of which Practice becomes aware. For
purposes of this Agreement "Confidential Information" shall mean valuable,
non-public competitively sensitive data and information relating to Manager's,
Parent's or PSC's business other than Trade Secrets (which shall have the
meaning given that term under applicable law) that is not generally known by or
readily available to competitors of Manager, including, without
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limitations, computer software and management information systems provided by
Manager.
(f) Unless otherwise agreed by Manager in writing, Practice shall
enforce vigorously the covenants (and any liquidated damages provisions) of the
Physician Shareholders and other physician employees of Practice set forth in
the Physician Employment Agreements (which the Parties agree will be in
substantially the form of Exhibit A) with counsel approved by Manager. Practice
and such counsel shall cooperate with Manager in any such litigation and all
major litigation decisions and strategy shall be subject to approval of
Manager, and Practice shall not compromise or settle any such litigation
without Manager's approval. In the event that the Practice recovers
liquidated damages (or other damages) from any physician for breach of such a
covenant, then the Practice shall promptly remit to Manager an amount equal to
any and all such amounts so received. Manager agrees to pay the fees and
disbursements of counsel of Practice approved by it. Practice shall not take
any action that, under this Agreement, is to be taken only by Manager. The
Parties agree and the Physician Employment Agreement shall provide that the
actual losses to be suffered by Manager will be difficult to ascertain, but the
liquidated damages set forth have been arrived at after good faith effort to
estimate such losses. Practice specifically acknowledges and agrees that
Manager would not have entered into this Agreement but for Practice's covenant
to enforce the Physician Employment Agreements as provided above and that the
failure of any physician to comply with such agreements will result in Manager
suffering extensive economic damages.
(g) Manager and Practice acknowledge and agree that Manager's remedy at
law for any breach or attempted breach of the foregoing provisions may be
inadequate and that Manager shall be entitled to specific performance,
injunction or other equitable relief in the event of any such breach or
attempted breach, in addition to any other remedies which might be available at
law or in equity. If the duration, scope or geographic area contemplated by
the foregoing provisions is determined to be unenforceable by a court of
competent jurisdiction, the parties agree that such duration, scope or
geographic area shall be deemed to be reduced to the greatest scope, duration
or geographic area which would be enforceable.
4.6 PROFESSIONAL DUES AND EDUCATION EXPENSES. Practice and its Physician
Shareholders and Practice Employees, subject to Manager approval, shall be
solely responsible for all costs and expenses associated with membership in
professional associations and continuing professional education. Practice
shall ensure that each of its Physician Shareholders and Practice Employees
participates in such continuing medical education activities as are necessary
for such physicians to remain current in their respective specialties,
including, but not limited to, the minimum continuing medical education
requirements imposed by applicable laws and policies of applicable specialty
boards.
4.7 PROVISION OF SERVICES BY PRACTICE. Practice shall maintain at least
the same quality and scope of medical practice and other health care services
provided by Atlanta Ear, Nose & Throat Associates, P.C. prior to the date
hereof and shall use its reasonable good faith efforts to enhance the medical
practice of the Practice and to comply with all Practice budgets. Practice
shall engage a sufficient member of Physician Shareholders or physician
Practice
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Employees to provide services to patients of the Practice at normal
office hours at the Medical Offices and to provide coverage during all
appropriate hours of all hospitalized patients of Practice whether on any
inpatient or outpatient basis.
4.8 PHYSICIAN SHAREHOLDER AGREEMENT. Practice represents that it has
delivered to Manager a true and correct copy of the shareholder agreement
between Practice and its Physician Shareholders and will cause all new
shareholders of Practice to execute such agreement prior to becoming a
shareholder in Practice. Practice shall not amend the shareholder agreement so
as to cause the shareholder agreement to contravene or conflict with this
Agreement or the Employment Agreements between Practice and its physician
employees.
SECTION 5. INCENTIVE COMPENSATION
5.1 INCENTIVE AMOUNTS. Practice agrees that Manager shall be entitled to
incentive compensation ("Incentive Compensation") as set forth on Exhibit B.
With respect to any partial calendar years during which this Agreement is in
effect, Incentive Compensation shall be prorated according to the number of
calendar days actually elapsed during such partial calendar year. The
Incentive Compensation will be paid, as described below, in the form of monthly
draws (which will provide Manager with an amount that is estimated in
accordance with the formula set forth on Exhibit B) with an adjustment at each
year end to account for any differences between the amount of Incentive
Compensation paid as draws and the amounts calculated based on the complete
year end revenue and expense figures.
5.2 MECHANICS OF DRAWS. Following the end of each month, Manager shall
make an estimate of the collection percentage ("Estimated Collection
Percentage") for such month's gross Practice revenues. The Estimated
Collection Percentage may vary depending on historical collection percentages,
changes in fee schedules, changes in third party reimbursement, bad debt
write-offs and similar adjustments. The Estimated Collection Percentage will
then be applied to such month's gross Practice revenues, resulting in estimated
Net Practice Revenues for such month. Draws of Incentive Compensation
attributable to such month will be determined by applying the formula set forth
on Exhibit B to the excess of Net Practice Revenue over Practice Expenses and
will be paid by the 15th day of the following month. An amount equal to the
excess of Net Practice Revenues over Practice Expenses will be transferred by
Manager to Practice and used by Practice to pay Physician Expenses on such 15th
day.
5.3 RECONCILIATION.
(a) As soon as reasonably practicable, but in any event not later
than one hundred twenty (120) days after the end of each calendar year, Manager
will adjust the Estimated Collection Percentage based on actual net cash
collections attributable to the gross Practice revenues for such year and shall
determine actual Net Practice Revenues. Within forty-five (45) days after the
end of such one hundred twenty (120) day period, and based on the financial
statements prepared by Manager in good faith pursuant to Section 3.7, Manager
shall retain an amount equal to the aggregate Incentive Compensation payable
with respect to such calendar
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year, less the aggregate sum of all draws by Manager pursuant to Section 5.2
during such period.
(b) In the event that, after making the calculation contemplated by
Section 5.3(a), it is determined that draws by Manager under Section 5.2 for
the applicable calendar year exceed the amount which it is ultimately entitled
to receive with respect to such year as Incentive Compensation (an
"overdraft"), Manager shall pay the amount of such overdraft to Practice within
ninety (90) days after the end of the year. In the event Practice disagrees
with Manager's computation of Net Practice Revenues or Incentive Compensation,
it shall have the right to review, upon reasonable notice to Manager, the
documents used in determining such amounts.
5.4 ASSIGNMENT OF SECURITY INTEREST.
(a) Practice hereby irrevocably assigns and sets over to Manager
all of Practice's rights to the proceeds in the accounts receivable of the
medical practice of Practice with respect to any services rendered prior to the
effective date of expiration or termination of this Agreement and grants to
Manager the right to retain such proceeds for its own account for application
in accordance with this Agreement, and shall obtain a like assignment from all
Physician Shareholders and Practice Employees. Practice shall endorse (and
shall cause each Physician Shareholder or Practice Employee to endorse) any
payments received on account of such services to the order of Manager and shall
take such other actions as may be necessary to confirm to Manager the rights
set forth in this Section 5.4(a).
Without limiting the generality of the foregoing, it is the intent
of the parties that the assignment to Manager of the rights described in
Section 5.4(a) above shall be inclusive of the rights of Practice and the
Physician Shareholders and Practice Employees to proceeds of payment with
respect to any services rendered prior to the effective date of any expiration
or termination of this Agreement. Practice agrees and shall cause each
Physician Shareholder and Practice Employee to agree, that Manager shall retain
the right to collect any and all accounts receivable relating to any such
services rendered prior to the effective date of any such expiration or
termination ("Pre-Termination Accounts Receivable"), and that the proceeds
thereof will be transferred to Manager's account to be applied in accordance
with Section 3.6 and the other provisions of this Agreement.
(b) Practice acknowledges that Manager and Parent may, to the extent
permitted by law, grant a security interest in the Pre-Termination Accounts
Receivable and proceeds thereof to their factor(s) or lender(s) under
Manager's or Parent's working capital credit facility (whether one or more,
"Credit Facility Lender"), as in effect from time to time. Practice agrees
that such security interest of the Credit Facility Lender is intended to be a
first priority security interest and is superior to any right, title or
interest which may be asserted by Practice or any Physician Shareholder or
Practice Employee with respect to Pre-Termination Accounts Receivable or the
proceeds thereof under this Agreement. Practice further agrees, and shall
cause each Physician Shareholder and Practice Employee to agree, that, upon the
occurrence of an event which, under the terms of such working capital credit
facility, would allow the Credit Facility Lender to exercise its right to
collect Pre-Termination Accounts Receivable and apply the proceeds thereof
toward amounts due under such working capital credit facility, the Credit
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Facility Lender will succeed to all rights and powers of Manager under the
powers of attorney provided for in Sections 3.5 and 4.4 above as if such Credit
Facility Lender had been named as the attorney-in-fact therein.
(c) If, contrary to the mutual intent of Manager and Practice, the
assignment described in this Section 5.4 shall be deemed for any reason to be
ineffective, then Practice and each Physician Shareholder and Practice Employee
shall to the extent permitted by applicable Laws, effective as of the date of
this Agreement, be deemed to have granted (and Practice does hereby grant, and
shall cause each Physician Shareholder and Practice Employee to grant) to
Manager a first priority lien on and security interest in and to any and all
interests of Practice and such Physician Shareholders and Practice Employees in
any accounts receivable generated by the medical practice of Practice and its
Physician Shareholders and Practice Employees or otherwise generated through
the operations of the medical practice of Practice, and all proceeds with
respect thereto, to secure the payment to Manager hereunder of all Practice
Expenses and Incentive Compensation, and this Agreement shall be deemed to be a
security agreement to the extent necessary to give effect to the foregoing.
Practice shall execute and deliver, and cause each Physician Shareholder and
Practice Employee to execute and deliver, all such financing statements as
Manager may request in order to perfect such security interest. Practice shall
not grant (and shall not suffer any Physician Shareholder or Practice Employee
to grant) any other lien on or security interest in or to such accounts
receivable or any proceeds thereof or in or to this Agreement to any other
person or entity.
SECTION 6. TERM AND TERMINATION.
6.1 TERM. The initial term of this Agreement shall be for a period of
forty (40) years commencing on _______________, 1997 and ending on
_________________, 2037. This Agreement may be extended for separate and
successive five-year periods (each such five-year period referred to
hereinafter as an "extended term"), under such terms and conditions as stated
herein with respect to any such extended term; provided, however, that: (a)
Practice and Manager mutually agree to extend the term of this Agreement and
mutually agree upon the documents to be in effect during any such extended term
hereto, not less than sixty (60) days prior to expiration of the initial term
or extended term then in effect; and (b) Practice is not in material default
hereunder on the date of commencement of the extended term.
6.2 TERMINATION.
(a) Manager may terminate this Agreement, and have no further
liability or obligation hereunder, upon the occurrence of one or more of the
following events:
(i) Practice repeatedly fails to perform in a material respect
its material obligations hereunder and such repeated failure continues for a
period of forty-five (45) days after Practice's receipt of written notice
specifying such failure; provided, however, that if such failure cannot be
cured within forty-five (45) days, but is capable of being cured within a
reasonable period of time in excess of forty-five (45) days, then Manager shall
not be entitled to terminate this Agreement if Practice commences the cure of
such failure within the first forty-five (45) day
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period and thereafter diligently and in good faith continues to prosecute such
cure until completion; provided, further, that if Practice or any Physician
Shareholder or Practice Employee breaches Section 4.5(a) of this Agreement,
Manager may terminate this Agreement immediately upon written notice to
Practice.
(ii) Practice voluntarily files a petition in bankruptcy or
makes an assignment for the benefit of creditors or otherwise seeks relief from
creditors under any federal or state bankruptcy, insolvency, reorganization or
moratorium statute, or Practice is the subject of an involuntary petition in
bankruptcy which is not set aside within sixty (60) days of its filing.
(iii) Practice is in material breach or default under any
other written agreement with Manager, subject to any applicable notice and
cure periods provided in any such agreement.
(iv) Any representations and warranties made by Practice in
this Agreement prove to have been untrue or incorrect.
(v) If in any calendar year the licenses of 20% or more in
number of the Physician Shareholders or physician Practice Employees to
practice medicine in the State of Georgia are suspended or revoked, or are
subjected to final disciplinary action by the State Board of Medicine or any
similar body on any grounds, other than minor, immaterial or insubstantial
grounds, or die or become mentally or physically disabled and, by reason of
such disability, are in the reasonable judgment of Manager unable to conduct
medical practice on substantially the same basis as conducted prior to such
disability, or if in any calendar year 20% or more of the Physician
Shareholders retire or sell their interests in Practice and cease to practice
medicine on substantially a full-time basis as Practice Employees; provided,
however, that in any such event Practice shall have one hundred eighty (180)
days from the date on which Manager gives Practice written notice of its intent
to terminate this Agreement pursuant to this Section 6.2(a)(v) to replace the
affected physicians with other physicians satisfactory to Manager, in its
reasonable discretion; provided further, however, that Manager and Practice may
agree to bring in a locum tenens physicians to provide physician services
during such one hundred eighty (180) day period.
(vi) Manager and Practice are unable, notwithstanding
diligent efforts to do so, to agree on any modifications or amendments to the
then-current capital and operating budgets for the medical practice of Practice
which Manager reasonably deems to be necessary in light of the circumstances
then prevailing.
(b) Practice may terminate this Agreement, and have no further
liability hereunder, upon the occurrence of one or more of the following events:
(i) Manager repeatedly fails to perform in a material respect
its material obligations hereunder and such repeated failure continues uncured
for a period of forty-five (45) days after Manager's receipt of written notice
specifying such failure, provided, however, that if such failure cannot be
cured within forty-five (45) days, but is capable of being cured within a
reasonable period of time in excess of forty-five (45) days, then Practice
shall not
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be entitled to terminate this Agreement if Manager commences the cure
of such failure within the first forty-five (45) day period and thereafter
diligently and in good faith continues to prosecute such cure until completion.
(ii) Manager voluntarily files a petition in bankruptcy or
makes an assignment for the benefit of creditors or otherwise seeks relief from
creditors under federal or state bankruptcy, insolvency, reorganization or
moratorium statute, or Manager is the subject of an involuntary petition in
bankruptcy which is not set aside within sixty (60) days of its filing.
6.3 REMEDIES UPON TERMINATION.
(a) If this Agreement is terminated pursuant to Section 6.2,
Incentive Compensation shall be deemed earned through the date of termination.
Any Incentive Compensation due Manager shall be paid within thirty (30) days
after the effective date of termination. If this Agreement is terminated
pursuant to Sections 6.2(a)(i), 6.2(a)(iii), or 6.2(b)(i) of this Agreement,
the non-breaching party may pursue such other legal or equitable relief as may
be available in addition to such proration.
6.4 REPURCHASE OF EQUIPMENT AND SUPPLIES. Upon the termination of this
Agreement prior to the end of the forty (40) year initial term (other than a
termination by Practice pursuant to Section 6.2(b)(i)), Manager shall have the
right to require Practice to repurchase all or any portion of the FFE and all
then unused supplies located at the Medical Offices or purchased by Manager for
specific use at the Medical Offices (except pharmaceutical supplies), from
Manager at a repurchase price equal to the then book value of the FFE and such
unused supplies as reflected by Manager's (or Parent's) books and records of
account. Exercise of this right by Manager shall be accomplished by written
notice to Practice within thirty (30) days after the termination of this
Agreement. Such notice of exercise shall also specify a time and date for a
closing to be held to consummate such purchase and sale, such closing to be
within ninety (90) days after the termination of this Agreement at the offices
of Manager in [Atlanta, Georgia], or such other location as Manager shall
designate in such written notice. At the closing Practice shall purchase such
FFE and unused supplies from Manager hereunder by delivery of cash or
immediately available funds, against delivery of a bill of sale from Manager
transferring all its right, title or interest in or to same.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
7.1 REPRESENTATIONS AND WARRANTIES OF PRACTICE. Practice hereby
represents and warrants to Manager as follows:
(A) ORGANIZATION AND GOOD STANDING. Practice is a professional
corporation duly organized, validly existing and in good standing under the
laws of the State of Georgia. Practice has all necessary power to own all of
its properties and assets and to carry on its business as now being conducted.
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(B) NO VIOLATIONS. Practice has the corporate authority to execute,
deliver and perform this Agreement and all agreements executed and delivered by
it pursuant to this Agreement, and has taken all action required by law, its
Articles or Certificate of Incorporation, its Bylaws or otherwise to authorize
the execution, delivery and performance of this Agreement and such related
documents. The execution and delivery of this Agreement does not and, subject
to the consummation of the transactions contemplated hereby, will not, violate
any provisions of the Articles or Certificate of Incorporation or Bylaws of
Practice or any provisions of or result in the acceleration of, any material
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree, to which Practice is a party, or by
which it is bound. This Agreement has been duly executed and delivered by
Practice and constitutes the legal, valid and binding obligation of Practice,
enforceable in accordance with its terms.
(C) FINANCIAL INFORMATION. Practice has hereto furnished Manager with
complete copies of certain financial information about Practice which
information is true and correct and presents fairly the financial results
experienced by Practice for the periods set forth in such information.
(D) PROFESSIONAL LIABILITY. No Physician Shareholder or physician
Practice Employee has ever (a) had his license to practice medicine in any
state or his Drug Enforcement Agency number suspended, relinquished,
terminated, restricted or revoked; (b) been reprimanded, sanctioned or
disciplined by any licensing board, or any federal, state or local society or
agency, governmental body or specialty board; (c) had entered against him final
judgment in, or settle without judgment, a malpractice or similar action for an
aggregate award or amount to the plaintiff in excess of Fifty Thousand and
No/100 Dollars ($50,000.00); or (d) had his medical staff privileges at
any hospital or medical facility suspended, terminated, restricted or revoked
other than temporary suspension for failure to timely complete medical records.
7.2 REPRESENTATIONS AND WARRANTIES OF MANAGER. Manager hereby represents
and warrants as follows:
(A) ORGANIZATION AND GOOD STANDING. Manager is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Manager has all necessary power to own all of its properties and
assets and to carry on its business as now being conducted.
(B) NO VIOLATIONS. Manager has the corporate authority to execute,
deliver and perform this Agreement and has taken all action required by law,
its Articles or Certificate of Incorporation, its Bylaws or otherwise to
authorize the execution, delivery and performance of this Agreement. The
execution and delivery of this Agreement does not and, subject to the
consummation of the transactions contemplated hereby, will not, violate any
provisions of the Articles or Certificate of Incorporation or Bylaws of Manager
or any provisions of or result in the acceleration of, any material obligation
under any mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree, to which Manager is a party, or by which it is
bound. This Agreement has been duly executed and delivered by Manager and
constitutes the
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legal, valid and binding obligation of Manager, enforceable in accordance with
its terms.
SECTION 8. INSURANCE AND INDEMNITY.
8.1 INSURANCE TO BE MAINTAINED BY PRACTICE. Practice shall provide, or
shall arrange for the provision of, and maintain throughout the entire term of
this Agreement, professional liability insurance coverage on Practice and each
of Practice's employees and agents, including, but not limited to, all
Physician Shareholders and Practice Employees, in the minimum amount of Three
Million and No/100 Dollars ($3,000,000.00) per occurrence and Five Million and
No/100 Dollars ($5,000,000.00) annual aggregate including "tail coverage" to
the extent necessary to ensure continuity of coverage. Practice shall provide
to Manager written documentation evidencing such insurance coverage. Practice
shall, at its sole cost and expense, pay the premium costs of all such
professional liability insurance coverage during the term of this Agreement.
Practice shall provide, or shall arrange for the provision of, and shall
maintain throughout the entire term of this Agreement, workers' compensation
insurance coverage on Practice and each of its employees and agents, including,
but not limited to, all Physician Shareholders and Practice Employees, in the
amounts required by law. Practice shall provide to Manager written
documentation evidencing such insurance coverage. Practice shall, at its sole
cost and expense, pay the premium costs of all such workers' compensation
insurance coverage. Manager agrees to administer and manage the above
insurance.
8.2 INDEMNIFICATION BY MANAGER. Manager shall indemnify and hold
harmless Practice, its shareholders, directors, officers, agents, employees and
other personnel from and against any and all claims, demands, liabilities,
losses, damages, costs and expenses (including reasonable attorney's fees,
court costs and other expenses incurred in defending against claims or
otherwise connected therewith) (hereinafter a "Loss" or "Losses") resulting in
any manner, directly or indirectly, from the gross negligence or intentional
acts or omissions of Manager, its directors, officers, employees, independent
contractors or agents.
8.3 INDEMNIFICATION BY PRACTICE. Practice shall indemnify and hold
harmless Manager, its shareholders, directors, officers, agents, employees and
other personnel from and against any all Losses resulting in any manner,
directly or indirectly, from the gross negligence, professional malpractice or
intentional acts or omissions of Practice, its Physician Shareholders, Practice
Employees or independent contractors.
8.4 INDEMNIFICATION PROCEDURE. Within 60 days after an indemnified
person under Section 8.2 or 8.3 (an "Indemnified Person") receives written
notice of the commencement of any action or other proceeding, or otherwise
becomes aware of any claim or other circumstance, in respect of which
indemnification or reimbursement may be sought under Section 8.2 or Section
8.3, such Indemnified Person shall notify the Party required to indemnify
hereunder (the "Indemnitor"). If any such action or other proceeding shall be
brought against any Indemnified Person, Indemnitor shall, upon written notice
given within a reasonable time following receipt by Indemnitor of such notice
from Indemnified Person, be entitled to assume the defense of such action or
proceeding with counsel chosen by Indemnitor and reasonably satisfactory to
Indemnified Person; provided, however, that any Indemnified Person may at its
own expense
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retain separate counsel to participate in such defense. Notwithstanding the
foregoing, Indemnified Person shall have the right to employ separate counsel
at Indemnitor's expense and to control its own defense of such action or
proceeding if, in the reasonable opinion of counsel to such Indemnified Person,
(a) there are or may be legal defenses available to such Indemnified Person or
to other Indemnified Persons that are different from or additional to those
available to Indemnitor and which could not be adequately advanced by counsel
chosen by Indemnitor, or (b) a conflict or potential conflict exists between
Indemnitor and such Indemnified Person that would make such separate
representation advisable; provided, however, that in no event shall Indemnitor
be required to pay fees and expenses hereunder for more than one firm of
attorneys in any jurisdiction in any one action or proceeding or group of
related actions or proceedings. Indemnitor shall not, without the prior
written consent of any Indemnified Person, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding to which such Indemnified Person is a party unless such settlement
compromise or consent includes an unconditional release of such Indemnified
Person from all liability arising or potentially arising from or by reason of
such claim, action or proceeding.
8.5 KEY MAN INSURANCE. Practice agrees, and shall cause its Physician
Shareholders and Practice Employees to agree, that Manager may obtain, at its
sole expense (and not as a Practice Expense) and for its sole benefit, "key
man" life insurance policies on any or all Physician Shareholders and Practice
Employees. Neither Practice nor any Physician Shareholder or Practice Employee
shall have any right, title or interest in or to the proceeds of any such
insurance policies. Practice shall cause its Physician Shareholders and
Practice Employees to cooperate with Manager, as reasonably requested by
Manager from time to time, in obtaining any such insurance policies, including,
but not limited to, causing such Physician Shareholders and Practice Employees
to submit to such physical examinations and providing such information relating
to insurability as Manager may reasonably request from time to time.
SECTION 9. ASSIGNMENT.
The parties hereby agree that this Agreement shall not be assigned or
transferred by either party without the prior written consent of the other;
provided, however, that this Agreement may be assigned, in whole or in part, by
Manager, in its sole discretion, without the consent of Practice, to any
parent, subsidiary or affiliate of Manager or to any person or entity that
acquires all or substantially all of the assets of Manager. Any such
assignment shall not affect the guaranty by Parent of the obligations of
Manager hereunder.
SECTION 10. COMPLIANCE WITH REGULATIONS.
10.1 PRACTICE OF MEDICINE. The parties hereto acknowledge that Manager
is not authorized or qualified to engage in any activity which may be construed
or deemed to constitute the practice of medicine. Neither of the Parties shall
suggest or hold Manager out to the public as being engaged in the practice of
medicine. To the extent any act or service herein required of Manager should
be construed or deemed to constitute the practice of medicine, the performance
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of said act or service by Manager shall be deemed waived and forever
unenforceable. Practice and its Physician Employees and Practice Employees
shall be unfettered in the exercise of their professional medical judgment with
respect to matters under consideration which require the exercise of such
judgment.
10.2 SUBCONTRACTS. Pursuant to Title 42 of the United States Code and
applicable rules and regulations thereunder, until the expiration of four (4)
years after termination of this Agreement, Manager shall make available, upon
appropriate written request by the Secretary of the United States Department of
Health and Human Services or the Comptroller General of the United States
General Accounting Office, or any of their duly authorized representatives, a
copy of this Agreement and such books, documents and records as are necessary
to certify the nature and extent of the costs of the services provided by
Manager under this Agreement. Manager further agrees that if it carries out
any of its duties under this Agreement through a subcontract with a value or
cost of Ten Thousand and No/100 Dollars ($10,000.00) or more over a twelve (12)
month period with a related organization, such subcontract shall contain a
clause to the effect that until the expiration of four (4) years after the
furnishing of such services pursuant to such subcontract, the related
organization shall make available, upon appropriate written request by the
Secretary of the United States Department of Health and Human Services or the
Comptroller General of the United States General Accounting Office, or any of
their duly authorized representatives, a copy of such subcontract and such
books, documents and records of such organization as are necessary to verify
the nature and extent of such costs. Disclosure pursuant to this
Section shall not be construed as a waiver of any other legal right to which
Manager may be entitled under law or regulation.
SECTION 11. INDEPENDENT RELATIONSHIP.
11.1 INDEPENDENT CONTRACTOR STATUS.
(a) It is acknowledged and agreed that Practice and Manager are
at all times acting and performing hereunder as independent contractors.
Manager shall neither have nor exercise any control or direction over the
methods by which Practice, Physician Shareholders and Practice Employees
practice medicine. The sole function of Manager hereunder is to provide all
Management Services in a competent, efficient and satisfactory manner. Manager
shall not, by entering into and performing its obligations under this
Agreement, become liable for any of the existing obligations, liabilities or
debts of Practice unless otherwise specifically provided for under the terms of
this Agreement. In its management role, Manager will have only an obligation to
exercise reasonable care in the performance of the Management Services.
Manager shall have no liability whatsoever for damages suffered on account of
the willful misconduct or negligence of any employee, agent or independent
contractor of Practice. 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.
(b) If any court or regulatory authority shall determine that the
independent contractor relationship established hereby violates any statutes,
rules or regulations (or in the
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event that Manager, in good faith, determines that there is a material risk
that such a determination would be made by any court or regulatory authority),
then the parties will negotiate in good faith to enter into an employment
arrangement between Manager and the then-current Physician Shareholders and
Practice Employees which substantially preserves for the parties the relative
economic benefits of this Agreement. If the parties cannot reach agreement on
such an employment arrangement, Manager may terminate this Agreement upon
ninety (90) days prior written notice to Practice.
11.2 REFERRAL ARRANGEMENTS. The parties hereby acknowledge and agree
that no benefits to Practice hereunder require or are in any way contingent
upon the admission, recommendation, referral or any other arrangement for the
provision of any item or service offered by Manager or any of its affiliates,
to any patients of Practice, Practice's employees or agents.
SECTION 12. GUARANTEES.
(a) Irrevocable Guaranty by Parent. To induce Practice to execute and
deliver this Agreement, Parent hereby unconditionally and irrevocably
guarantees the Practice the full, prompt and faithful performance by Manager of
all covenants and obligations to be performed by Manager under this Agreement.
This guaranty shall be a guaranty of payment, not merely collection, and shall
be unaffected by any subsequent modification or amendment of this Agreement
whether or not Parent has knowledge of or consented to such modification or
amendment. In the event that Manager fails to fully perform all such covenants
and obligations in accordance with their terms or pay all or any part of such
sums or deliver all or any part of such property when due, Parent will perform
all such covenants and obligations in accordance with their terms or
immediately pay or deliver to Practice (or such other payee or transferee as
may be provided in any such agreement) the amount due and unpaid or the
property not delivered, as the case may be, by Manager. In the event of
bankruptcy, termination, liquidation or dissolution of Manager, this
unconditional guaranty shall continue in full force and effect. In the event
of any extension of time for payment or performance or other modification of
any guaranteed obligation or covenant, or any waiver thereof or other
compromise or indulgence with respect thereto or any release or impairment of
any security for any such obligation or covenant, or any other circumstance
which might otherwise constitute a legal or equitable discharge of a surety or
guarantor, no notice to, or consent of, Parent shall be required.
(b) Irrevocable Guaranty by Physician Shareholders. To induce Manager to
execute and deliver this Agreement, the undersigned Physician Shareholders
severally hereby unconditionally and irrevocably guarantee to Manager the full,
prompt and faithful performance by Practice of all covenants and obligations to
be performed by Practice under Sections 3.6, 4.4, 4.5, 5.4, 6.4, 8.1, 8.3,
12(b) and 14.7 of this Agreement during the term of such Physician
Shareholder's employment with Practice and for a period of five (5) years
thereafter. This guaranty shall be a guaranty of payment and performance, not
merely collection, and shall be unaffected by any subsequent modification or
amendment of this Agreement whether or not such guarantor has knowledge of or
consented to such modification or amendment. In the event that
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Practice fails to fully perform all such covenants and obligations in
accordance with their terms or pay all or any part of such sums or deliver all
or any part of such property when due, the Physician Shareholders severally
will perform all such covenants and obligations in accordance with their terms
or immediately pay or deliver to Manager (or such other payee or transferee as
may be provided in any such agreement) their pro rata share (as defined below)
of the amount due and unpaid or the property not delivered, as the case may be,
by Practice. In the event of bankruptcy, termination, liquidation or
dissolution of Practice, this unconditional guaranty shall continue in full
force and effect. In the event of any extension of time for payment or
performance or other modification of any guaranteed obligation or covenant, or
any waiver thereof or other compromise or indulgence with respect thereto or
any release or impairment of any security for any such obligation or covenant,
or any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor, no notice to, or consent of, Practice or
any other Physician Shareholder shall be required. With respect to any and all
amounts which may be due and payable to Manager hereunder, the pro rata share
of each Physician Shareholder's guaranty thereof shall be limited to the
percentage amount thereof listed in Exhibit 12(b) hereto.
SECTION 13. NAME; LICENSE. Practice agrees that it shall conduct its medical
practice under the name of, and only under the name of "Atlanta Ear, Nose &
Throat Associates, P.C.", subject to the terms of the Trademark License between
the parties of even date herewith. In the event of any termination of the
Trademark License, Practice agrees to change the name under which it conducts
its medical practice to a distinctly different name.
SECTION 14. MISCELLANEOUS.
14.1 NOTICES. Any notice required or permitted by this Agreement or
any agreement or document executed and delivered in connection with this
Agreement shall be deemed to have been served properly if hand delivered or
sent by overnight express, charges prepaid and properly addressed, to the
respective party to whom such notice relates at the following addresses:
If to Practice:
New Atlanta Ear, Nose & Throat Associates, P.C.
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Ramie A. Tritt, M.D.
Facsimile: (404) 250-0162
with a copy of each notice directed to:
Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
3490 Piedmont Road, Suite 400
Atlanta, Georgia 30305
Attention: Robert B. Goldberg
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Facsimile: (404) 233-2188
If to Manager:
PSC MANAGEMENT CORP.
3414 Peachtree Road
Suite 238
Atlanta, Georgia 30326
Attention: Gerald R. Benjamin, Secretary
Facsimile: (404) 816-0248
If to Parent:
PHYSICIANS' SPECIALTY CORP.
3414 Peachtree Road
Suite 238
Atlanta, Georgia 30326
Attention: Gerald R. Benjamin, Secretary
Facsimile:(404)816-0248
with a copy of each notice directed to Manager or Parent to:
Richard H. Brody
Troutman Sanders LLP
5200 NationsBank Plaza
600 Peachtree Street, N.E.
Atlanta, GA 30308-2216
Facsimile: (404) 885-3900
or such other address as shall be furnished in writing by any party to the
other party. All such notices shall be considered received when hand delivered
or one business day after delivery to the overnight courier.
14.2 ADDITIONAL ACTS. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Agreement.
14.3 GOVERNING LAW. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State applied without giving effect
to any conflicts-of-law principles.
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14.4 CAPTIONS, ETC. 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. All Addenda and Exhibits to this Agreement are hereby incorporated
into this Agreement by this reference.
14.5 SEVERABILITY. The provisions of this Agreement shall not be
severable, and if any material provision shall be determined to be invalid,
void or unenforceable in whole or in part for any reason by a court of
competent jurisdiction, Manager shall have the right to terminate this
Agreement upon five (5) business days prior written notice.
14.6 CHANGES IN REIMBURSEMENT. If Medicare, Medicaid, Blue Shield or any
other third party payor, or any other Federal, state or local laws, rules,
regulations or interpretations, at any time during the term of this Agreement,
prohibit, restrict or in any way materially and adversely change the method or
amount of reimbursement or payment for services rendered by Practice pursuant
to this Agreement or of the method of compensation for either party provided
for in this Agreement, then the parties shall amend this Agreement to provide
for payment of compensation in a manner consistent with any such prohibition,
restriction or limitation and which takes into account any materially adverse
change in reimbursement or payment from such third party payors for such
physician services, provided such amendments are consistent with the overall
economic and other objectives of the parties set forth in this Agreement.
14.7 MODIFICATIONS. This instrument contains the entire agreement of the
parties and supersedes any and all prior or contemporaneous negotiations,
understandings or agreements between the parties, written or oral, with respect
to the transactions contemplated hereby. This Agreement may not be changed or
terminated orally, but may only be changed by an agreement in writing signed by
a duly authorized officer of Manager if Manager is the party against whom
enforcement of any such waiver, change, modification, extension, discharge or
termination is sought, or by Practice if Practice is the party against whom
enforcement of any such waiver, change, modification, extension, discharge or
termination is sought. The parties expressly acknowledge that this Section
14.7 may not be waived, modified or changed by any other persons except the
Chief Executive Officer or Chief Financial Officer of Manager and Practice.
14.8 NO RULE OF CONSTRUCTION. The parties acknowledge that this
Agreement was initially prepared by Manager solely as a convenience and that
all parties and their counsel have read and fully negotiated all the language
used in this Agreement. The parties acknowledge and agree that because all
parties and their counsel participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which
construes any language, whether ambiguous, unclear or otherwise, in favor of,
or against any party by reason of that party's role in drafting this Agreement.
14.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
14.10 BINDING EFFECT. This Agreement shall be binding on and shall inure
to the benefit
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of the parties hereto, and their successors and permitted assigns. Subject to
the foregoing sentence, no person not a party hereto shall have any right under
or by virtue of this Agreement.
14.11 ENFORCEMENT RIGHTS. Practice acknowledges that both Practice and
Manager will be directly or indirectly affected by the enforcement of
Practice's rights against third parties and by practice's enforcement of the
rights of third parties the enforcement rights of which were delegated to
Practice by such third parties, and that Manager may need from time to time to
take legal action against third parties to enforce such rights. Therefore,
Practice hereby appoints Manager its nonexclusive true and lawful
attorney-in-fact to enforce any and all rights of Practice, other than any
rights Practice may have against Manager, and to enforce the rights of third
parties the enforcement rights of which were delegated to Practice by such
third parties, to the extent not contrary to applicable law. Practice agrees
to execute any instrument reasonably requested by Manager to evidence such
appointment or to reappoint Manager as such attorney-in-fact upon any
termination of the appointment made hereby. Such appointment is coupled with
an interest and irrevocable.
14.12 COSTS OF ENFORCEMENT. If either party files suit in any court
against the other party to enforce the terms of this Agreement against the
other party or to obtain performance by it hereunder, the prevailing party will
be entitled to recover all reasonable costs, including reasonable attorneys'
fees, from the other party as part of any judgment in such suit. The term
"prevailing party" shall mean the party in whose favor final judgment after
appeal (if any) is rendered with respect to the claims asserted in the
Complaint. "Reasonable attorneys' fees" are those attorneys' fees actually
incurred in obtaining a judgment in favor of the prevailing party.
<PAGE> 33
Page 33
IN WITNESS WHEREOF, Practice, Manager and Parent have duly executed this
Agreement on the day and year first above written.
PSC MANAGEMENT CORP. NEW ATLANTA EAR, NOSE &
THROAT ASSOCIATES, P.C.
By: By:
Printed Name: Gerald R. Benjamin, M.D. Printed Name: Ramie A. Tritt, M.D.
Title: Title:
PHYSICIANS' SPECIALTY CORP.
By:
------------------------------------
Printed Name: Gerald R. Benjamin, M.D.
Title:
The undersigned, constituting all of the Physician Shareholders, hereby
ratify and confirm the above Agreement and agree to be bound by its terms,
including, but not limited to, the terms of Sections 3.6, 4.4, 4.5, 5.4, 6.4,
8.1, 8.3, 12(b), and 14.7 this Agreement on the basis and to the extent
provided in Section 12(b) hereof.
Ramie A. Tritt, M.D.
Daniel M. Adams, III, M.D.
Michael J. Pickford, M.D.
Keith Jackson, M.D.
Keith A. Kowal, M.D.
Ann K. White, M.D.
<PAGE> 34
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
Page 34
EXHIBIT B
INCENTIVE COMPENSATION TO MANAGER
As annual Incentive Compensation, after Manager has received [*] (or such
increased amount as provided in Section 3.18) annually in the form of retained
amounts pursuant to Section 1.6(g), Manager shall receive an amount equal to
[*] of the percentage of the excess of Net Practice Revenue over Practice
Expenses which was represented by the $[*] amount (or such increased amount
pursuant to Section 3.18).
<PAGE> 35
Page 35
APPENDIX A
DEFINITIONS
Defined Term Section
Asset Purchase Agreement Background
Confidential Information 4.6(e)
Credit Facility Lender 5.4(b)
Effective Date Preamble
Estimated Collection Percentage 5.2
extended term 6.1
FFE 3.3
GAAP 1.2
Incentive Compensation 5.1
Indemnified Person 8.4
key man 8.5
Laws 3.12
Management Services 3.1
Manager Preamble
Medical Offices 3.1
Net Practice Revenues 1.3
Parent Preamble
Parties Background
Physician Employment Agreements 3.14
Physician Expenses 4.1
Physician Shareholders 1.4
Practice Preamble
Practice IP 4.6(d)
Practice Employees 1.5
Practice Expenses 1.6
PSC Background
Reasonable attorneys' fees 14.11
<PAGE> 36
Page 36
EXHIBIT 12(B)
The Pro rata liability of each Physician Shareholder under Section 12(b)
hereof shall be 2 times the percentage amount of the outstanding shares of
Atlanta Ear, Nose & Throat Associates, P.C. ("AENT") held by such Physician
Shareholder as of the date of execution of the Asset Acquisition Agreement
between AENT, Manager, Parent and the Physician Shareholders, as follows:
% of Shares Pro Rata Liability
Name of Physician Shareholder of AENT under 12(b)
Ramie A. Tritt, M.D.
Daniel M. Adams, III, M.D.
Michael J. Pickford, M.D.
Keith Jackson, M.D.
Keith A. Kowal, M.D.
Ann K. White, M.D.
<PAGE> 1
EXHIBIT 10.7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of the 1st
day of August, 1996, by and among PSC MANAGEMENT CORP., a Delaware corporation
("Purchaser"), ENT CENTER OF ATLANTA, INC., a Georgia corporation ("ENT
Center"), ATLANTA ENT CENTER FOR PHYSICIANS, INC., a Georgia corporation
("Center for Physicians") and ATLANTA-AHP, INC., a Georgia corporation ("AHP")
(ENT Center, Center for Physicians and AHP being referred to herein collectively
as the "Sellers" and individually as a "Seller").
W I T N E S S E T H:
WHEREAS, Sellers desire to sell to Purchaser, and Purchaser desires to
purchase from Sellers, upon the terms and conditions set forth herein, the
assets described herein so that Purchaser may succeed to Sellers' business
operations; and
WHEREAS, the parties hereto desire to make this Agreement for the
purpose of setting forth representations, warranties, covenants, agreements and
conditions in connection with this transaction;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and other
good and valuable consideration, the receipt, adequacy and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, do hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 The following terms used in this Agreement shall have the meanings
set forth below:
(a) Agreement. This Agreement, including the exhibits and
schedules attached hereto.
(b) Closing. The consummation by the parties hereto of the
transactions contemplated hereby.
(c) Effective Date. The commencement of Sellers' business on
August 1, 1996.
(d) Material. What is considered material for purposes of this
Agreement shall be determined in light of the facts and circumstances of the
matter in question as of the relevant date
-1-
<PAGE> 2
stated herein, and no particular monetary amount specified in this Agreement
shall be deemed to determine materiality, except as expressly stated to that
effect herein.
(e) Permitted Exceptions. Whenever used herein, the term
"Permitted Exceptions" shall mean liens for ad valorem taxes not yet due and
payable.
(f) Person. An individual, corporation, limited liability
company, joint venture, partnership, trust, unincorporated association,
government, or any department or agency thereof, or other entity.
(g) Purchased Assets. The assets being purchased by Purchaser
hereunder as described in Item 2.1 hereof.
1.2 Singular/Plural; Gender. Where the context so requires or permits,
the use of the singular form includes the plural, and the use of the plural form
includes the singular, and the use of any gender includes any and all genders.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, effective as of the commencement of business on the Effective Date,
Sellers shall sell, convey, assign, transfer and deliver to Purchaser, and
Purchaser shall purchase, acquire and obtain from Sellers all of Sellers'
interests in those assets described on Exhibit "2.1" attached hereto.
2.2 Purchase Price. The purchase price (the "Purchase Price") to be
paid by Purchaser to Sellers for all of the Purchased Assets shall be $20,000,
to be allocated among the Sellers as set forth in Exhibit "2.2".
2.3 Payment of Purchase Price. The Purchase Price shall be paid by
Purchaser to Sellers as follows: Purchaser shall deliver to each Seller at
Closing that certain Promissory Note from Purchaser to such Seller in the
original principal amount of such Sellers' portion of the Purchase Price, which
Promissory Note shall be in the form attached hereto as Exhibit "2.3" (the
"Promissory Note").
ARTICLE III
CLOSING
3.1 Closing. The Closing shall take place at the offices of Ellis,
Funk, Goldberg, Labovitz & Dokson, P.C., 3490 Piedmont Road, Suite 400, Atlanta,
Georgia 30305, on the date agreed to by the parties hereto.
-2-
<PAGE> 3
ARTICLE IV
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
OF SELLERS
As a material inducement to Purchaser to enter into this Agreement and
to consummate the transactions contemplated hereby, Sellers, jointly and
severally, hereby represent and warrant to and covenant and agree with Purchaser
as follows:
4.1 Organization and Good Standing. Each Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia, and has full corporate power and authority to carry on its business, to
own and operate its properties and assets, to conduct the business in which it
is now engaged, and to consummate the transactions contemplated hereby.
4.2 Title to Purchased Assets; Condition of Purchased Assets; Etc.
(a) Title. Sellers are the sole and unconditional owners of, and
have good and marketable title to, the Purchased Assets being sold hereunder,
free and clear of any and all liens, encumbrances, restrictions, options,
adverse claims and other defects in title, except for Permitted Exceptions. On
the Closing Date, Purchaser shall obtain good and marketable title to the
Purchased Assets free and clear of any and all liens, encumbrances, security
agreements, claims, mortgages and indebtedness of whatsoever type or nature
except for Permitted Exceptions.
(b) Equipment Condition. On the Effective Date, all of the
equipment included in the Purchased Assets shall be in substantially the same
condition as when Purchaser inspected same prior to the date hereof.
4.3 Authority; No Restriction Against Performance. The execution and
delivery of this Agreement, the performance of the covenants and agreements
contained herein and in all documents executed and delivered by or on behalf of
Sellers pursuant hereto and the consummation of the transactions contemplated
hereby have been duly and validly authorized by Sellers, and no further
corporate action of any nature will be required pursuant to the Articles of
Incorporation or By-laws of Sellers or otherwise. This Agreement constitutes the
valid and binding obligation of Sellers, enforceable in accordance with its
terms except as the same may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the rights and remedies of
creditors generally and general equitable principles and (ii) judicial
discretion in the enforcement of legal or equitable remedies.
4.4 Brokers. No Seller has employed any investment banker, broker,
consultant, finder or intermediary in connection with this Agreement or the
transactions contemplated hereby who might be entitled to a fee or commission
from a Seller or Purchaser.
4.5 Sales and Transfer Taxes. Sellers hereby agree to be fully
responsible for and obligated to pay any and all sales and other transfer taxes
and charges of any kind or nature resulting from or relating or attributable to
the sale and transfer by Sellers to Purchaser of the Purchased Assets.
-3-
<PAGE> 4
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As a material inducement to Sellers, to enter into this Agreement and
to consummate the transactions contemplated hereby subject to the conditions
contained herein, Purchaser hereby represents and warrants to and covenants and
agrees with Sellers as follows:
5.1 Organization and Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has full corporate power and authority to carry on its business,
to own and operate its properties and assets, to conduct the business in which
it is now engaged and to consummate the transactions contemplated hereby.
5.2 Authority. The execution and delivery of this Agreement, the
performance of the covenants and agreements contained herein and in all
documents executed and delivered by or on behalf of Purchaser pursuant hereto
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by Purchaser, and no further corporate action of any nature
will be required pursuant to the Articles of Incorporation or By-laws of
Purchaser or otherwise. This Agreement constitutes the valid and binding
obligation of Purchaser, enforceable in accordance with its terms except as the
same may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting the rights and remedies of creditors generally and
general equitable principles, and (ii) judicial discretion in the enforcement of
legal or equitable remedies.
5.3 Brokers. Purchaser has not employed any investment banker, broker,
consultant, finder or intermediary in connection with this Agreement or the
transactions contemplated hereby who might be entitled to a fee or commission
from either Purchaser or any Seller.
ARTICLE VI
MISCELLANEOUS
6.1 Assignment. This Agreement shall not be assignable in whole or in
part by any party without the prior consent of the other party. No such
assignment shall relieve either party of any of its obligations or duties
hereunder.
6.2 Governing Law. This Agreement and all of the agreements, documents
and instruments executed in connection with the transactions contemplated hereby
shall be governed by and construed in accordance with the laws of the State of
Georgia. If either party is found to be in breach of this Agreement, then the
breaching party shall pay the reasonable legal fees actually incurred by the
non-breaching party in enforcing this Agreement.
6.3 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or by telecopy, or if mailed, by United States certified or
registered mail, prepaid, and three business days shall have elapsed after the
same shall have been mailed to the parties or their assignees at the following
-4-
<PAGE> 5
addresses (or at such other addresses as shall be given in writing by the
parties to one another as provided herein):
To Purchaser: PSC Management Corp.
3414 Peachtree Road, N.E.
238 Monarch Plaza
Atlanta, Georgia 30326
Attn: G.R. Benjamin
Fax: (404) 816-0248
To Sellers: c/o Ramie A. Tritt, M.D.
5555 Peachtree Dunwoody Road
Suite 201
Atlanta, Georgia 30342
Fax: (404) 250-0162
6.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
6.5 Entire Agreement. This Agreement and the exhibits attached hereto
contain the entire agreement between the parties hereto concerning the
transactions contemplated hereby and supersede all prior agreements or
understandings, written or oral, between the parties hereto relating to the
subject matter hereof. No oral representation, agreement or understanding made
by any party hereto shall be valid or binding upon such party or any other party
hereto.
6.6 Amendment. This Agreement may be amended only by a written
instrument duly executed by all parties hereto.
-5-
<PAGE> 6
6.7 Captions and Section Headings. Captions and section headings used
herein are for convenience only and are not a part of this Agreement and shall
not be used in construing it.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
SELLERS:
ENT CENTER OF ATLANTA, INC.
By:_________________________________________
President
Attest:______________________________________
Secretary
(CORPORATE SEAL)
ATLANTA ENT CENTER FOR PHYSICIANS, INC.
By:_________________________________________
President
Attest:______________________________________
Secretary
(CORPORATE SEAL)
[SIGNATURES CONTINUED ON NEXT PAGE]
-6-
<PAGE> 7
ATLANTA-AHP, INC.
By:________________________________________
President
Attest:_____________________________________
Secretary
(CORPORATE SEAL)
PURCHASER:
PSC MANAGEMENT CORP.
By:__________________________________________
President
Attest:______________________________________
Secretary
(CORPORATE SEAL)
-7-
<PAGE> 8
EXHIBIT "2.2"
PURCHASE PRICE ALLOCATION
ENT Center of Atlanta, Inc.
Atlanta ENT Center for Physicians, Inc.
Atlanta - AHP, Inc.
-------
Total $20,000
=======
-8-
<PAGE> 1
Page 1
EXHIBIT 10.8
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Registration Agreement") is made
as of the _____ day of __________, 1996, by and between PHYSICIANS' SPECIALTY
CORP., a Delaware corporation ("PSC"), and ____________________________________
("Shareholder"). Capitalized terms not otherwise defined herein shall have the
meaning set forth in the Agreement among PSC, PSC Acquisition Corp. and
Shareholder of even date herewith (the "Agreement").
PSC and Shareholder hereby agree as follows:
1. Piggyback Registration Rights. If PSC at any time proposes to
register any of its Voting Common Stock $.001 par value per share ("PSC") for
its own or others' account under the Securities Act of 1933, as amended (the
"1933 Act") for an underwritten public offering for cash, other than a
registration relating to employee benefit plans, mergers, acquisitions,
exchange offer or dividend reinvestment plan, PSC will give Shareholder prompt
written notice of its intent to do so. Upon the written request of Shareholder
given within 30 days after receipt of such notice, PSC will use its best
efforts to cause to be included in such registration all of the PSC Common
Stock which Shareholder requests. For purposes of this Registration Agreement,
"PSC Common Stock" means any and all shares of PSC Stock transferred to
Shareholder in exchange for __________________________________________________
______________________________________ under the Agreement. Notwithstanding
the foregoing, if PSC is advised in writing in good faith by any managing
underwriter of the securities being offered pursuant to any registration
statement under this Section 1 that the number of shares to be sold by persons
other than PSC is greater than the number of such shares which can be offered
without adversely affecting the offering, PSC may reduce pro rata the number of
shares offered for the accounts of such persons (based upon the number of
shares requested to be registered by such persons) to a number deemed
satisfactory by such managing underwriter.
2. Registration Procedures. All expenses in connection with the
registrations under this Registration Agreement (including all registration,
filing, qualification, printer's, PSC's counsel and accounting fees, but
excluding underwriting commissions and discounts) shall be borne by PSC. In
connection with registrations under Section 1 hereof, PSC shall (i) use its
best efforts to prepare and file with the SEC, as soon as reasonably
practicable, a registration statement with respect to the PSC Common Stock and
use its best efforts to cause such registration to promptly become and remain
effective for a period of at least 120 days (or such shorter period during
which Shareholder shall have sold all PSC Common Stock he requested to be
registered); (ii) use its best efforts to register and qualify the PSC Common
Stock covered by such registration statement under applicable state securities
law as the Shareholder shall reasonably request for the distribution of the PSC
Common Stock; and (iii) take such other actions as are reasonable and
necessary to comply with the requirements of the 1933 Act and the regulations
thereunder.
<PAGE> 2
Page 2
3. Underwriting Arrangement. In connection with each registration
pursuant to Section 1 hereof covering an underwritten public offering, PSC and
Shareholder agree to enter into a written agreement with the managing
underwriter in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of PSC's size and investment stature, including indemnification.
4. Availability of Rule 144. PSC shall not be obligated to register
shares of PSC Common Stock held by the Shareholder at any time when the resale
provisions of Rule 144 promulgated under the 1933 Act are available to
Shareholder without limitation as to volume.
5. Market Standoff. In consideration of the granting to Shareholder of
the registration rights under this Registration Agreement, Shareholder agrees
that he will not sell, transfer or otherwise dispose of, including without
limitation through put or short sale arrangements, shares of PSC Common Stock
in the ten days prior to the effectiveness of any registration of PSC Stock for
sale to the public and for up to 180 days following the effectiveness of such
registration, provided that all directors, executive officers and holders of
more than five percent of the outstanding PSC Stock agree to the same
restrictions.
6. Successors and Assigns. Except as provided in Section 7, this
Registration Agreement and the rights of the parties hereunder may not be
assigned (except by operation of law) and shall be binding upon and shall inure
to the benefit of the parties hereto, their successors and permitted assigns,
and the heirs, devisees and legal representatives of Shareholder.
7. Assignment of Registration Rights. The rights to request PSC to
register PSC Common Stock pursuant to Section 1 hereof may be assigned by
Shareholder to a permitted transferee of the PSC Common Stock owned by the
Shareholder, and by such permitted transferee to a subsequent permitted
transferee, but only if such rights are transferred in connection with the sale
or other transfer of all the PSC Common Stock then held by Shareholder. Any
transferee to whom rights under this Registration Agreement are transferred
shall (i) as a condition to such transfer, deliver to PSC a written instrument
by which such transferee agrees to be bound by the obligations imposed upon
Shareholder under this Registration Agreement to the same extent as if she, he
or it were a Shareholder under this Registration Agreement and (ii) be deemed
to be Shareholder hereunder.
8. Indemnification and Contribution.
(a) Indemnification. In connection with any registration and/or sale of
any PSC Common Stock pursuant to this Registration Agreement, PSC shall, and
hereby does, indemnify and hold harmless Shareholder against any losses,
claims, damages or liabilities, joint or several (or actions in respect
thereof), to which Shareholder may be subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement (or
alleged untrue statement) of any material fact contained in any registration
statement under which such securities were registered under the Securities Act
or offered for sale, any preliminary prospectus or final
<PAGE> 3
Page 3
prospectus contained therein, or any summary prospectus issued in connection
with any securities being registered or offered for sale thereby, or any
amendment or supplement thereto, or any document incorporated by reference
therein, (ii) any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (iii) any violation by PSC of the Securities Act or any Blue
Sky law, or any rule or regulation promulgated under the Securities Act or any
Blue Sky law, or any other law applicable to PSC in connection with the sale,
registration or qualification of any PSC Common Stock, and PSC shall reimburse
Shareholder for any legal or other expenses reasonably incurred by him in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, however, that PSC shall not be liable to any
such person in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon any such untrue statement
or omission made in such registration statement, preliminary prospectus,
summary prospectus, prospectus, or amendment or supplement thereto, or such
other document, in reliance upon and in conformity with written information
furnished to PSC by Shareholder specifically for use therein. The indemnity
provided for herein shall remain in full force and effect regardless of any
investigation made by or on behalf of Shareholder and shall survive the
transfer of such securities by Shareholder.
PSC may require, as a condition to including any PSC Common Stock held by
Shareholder in any Registration Statement filed pursuant to Section 1, that PSC
shall have received an undertaking from Shareholder to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
immediately preceding paragraph of this Section 8(a) PSC, each director of PSC,
each officer of PSC who shall sign such Registration Statement and each other
person, if any, who controls PSC within the meaning of the Securities Act
(except Shareholder, if Shareholder so controls PSC), with respect to any
untrue statement in or omission from such Registration Statement, any
preliminary prospectus or final prospectus contained therein, any summary
prospectus issued in connection with any securities being registered or offered
for sale thereby, or any amendment or supplement thereto, or any filing with or
representation to the Commission or any state securities commission or other
authority under the Securities Act or any Blue Sky law, or any other law,
applicable to PSC in connection with the sale, registration or qualification of
any PSC Common Stock, in each case if such statement or omission was made in
reliance on and in conformity with written information furnished to PSC by
Shareholder specifically for use in preparing any such registration statement,
preliminary prospectus, final prospectus, summary prospectus or amendment or
supplement thereto, or in making any such filing or representation; provided,
however, that the liability of Shareholder pursuant to any such undertaking
shall not exceed the net cash proceeds received by Shareholder from the sale of
PSC Common Stock covered by the Registration Statement giving rise to such
liability. Shareholder shall promptly provide such undertaking
upon request, provided that any failure of Shareholder to provide such
undertaking shall have no effect on the obligations of PSC hereunder. The
indemnity provided for herein shall remain in full force and effect regardless
of any investigation made by or on behalf of the indemnified party and shall
survive any transfer of the PSC Common Stock held by the indemnifying party.
(b) Contribution. If the indemnification provided for in Section 8(a)
above is unavailable to an indemnified party in respect of any losses, claims,
damages or liabilities referred
<PAGE> 4
Page 4
to therein, then the intended indemnifying party, in lieu of indemnifying such
intended indemnified party thereunder, shall contribute to the amount paid or
payable by such attended indemnified party as a result of such losses, claims,
damages or liabilities, in such proportion as is appropriate to reflect the
relative fault of the intended indemnifying party on the one hand and of the
intended indemnified parties on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of the
intended indemnifying party and of the intended indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the intended indemnifying party or by the
intended indemnified party and the party's relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
PSC and Shareholder agree that it would not be just and equitable if
contribution pursuant to this Section 8(b) were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities or actions or proceedings in
respect thereof referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentations (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(c) Notice of Claims, etc. Promptly after receipt by an indemnified
party under Section 8(a) above of notice of the commencement of any action or
proceeding, such indemnified party shall, if a claim in respect thereof is to
be made against an indemnifying party, notify the indemnifying party in writing
of the commencement thereof. In case any such action shall be brought against
any indemnified party, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnifying party. Upon the
permitted assumption by the indemnifying party of the defense of such action
the indemnifying party shall not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof (other than reasonable
costs of investigation) unless the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
9. Entire Agreement. This Registration Agreement constitutes the entire
agreement and understanding between Shareholder and PSC and supersedes any
prior or contemporaneous agreement or understanding relating to the subject
matter of this Registration Agreement. This Registration Agreement may be
modified or amended only by a written instrument executed by Shareholder and
PSC (acting through its officers, duly authorized by its Board of Directors).
10. Counterparts. This Registration Agreement may be executed in two or
more
<PAGE> 5
Page 5
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
11. Notices. Any notice to be given pursuant to this Registration
Agreement shall be sufficiently given if sent by registered mail, return
receipt requested, postage prepaid, and addressed as follows:
If to PSC:
Physicians' Specialty Corp.
3414 Peachtree Road
Suite 238
Atlanta, Georgia 30326
If to Shareholder:
12. Governing Law and Jurisdiction. This Registration Agreement shall be
governed by and construed in accordance with the domestic substantive laws of
the State of Georgia, without regard to its conflict of laws principles.
13. Amendments and Waivers. Neither this Registration Agreement nor any
term hereof may be changed, waived, discharged or terminated orally or in
writing, except that any term of this Registration Agreement may be amended and
the observance of any such term may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of PSC and Shareholder; provided, however, that no such
amendment or waiver shall affect the provisions of this Section 13 and no such
waiver shall extend to or affect any other obligation not expressly waived.
14. Severability. Should any Section or any part of a Section within this
Registration Agreement be rendered void, invalid or unenforceable by any court
of law for any reason, such invalidity or unenforceability shall not void or
render invalid or unenforceable any other Section or part of a Section in this
Registration Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Agreement as of the day and year first above written.
PHYSICIANS' SPECIALTY CORP.
<PAGE> 6
Page 6
By:
Title:
SHAREHOLDER
By:
<PAGE> 1
EXHIBIT 10.9
PROMISSORY NOTE
$20,000.00 Atlanta, Georgia
August 1, 1996
FOR VALUE RECEIVED, PSC MANAGEMENT CORP., a Delaware corporation
("Maker") does hereby promise to pay to the order of ENT Center of Atlanta,
Inc., Atlanta ENT Center for Physicians, Inc. and Atlanta-AHP, Inc., each a
Georgia corporation or their successors or assigns (hereinafter, together with
any subsequent holder hereof, referred to as "Holder") at 5555 Peachtree
Dunwoody Road, Suite 201, Atlanta, Georgia 30342, or at such other place as the
Holder may from time to time designate in writing, the principal sum of Twenty
Thousand Dollars ($20,000.00), together with interest thereon, or on so much
thereof as is from time to time outstanding and unpaid, from date, plus simple
interest thereon at the then-current Prime Rate as adjusted daily. The "Prime
Rate" is defined as the Prime Rate publicly announced as being charged by
NationsBank of Georgia, N.A., or its successors, from time to time (which may
not necessarily be the lowest rate charged). Interest on the Note shall accrue
and shall compound on an annual basis until the maturity of the Note.
The principal amount of this Note together with all accrued interest
hereunder shall be due and payable on the earlier of: (i) June 30, 1997, or (ii)
the closing of an initial public offering of the stock of Maker.
Maker shall have the right to prepay this Note in full or in part at
any time without the imposition of any prepayment fee or penalty. Any partial
prepayments shall be applied first to any accrued and unpaid interest due under
this Note and the balance, if any, to the outstanding principal balance of this
Note.
Time is of the essence of this Note and, in the event this Note is
collected by law or through an attorney at law or under advice therefrom, Maker
agrees to pay all costs of collection, including reasonable attorney's fees
actually incurred.
Maker hereby waives presentment, demand for payment and notice of
nonpayment.
This Note shall be construed in all respects and enforced according to
the laws of the State of Georgia.
Any and all notices required or permitted to be given under this Note
will be sufficient if furnished in writing, sent by registered mail, in the case
of Maker to 3414 Peachtree Road, 238 Monarch Plaza, Atlanta, Georgia 30326,
Attn: Gerald R. Benjamin, or in the case of Holder to 5555 Peachtree Dunwoody
Road, Suite 201, Atlanta, Georgia 30342, Attention: Ramie A. Tritt, M.D.
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<PAGE> 2
IN WITNESS WHEREOF, Maker has signed this Note as of the day and year
first above written.
PSC MANAGEMENT CORP.
By:_______________________________________
President
Attest: __________________________________
Secretary
(CORPORATE SEAL)
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<PAGE> 1
EXHIBIT 10.10
LEASE AGREEMENT
THIS LEASE is made and entered into effective the 1st day of October,
1988, by and between TRIMED ASSOCIATES, P.C., a Georgia corporation (hereinafter
called "Lessor") and NORTH SUBURBAN EAR, NOSE & THROAT ASSOCIATES, P.C., a
Georgia professional corporation (hereinafter called "Lessee").
W I T N E S S E T H :
1. Premises. Lessor does hereby rent and lease to Lessee and Lessee
does hereby rent and lease from Lessor for the practice of Medicine and Related
Practices the following described space (hereinafter called the "Premises"):
4,520 square feet of office space more particularly described on Exhibit "A"
attached hereto and made a part hereof by reference.
2. Lease Term. Lessee shall have and hold the Premises for a term
beginning as of October 1, 1988 (the "Commencement Date"), and continuing for a
period of one hundred twenty-three (123) months thereafter.
3. Base Rental.
(a) Lessee shall pay to Lessor at its offices at 5555
Peachtree Dunwoody Road, Suite 201, Atlanta, Georgia 30342, or at such other
place as Lessor shall designate in writing to Lessee, promptly on the first day
of each month, in advance, during the term of this Lease, the Base Rental. For
purposes of this subparagraph (a) of this Paragraph 3 of this Lease, the Base
Rental for the following periods shall be the following amounts:
<TABLE>
<CAPTION>
Period Monthly Base Rental
------ -------------------
<S> <C>
October 1, 1988 through
December 31, 1989 $6,780.00 per month
January 1, 1990 through
December 31, 1990 $6,949.50 per month
January 1, 1991 through
December 31, 1991 $7,123.24 per month
January 1, 1992 through
December 31, 1992 $7,301.32 per month
</TABLE>
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<PAGE> 2
<TABLE>
<S> <C>
January 1, 1993 through
December 31, 1993 $7,483.85 per month
January 1, 1994 through
December 31, 1994 $7,670.95 per month
January 1, 1995 through
December 31, 1995 $7,862.72 per month
January 1, 1996 through
December 31, 1996 $8,059.29 per month
January 1, 1997 through
December 31, 1997 $8,260.77 per month
January 1, 1998 through
December 31, 1998 $8,467.29 per month
</TABLE>
(b) Notwithstanding anything to the contrary contained herein, the rent
for the first month during the term of this Lease shall be paid at the time of
execution of this Agreement. No part of any monthly rental payment made under
this Lease shall be returned to Lessee regardless of whether Lessee vacates the
Premises voluntarily or vacates the Premises at the insistence of Lessor.
4. Partial Payment. No payment by Lessee or acceptance by Lessor of any
amount less than the monthly rent herein stipulated shall be deemed a waiver of
any other rent due. No partial payment or endorsement on any check or any letter
accompanying such payment of rent shall be deemed an accord and satisfaction,
but Lessor may accept such payment without prejudice to Lessor's right to
collect the balance of any rental due under the terms of this Lease.
5. Construction of this Agreement. No failure or Lessor to exercise any
power given Lessor hereunder, or to insist upon strict compliance by Lessee with
its obligation hereunder, and no custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of Lessor's right to demand
exact compliance with the terms hereof. Time is of the essence of this
Agreement.
6. Use of Premises. Lessee shall use and occupy the Premises for the
professional services set forth in Paragraph 1 hereof and for no other purpose
and such practice shall be performed in strict compliance with the Code of
Ethics of such profession. The Premises shall not be used for any illegal
purpose, nor in violation of any valid regulation of any governmental body, nor
in any manner to create any nuisance or trespass, nor in any manner to vitiate
the insurance or increase the rate of insurance on the Premises. If Lessee or
any physicians or other professionals practicing with Lessee have their license
revoked, or if Lessee or any physicians or
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<PAGE> 3
professionals practicing with Lessee are convicted in any court of any criminal
offense, Lessor shall have the option of terminating this Lease.
7. Definitions. "Lessor" as used in this Lease, shall include first
party, its representatives, assigns and successors in title to premises.
"Lessee" shall include second party, his heirs and representatives, and if this
Lease shall be validly assigned or sublet, shall also include Lessee's assignees
or sublessees, as to so much or all of premises covered by such assignment or
sublease. "Lessor" and "Lessee" include male and female, singular and plural,
corporation (and if a corporation, its officers, employees, agents or
attorneys-in-fact), partnership or individual, as may fit the particular
parties. "Building" shall include the office building in which the Premises are
located, all improvements thereon and any parking facilities appurtenant
thereto. "Rental" or "rent" shall include Base Rental, Lessee's proportionate
share of Operating Expenses (as hereinafter defined) and any other charges or
amounts payable to Lessor hereunder.
8. Repairs by Lessor. Lessee, by taking possession of the Premises,
shall accept and shall be held to have accepted the Premises as suitable for the
use intended by this Lease. Lessor shall not be required, after possession of
the Premises has been delivered to Lessee, to make any repairs or improvements
to the Premises, except repairs necessary for safety and tenantability
(including exterior walls and structural repairs). Lessee shall report at once
in writing to Lessor any defective condition known to it which the Lessor is
required to repair, and the failure to so report shall make the Lessee
responsible for the damages resulting from such defective condition.
9. Repairs by Lessee. Lessee shall, at its own expense, keep and
maintain the Premises, appurtenances thereto and every part thereof in good
order and repair, provided, however, that Lessee shall have no responsibility to
repair or maintain any portion of the Premises for which Lessor shall be
responsible for repairing and maintaining as provided in Paragraph 8 above.
Lessee shall in all events promptly make at its own expense such repairs as
shall be required by reason of the negligent acts or omissions of Lessee, its
agents, contractors, employees and invitees, or by reason of the misuse of the
Premises or any portion of the Building by Lessee, its agents, contractors,
employees and invitees. Lessee shall make no alterations in, or additions to,
the Premises Without first obtaining Lessor's prior written consent for such
alterations or additions, which shall be at the sole cost of Lessee. Lessor
agrees to assign to Lessee any rights it may have against the contractor of the
Premises with respect to any work performed by said contractor in connection
with improvements made by Lessor at the request of Lessee.
10. Operating Expenses.
(a) Lessee agrees to reimburse Lessor, as additional rent
hereunder, and under any extensions or renewals of this Lease, all of the annual
Operating Expenses of the Premises and that pro rata portion of the Operating
Expenses of the Building attributable to the Premises.
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<PAGE> 4
(b) Operating Expenses shall be all of those expenses of
operating, servicing, managing and maintaining the Premises plus that pro rata
portion of those expenses of operating, servicing, managing and maintaining the
Premises plus that pro rata portion of those expenses of operating, servicing,
managing and maintaining the Building which are attributable to or assessed
against the Premises in a manner deemed by Lessor and the owner of the Building
as reasonable and appropriate. Operating Expenses include, without limitation,
the following:
(1) All taxes and assessments applicable to the
operations of the Premises and the Building including without
limitation real property taxes, ad valorem taxes, intangibles taxes,
installments and interest on assessments for public betterments or
public improvements, expenses of any proceedings for contests,
reduction or abatement of taxes and assessments with respect to any tax
year or fraction of a tax year.
(2) Insurance, including, without limitation
comprehensive liability and all-risk fire and extended coverage
insurance of the Premises and the Building.
(3) Utility Charges, including, without limitation,
water, power, heating, lighting, ventilation, sanitary assessments and
air conditioning of the Premises and the Building.
(4) Janitorial, Maintenance and Security Expenses,
including:
(i) The wages and salaries of all employees
engaged in the operation and maintenance of the Premises and
the Building (any such service shall be at a competitive rate
as established in Metropolitan Atlanta), including the
employer's social security taxes and any other taxes which may
be levied on such wages and salaries, worker's compensation
insurance premiums, and any fringe benefits;
(ii) Janitorial supplies and other materials
used in the operation and maintenance of the Premises and the
Building; and
(iii) The cost of maintenance and service
agreements on equipment, window cleaning, and other similar
services or agreements, including payments to independent
contractors under contracts for security, cleaning, operating,
managing, maintaining and repairing the Premises and the
Building.
(5) All condominium fees, special assessments or
management fees levied against the premises by the Condominium
Association or property manager then consisting of or serving the
owners of the Building.
(6) All parking fees assessed against the premises
with regard to either the operation of the parking facilities of the
Building or the use of such facilities by the owners, partners,
employees, officers, agents, licensees, invitees or patients of the
Lessee.
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<PAGE> 5
(7) All other expenses directly and reasonably
associated with operating, servicing and managing the Premises and the
Building.
(c) During the first three (3) months of the term of this
Lease, Lessor shall notify Lessee in writing of the amount of such Operating
Expenses then due from Lessee and Lessee agrees to pay such amount to Lessor,
within thirty (30) days thereafter. For each calendar year during which this
Lease remains in effect, Lessee agrees to pay the entire amount of Operating
Expenses for such entire calendar year, as estimated by Lessor, in twelve (12)
equal monthly installments and in advance along with Lessee's payment of monthly
installments of Base Rental. Estimates of Operating Expenses shall be revised
annually by Lessor. Should Operating Expenses be underestimated for any prior
calendar year, Lessee shall pay any deficiency along with the payment of Base
Rental next due. Any excess payments shall be credited against the payments of
Operating Expenses next due, or refunded to Lessee if no such payments are next
due. Lessor agrees to furnish to Lessee along with any notice of a credit or
deficiency a statement containing a summary of costs for each applicable year.
For any short calendar year in which this Lease terminates,
the provisions of this paragraph shall apply, but Lessee's share of Operating
Expenses for such year shall be subject to a pro rata adjustment based upon the
number of full calendar months of said calendar year prior to the expiration of
the term of the Lease and shall be paid by Lessee to Lessor within thirty (30)
days after receipt by Lessee of the applicable expense statement.
11. Acceptance and Waiver. Lessor shall not be liable to the Lessee,
its officers, agents, employees, guests or invitees for any damage caused to the
Lessee, its officers, agents, employees, guests and invitees due to the
Premises, the Building or any part or appurtenances thereof being improperly
constructed or being or becoming out of repair, or arising from the leaking of
gas, water, sewer or steam pipes, or from electricity, but Lessee, by moving
into the Premises and taking possession thereof, shall accept, and shall be held
to have accepted the Premises as suitable for the purposes for which the same
are leased, and shall accept and shall be held to have accepted the Building and
every appurtenances thereof, and Lessee by said act waives any and all defects
therein; provided, however, that this Paragraph shall not apply to any damages
or injury caused by or resulting from the sole negligence of Lessor.
12. Alterations to be Property of Lessor. Any alterations, additions,
and improvements which may be made by Lessee, except removable fixtures and
equipment, will at the option of Lessor, become the property of Lessor and
remain upon the Premises as a part thereto, and be surrendered with the Premises
at the termination of this Lease. Provided, however, that Lessor shall, under no
circumstances during the term of this Lease, be required to carry any insurance
to indemnify any party in case of the damage or loss to said improvements or to
improvements made by Lessor for the benefit of Lessee, and, provided further
that under no circumstances shall Lessor be required to pay, during the term of
this Lease and any extensions or renewals thereof, any ad valorem or property
tax on such improvements, Lessee hereby covenanting to pay all such taxes when
they become due.
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<PAGE> 6
13. Signs. Lessee shall not paint or place signs, placards, or other
advertisement of any character upon the windows or inside walls of the Premises
or Building except with the consent of Lessor, and Lessee shall place no signs
upon the outside walls or the roof of the Premises or the Building. All exterior
doors and all signs on such exterior doors shall be uniform and of a type and
design designated by Lessor.
14. Carding. Lessor may card the Premises "For Rent" or with any other
appropriate sign at any time within six (6) months prior to the expiration,
cancellation, or termination of this Lease for any reason and during such six
(6) month period may exhibit the Premises to prospective tenants.
15. Removal of Fixtures. If not in default hereunder, Lessee may, prior
to the expiration of this Lease, or any extension thereof, remove any fixtures
and equipment which it has placed in the Premises or the Building which can be
removed without significant damage to the Premises or the Building, provided
Lessee repairs all damages to the Premises or the Building caused by such
removal.
16. Entering Premises. Lessor may enter Premises at reasonable hours
provided that Lessor's entry shall not unreasonably interrupt Lessee's business
operations and that prior notice is given when situation permits (and, if in the
opinion of Lessor an emergency exists, at any time and without notice) (a) to
make repairs, if any, which Lessor under the terms hereof must make to the
Premises, or repairs on the Building; (b) to inspect the Premises to see that
Lessee is complying with all of the terms and conditions hereof and with the
rules and regulations hereof; (c) to remove from the Premises or the Building
any articles or signs kept or exhibited therein in violation of the terms
hereof; and (d) to exercise any other rights or perform any other obligation
that Lessor has under this Lease. Lessor shall be allowed to take all material
into and upon the Premises that may be required to make any repairs,
improvements, and additions, or any alterations for the benefit of Lessee
without in any way being deemed to have partially or wholly evicted Lessee. The
rent reserved shall in no wise abate while said repairs, alterations, or
additions are being made and Lessee shall not be entitled to maintain a set-off
or counterclaim for damages against Lessor by reason of loss from interruption
to the business of Lessee because of the prosecution of any such work. All such
repairs, decorations, additions, and improvements shall be done during ordinary
business hours, or, if any such work is at the request of Lessee to be done
during any other hours, the Lessee shall pay all overtime and other extra costs.
17. Plumbing Stoppage. Lessor shall not be responsible for stopped-up
drains where such stoppage is caused by the introduction of foreign objects not
intended for disposal in such drains, and, if Lessor shall repair such drains,
Lessee shall reimburse Lessor for the cost of such repairs.
18. Services of Lessor. Lessor hereby covenants that it shall, during
the proper season and during reasonable hours, furnish air conditioning and
heating in its judgment reasonably sufficient to cool or heat the Premises and
shall cause the Premises to be cleaned and generally cared for by its janitor,
cessation caused by strike, accident or reasonable necessity
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<PAGE> 7
excepted. Lessor will also pay the water rate for water reasonably used on the
Premises. Except when due to the sole negligence of Lessor, Lessor shall not be
liable for any damage or injury to persons or property caused by any defects in
the heating, electric, air conditioning equipment or water apparatus, or for any
damages arising out of the failure to furnish heating or air conditioning,
water, electrical, or janitor service.
19. Electricity, X-ray and Hazardous Materials.
(a) Lessor shall provide electricity to the Premises for small
business machines and equipment normally found in medical offices, but not,
without the approval of Lessor, for electrical equipment which would exceed the
capacity of the existing feeders, users or wiring installation. Lessor shall not
be liable for any damages caused by the stoppage of electrical service or from
any failure to furnish electrical service. In no event shall Lessee permit its
use of electric current to exceed the capacity of existing feeders, users or
wiring installation. Lessee shall take all steps necessary to keep electrical
usage to a minimum. In the event that Lessor desires at any time to install
separate electrical meters in the Premises, Lessee shall be responsible for the
payment of any current which Lessee uses that exceeds the average use of current
by other owners or lessees in the Building.
(b) Lessee shall not install X-ray machines in the Premises
without Lessor's approval, which shall not be unreasonably withheld. Lessee
hereby accepts the risks of and all responsibility for any injury or damage
which may result from the operation or failure of operation of any such X-ray
equipment. All X-ray equipment owned or operated by Lessee must be installed and
protected in a manner satisfactory to Lessor.
(c) Lessee shall not use, place, score or maintain in the
Premises any contaminated, contagious or infectious materials or agents that
would in Lessor's discretion be hazardous to the health or safety of other
owners or tenants of the Building or their agents, employees or invitees.
20. General Liability of Lessee. Lessee shall indemnify and save
harmless Lessor against all claims for damages to persons or property by reason
of the use or occupancy of the Premises, or Building, and all expenses incurred
by Lessor because of Lessee's use and occupancy, including attorney's fees and
court costs. Lessee shall be liable for and shall hold Lessor harmless in
connection with damage or injury to Lessor, the Premises, the Building, and the
property and persons of other owners or tenants in the Building, or any one
else, if due to act or neglect of Lessee, or of any one in its control or
employ.
21. Governmental Requirements. Lessee shall, at its own expense,
promptly comply with all requirements of any legally constitute public authority
made necessary by reason of Lessee's occupancy of the Premises.
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<PAGE> 8
22. Abandonment of Premises. Lessee agrees not to abandon or vacate the
Premises during the period of the Lease and to use said Premises for the purpose
herein leased until the expiration hereof.
23. Assignment and Subletting. Lessee may not, without the prior
written consent of Lessor endorsed hereon, assign this Lease or any interest
hereunder, or sublet the Premises or any part thereof, or permit the use of the
Premises by any party other than Lessee. Any sale of a majority or controlling
interest in Lessee shall be considered an assignment for purposes of this
paragraph. Consent to one assignment or sublease shall not destroy or waive this
provision, and all later assignments and subleases shall likewise be made only
upon the prior written consent of Lessor. Subtenants or Assignees shall become
liable to Lessor for all obligations of Lessee hereunder, without relieving
Lessee's liability hereunder.
24. Cancellation of Lease by Lessor. If Lessee shall default in the
payment of rent herein reserved when due; or if Lessee shall be in default in
performing any of the terms or provisions of this Lease other than the
provisions requiring the payment of rent, and fails to cure such default within
thirty (30) days after the date of receipt of written notice of default from
Lessor; or if Lessee is adjudicated a bankrupt; or if a permanent receiver is
appointed for Lessee's property and such receiver is not removed within sixty
(60) days after written notice from Lessor to Lessee to obtain such removal; or
if, whether voluntarily or involuntarily, Lessee takes advantage of any debtor
relief proceedings under any present or future law, whereby the rent or any part
thereof, is, or is proposed to be, reduced or payment thereof deferred; or if
Lessee's effects should be levied upon or attached under process against Lessee,
not satisfied or dissolved within thirty (30) days after written notice from
Lessor to Lessee to obtain satisfaction thereof; then, and in any of said
events, Lessor at its option may terminate this Lease and/or Lessee's right to
possess the Premises and may, in addition or in lieu thereof, invoke any and all
remedies available to Lessor under the laws of the State of Georgia, provided
that Lessee shall not be released from liability hereunder as a result of such
termination. Any notice provided in this paragraph may be given by Lessor,
Lessor's attorney, or Agent. Upon such termination by Lessor, Lessee will at
once surrender possession of the Premises to Lessor and remove all of Lessee's
effects therefrom; and Lessor may forthwith re-enter the Premises and repossess
himself thereof, and remove all persons and effects therefrom, using such force
as may be necessary, without being guilty of trespass, forcible entry or
detainer or other tort. If this Lease is terminated by Lessor pursuant to the
provisions of this Paragraph, Lessee shall pay to Lessor as damages, at the
election of Lessor, either:
(a) a sum which represents the then excess, if any, of (i) the
aggregate amount of the Rental due and reserved hereunder from the date of
Lessee's default to the expiration date of the fully stated term hereof over
(ii) the aggregate rental value of the Premises for the same period as reduced
by thee estimated cost of terminating this Lease and entering, security and
reletting the Premises, including attorneys' fees, commissions, alterations and
repair costs; or
(b) sums equal to the Rental which would have been payable by
Lessee had this Lease not been so terminated, or had Lessor not so re-entered
the Premises, payable upon the
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<PAGE> 9
due dates therefor specified herein, provided, however, that if Lessor shall
relet the Premises during said period, Lessor shall credit Lessee with the net
rents received by Lessor from such reletting, such net rents to be determined by
first deducting from the gross rents as and when received by Lessor from such
reletting the expenses incurred or paid by Lessor in terminating this Lease or
in re-entering the Premises and in securing possession thereof, as well as the
expenses of reletting, including, without limitation, altering and preparing the
Premises for new tenants, brokers' commissions, legal fees, and all other
expenses properly chargeable against the Premises and the rental therefrom, it
being understood that any such reletting may be for a period shorter or longer
than the remaining term of this Lease; but in no event shall Lessee be entitled
to a credit in respect of any net rents from a reletting, except to the extent
that such net rents are actually received by Lessor.
If the Premises or any part thereof is relet by Lessor for the
unexpired portion of the term of this Lease, or any part thereof, before
presentation of proof of damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Premises, or part thereof, so relet during the
term of the reletting. Lessor shall not be liable in any way whatsoever, nor
shall Lessor's damages be reduced, for its failure or refusal to relet the
Premises or any part thereof or to collect Rental due as a consequence of
reletting if the Premises are relet, and no such refusal or failure to relet or
failure to collect Rental shall release or affect Lessee's liability for damages
or otherwise under this Lease.
If Lessor shall not be permitted to terminated this Lease as
hereinabove provided because of the provisions of Title 11 of the United States
Code relating to Bankruptcy as amended ("Bankruptcy Code"), then Lessee or any
trustee for Lessee agrees promptly, within no more than fifteen (15) days upon
request of Lessor to the Bankruptcy Court, to assume or reject this Lease and
Lessee agrees not to seek or request any extension or adjournment of any
application to assume or reject this Lease by Lessor with such Court. In such
event, Lessee or any trustee of Lessee may assume this Lease only if it (i)
cures or provides adequate assurance that the Lessee will promptly cure any
default hereunder, and (ii) compensates or provides adequate assurance that the
Lessee will promptly compensate Lessor for any actual pecuniary loss to Lessor
resulting from Lessee's default. In the event of a filing of a petition under
the Bankruptcy Code, Lessor shall have no obligation to provide Lessee with
heating, ventilating and air conditioning services or utilities, janitorial,
maintenance or security services, if any, unless Lessee shall have paid and be
current in all payments of rents due hereunder.
25. Re-Letting by Lessor. Lessor, as Lessee's Agent, without
terminating this Lease, upon Lessee's breach of any of the terms of this Lease,
may, at Lessor's option, enter upon and rent the Premises at the best price
obtainable by reasonable effort, without advertisement and by private
negotiations and for any term Lessor deems proper. Lessee shall be liable to
Lessor for the deficiency, if any, between Lessee's rent hereunder and the price
obtained by Lessor on re-letting and shall further be liable for all expenses
incurred by Lessor in reletting the Premises, including without limitation
expenses of cleaning, restoring and remodeling the Premises and the
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<PAGE> 10
Building to put the new tenant in possession, brokers' commissions, legal fees
and all other expenses properly chargeable against the Premises or the rental
therefrom.
26. Effect of Termination of Lease. No termination of this lease prior
to the normal ending thereof, by lapse of time or otherwise, shall effect
Lessor's right to collect rent for the period prior to the termination hereof.
27. Destruction or Damaged Building or Premises. If the Building or
Premises are totally destroyed (or so substantially damaged as to be
untenantable) by storm, fire, earthquake, or other casualty, this Lease shall
terminate as of the date of such destruction or damage, and rental shall be
accounted for as between Lessor and Lessee as of that date. If the Building or
Premises are damaged but not rendered wholly untenable and restorable by any
such casualty or casualties, rental shall abate in such proportion as the use of
the Premises has been destroyed, and if Lessor deems that restoration is
practicable and feasible, it shall restore the Premises to substantially the
same condition as before damage as soon as practicable, whereupon full rental
shall recommence.
28. Eminent Domain. If the whole of the Building or the Premises or
such portion of the Building or the Premises as will make the Premises unusable
in the reasonable judgment of Lessor for the purposes herein leased is condemned
or taken by any legally constituted authority for any public use or purpose,
then in either of said events the term hereby granted shall cease from the time
when possession thereof is taken by condemning authorities, and rental shall be
accounted for as between Lessor and Lessee as of that date. Lessee shall have no
right or claim to any part of any award made to or received by Lessor for such
condemnation or taking, and all awards for such condemnation or taking shall be
made solely to Lessor.
29. Service of Notice. Except as otherwise provided by law, Lessee
hereby appoints as his agent to receive the service of all dispossessory or
distraint proceedings and notice thereunder, and all notices required under this
Lease, the person in charge of or occupying the Premises at the time of such
proceeding or notice; and if no person be in charge or occupying the Premises,
then such service or notice may be made by attaching the same to the front
entrance of the Premises. A copy of all notices under this Lease shall also be
mailed to Lessee's last known address, if different from the Premises.
30. Mortgagee's Rights. This Lease, and all rights of Lessee hereunder,
are and shall be subject and subordinate to all leases, covenants and agreements
affecting all or any part of the Premises or the Building now or hereafter
existing and to all security deeds which may now or hereafter affect the
Premises or the Building and to all renewals, modifications, replacements and
extensions of such leases, covenants, agreements and such security deeds. At the
request of any successor to the title or any interest of Lessor, Lessee shall
attorn to such successor. This Paragraph shall be self-operative and no further
instrument of subordination or attornment shall be required. In confirmation of
such subordination or attornment, Lessee shall promptly execute, acknowledge and
deliver any instrument that Lessor, the lessor under any such lease or the
holder of any such security deed or any of their respective successors in title
or interest may
-10-
<PAGE> 11
reasonably request to evidence same. In addition Lessee shall promptly execute,
acknowledge and deliver such certificate as to the status of this Lease as
Lessor, the Lessor under any such lease or the holder of any such security deed,
their successor in title or interest may reasonably require.
31. Attorney's Fees and Homestead. If any rent owing under this Lease
is collected by or through an Attorney at Law, Lessee agrees to pay fifteen
percent (15%) thereof as attorney's fees. Lessee waives all homestead rights and
exemptions which it may have under any law against any obligation owing under
this Lease and Lessee hereby assigns to Lessor its homestead and exemption.
32. Parking. Lease shall be entitled to use the parking facilities of
the Building allocated to the Premises. All other parking facilities of the
Building not otherwise allocated to the other owners of or tenants in the
Building shall be used in common with the other owners and tenants in the
building and other designees of Lessor by paying a uniform rate as paid by other
tenants using the parking area. Lessee's patients and invitees shall be entitled
to use such parking facilities by paying the posted hourly rate. Both the
monthly and hourly rates shall be competitive with similar parking facilities in
Metropolitan Atlanta.
33. Storage. It the Lessor makes available to Lessee any storage space
in the Building, anything stored therein shall be wholly at the risk of Lessee,
and Lessor shall have no responsibility of any character in respect thereto.
34. Garbage Disposal. All garbage shall be disposed of through the
janitorial service.
35. Surrender of Premises. Whenever under the terms hereof Lessor is
entitled to possession of the Premises, Lessee at once shall surrender the
Premises and the keys thereto to Lessor in the same condition as at the
commencement of the term, natural wear and tear only excepted, and Lessee shall
remove all of its property therefrom; and Lessor may forthwith re-enter the
Premises and repossess itself thereof and remove all persons and effects
therefrom, using such force as may be necessary without being guilty of forcible
entry or detainer, trespass or other tort. Lessee's obligation to observe or
perform this covenant shall survive the expiration or other termination of the
term of the Lease. If the last day of the term of this Lease falls on Sunday or
a legal holiday, this Lease shall expire on the business day immediately
preceding.
36. Cleaning Premises. Upon vacating the Premises, Lessee agrees to
clean the Premises and those portions of the Building used by Lessee thoroughly
or to pay Lessor for the cleaning necessary to restore the Premises or such
portions of the Building to their condition when Lessee's possession commenced,
natural wear and tear excepted, regardless of whether any security deposit has
been forfeited.
37. No Estate in Land. This contract shall create the relationship of
landlord and tenant between Lessor and Lessee; no estate shall pass out of
Lessor; Lessee has only a usufruct, not subject to levy and sale, and not
assignable by Lessee except by Lessor's consent.
-11-
<PAGE> 12
38. Cumulative Rights. All rights, powers and privileges conferred
hereunder upon the parties hereto shall be cumulative but not restrictive to
those given by law.
39. Paragraph Titles; Severability. The paragraph titles used herein
are not to be considered a substantive part of this Lease, but merely
descriptive aids to identify the paragraphs to which they refer. Use of the
masculine gender includes the feminine and neuter, and vice versa, where
necessary to impart contextual continuity. If any paragraph or provision herein
is held invalid by a court of competent jurisdiction, all other paragraphs or
severable provisions of this Lease shall not be affected hereby, but shall
remain in full force and effect.
40. Damage or Theft of Personal Property. All personal property brought
into the Building or the Premises shall be at the risk of the Lessee only and
Lessor shall not be liable for theft thereof or any damage thereto occasioned by
any acts of co-tenants, or other occupants of the Building, or any other person,
except, with respect to damage to the Building or Premises, as may be occasioned
by the negligent or willful act of the Lessor, its employees and agents.
41. Holding Over. In one event Lessee remains in possession of the
Premises after the expiration of the term hereof, with Lessor's acquiescence and
without any express written agreement of the parties, Lessee shall be a tenant
at will at the rental prevailing at the expiration of the Lease and there shall
be no renewal of this Lease by operation of law or otherwise.
42. Rules and Regulations. The rules and regulations to the Building,
annexed hereto, and all reasonable rules and regulations which Lessor may
hereafter, from time to time, adopt and promulgate for the government and
management of the Building, are hereby made a part of this Lease and shall,
during the said term, be in all things observed and performed by Lessee, its
agents, employees or invitees.
43. Alteration of Improvements. Lessor reserves the right at anytime to
construct on the Premises or Building additional improvements, and to alter or
modify any improvements constructed on the Premises or the Building.
44. Entire Agreement. This Lease contains the entire agreement of the
parties and no representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect.
-12-
<PAGE> 13
STATE OF GEORGIA
COUNTY OF FULTON
CONDOMINIUM WARRANTY DEED
THIS INDENTURE, made this 29th day of December, in the year
One Thousand Nine Hundred Eighty-Six, between PEACHTREE DUNWOODY ASSOCIATES, a
Georgia general partnership having Wilwat Properties, Inc.,and Hare-Summers
Properties, Inc., a Georgia corporation, as its sole general partners, as party
of the first part, hereinafter called Grantor, and NORTH SUBURBAN EAR, NOSE &
THROAT ASSOCIATES, P.C., a Georgia Professional Corporation, as party of the
second part, hereinafter called Grantee (the words "Grantor" and "Grantee" to
include their respective heirs, successors, and assigns where the context
requires or permits).
WITNESSETH that: Grantor, for and in consideration of the sum
of Ten ($10.00) Dollars and other good and valuable consideration in hand paid
at and before the sealing and delivery of these presents, the receipt whereof is
hereby acknowledged, has granted, bargained, sold, aligned, conveyed, and
confirmed, and by these presents does grant, bargain, sell, alien, convey, and
confirm unto said Grantee,
That certain Condominium Unit in Land Lot 16 of the 17th District of Fulton
County, Georgia and being identified and depicted as Condominium Unit No. 201,
of THE MEDICAL QUARTERS OF NORTH ATLANTA, a Condominium, on that certain plat
dated June 19, 1984, prepared by Randy L. Tibbitts (Georgia Registered Land
Surveyor No. 2137), of Hill-Fister Engineers, Inc., recorded in Condominium Plat
Book 7, Page 65, Fulton County, Georgia, Records, together with its appurtenant
percentage of undivided interest in the common elements of THE MEDICAL QUARTERS
OF NORTH ATLANTA, a Condominium, as provided in that certain Declaration of
Condominium for THE MEDICAL QUARTERS OF NORTH ATLANTA, a Condominium, dated July
7, 1984, recorded in Deed Book 9077, Page 9, Fulton County, Georgia, records as
amended by Amendment to Declaration of Condominium For The Medical Quarters of
North Atlanta, A Condominium, dated October 8, 1984, and recorded in Deed Book
9205, Page 197, aforesaid records; as further amended by Amendment to
Declaration of Condominium dated December 12, 1984, and recorded in Deed Book
9308, Page 209, aforesaid records; as further amended by Amendment To
Declaration of Condominium dated March 1, 1985, and recorded in Deed Book 9407,
Page 107, aforesaid records; as
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<PAGE> 14
EXHIBIT "A"
DESCRIPTION OF THE PREMISES
That certain Condominium Unit in Land Lot 16 of the 17th District of Fulton
County, Georgia and being identified and depicted as Condominium Unit No. 201,
of THE MEDICAL QUARTERS OF NORTH ATLANTA, a Condominium, on that certain plat
dated June 19, 1984, prepared by Randy L. Tibbitts (Georgia Registered Land
Surveyor No. 2137), of Hill-Fister Engineers, Inc., recorded in Condominium Plat
Book 7, Page 65, Fulton County, Georgia, Records, together with its appurtenant
percentage of undivided interest in the common elements of THE MEDICAL QUARTERS
OF NORTH ATLANTA, a Condominium, as provided in that certain Declaration of
Condominium for THE MEDICAL QUARTERS OF NORTH ATLANTA, a Condominium, dated July
7, 1984, recorded in Deed Book 9077, Page 9, Fulton County, Georgia, Records, as
amended by Amendment to Declaration of Condominium For THE MEDICAL QUARTERS OF
NORTH ATLANTA, a Condominium, dated October 8, 1984, and recorded in Deed Book
9205, Page 197, aforesaid records; as further amended Amendment to Declaration
of Condominium dated December 12, 1984 and recorded in Deed Book 9308, Page 209,
aforesaid records; as further amended by Amendment To Declaration Of Condominium
dated March 1, 1985, and recorded in Deed Book 9407, Page 107, aforesaid
records; as further amended by Amendment To Declaration Of Condominium dated
April 18, 1985, and recorded in Deed Book 9496, Page 371, aforesaid records; as
further amended by Amendment to Declaration of Condominium dated October 7,
1985, and recorded in Deed Book 9763, Page 296, aforesaid records; as further
amended by Amendment to Declaration of Condominium dated March 3, 1986, and
recorded in Deed Book 9987, Page 337, as recorded in Deed Book 9991, Page 18,
aforesaid records; as further amended by Amendment to Declaration of Condominium
dated May 27, 1986, and recorded in deed Book 10120, Page 51, aforesaid records;
or as hereafter amended as therein provided.
The address of said Condominium Unit at the time of the execution and delivery
of this Deed is Suite 201, 5555 Peachtree Dunwoody Road, Atlanta, Georgia 30342.
Said recorded Plat and said recorded Declaration, including any and all recorded
amendments thereto, as well as any other plans applicable to said Condominium
Unit, and filed in Condominium Cabinet 2, Folder No. 204, Fulton County, Georgia
Records, are incorporated herein by reference as part of the description of the
property conveyed hereby.
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<PAGE> 15
LEASE AGREEMENT
This is an Addendum to Lease Agreement between TRIMED ASSOCIATES, P.C. and NORTH
SUBURBAN EAR, NOSE & THROAT ASSOCIATES, P.C. which was entered into effective
the first day of October 1988. TRIMED ASSOCIATES, P.C. on December 20, 1988
transferred all its assets to Ramie A. Tritt and therefore, this
ADDENDUM/ADDITION to the Lease Agreement incorporates all the clauses,
restrictions and covenants of the initial Lease Agreement effective October 1,
1988.
Hereinafter, Ramie A. Tritt is called Lessor and NORTH SUBURBAN EAR, NOSE &
THROAT ASSOCIATES, P.C. is called Lessee. The Lessee has agreed to rent and
lease an additional 2850 square feet of office space, more particularly
described on Exhibit B (condo unit number 215 of the Medical Quarters of North
Atlanta). The Lease term shall run concurrent with the lease term as presently
outlined in the Lease Agreement and scheduled to end on December 31, 1998.
Base Rent will be as follows:
<TABLE>
<CAPTION>
Period Monthly Base Rental
------ -------------------
<S> <C>
May l, 1990 through
December 31, 1990 $4,860.00 per month
January 1, 1990 through
December 31, 1991 $4,981.50 per month
January 1, 1992 through
December 31, 1992 $5,106.04 per month
January 1, 1993 through
December 31, 1993 $5,233.69 per month
January 1, 1994 through
December 31, 1994 $5,364.53 per month
January 1, 1995 through
December 31, 1995 $5,498.64 per month
January 1, 1996 through
December 31, 1996 $5,636.11 per month
January 1, 1997 through
December 31, 1997 $5,777.01 per month
January 1, 1998 through
December 31, 1998 $5,921.44 per month
</TABLE>
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties have set their hands and seals.
LESSOR:
Signed, sealed and delivered Ramie A. Tritt
this 22nd day of June,
1990, in the presence of:
_____________________________ By:_____________________
Witness Ramie A. Tritt
_____________________________
Notary Public
LESSEE:
Signed, sealed and delivered NORTH SUBURBAN EAR, NOSE & THROAT
this 22nd day of June,
1990, in the presence of:
_____________________________ By:______________________________
Witness Ramie A. Tritt, President
_____________________________ Attest:__________________________
Notary Public Joyce B. Tritt, Secretary
(CORPORATE SEAL)
-16-
<PAGE> 17
LEASE AGREEMENT
This is an Addendum to the Lease Agreement between TRIMED ASSOCIATES, P.C. and
ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C. which was entered into effective the
first day of October 1988. TRIMED ASSOCIATES, P.C. on December 20, 1988
transferred all its assets to Ramie A. Tritt and therefore, this
ADDENDUM/ADDITION to the Lease Agreement incorporates all the clauses,
restrictions and covenants of the initial Lease Agreement effective October 1,
1988.
Hereinafter, Ramie A. Tritt is called lessor and ATLANTA EAR, NOSE & THROAT
ASSOCIATES, P.C. is called Lessee. The Lessee has agreed to rent and lease an
additional 4255 square feet of office space more particularly described on
Exhibit B (condo unit number 235 of the Medical Quarters of North Atlanta). The
Lease term shall run concurrent with the lease term as presently outlined in the
Lease Agreement and scheduled to end on December 31, 1998.
Base Rent will be as follows:
<TABLE>
<CAPTION>
PERIOD MONTHLY BASE RENTAL
------ -------------------
<S> <C>
January 1, 1993 through
December 31, 1993 $ 7,813.80 per mont
January 1, 1994 through
December 31, 1994 $ 8,009.15 per month
January 1, 1995 through
December 31, 1995 $ 8,209.38 per month
January 1, 1996 through
December 31, 1996 $ 8,414.61 per month
January 1, 1997 through $ 8,624.98 per month
December 31, 1997
January 1, 1998 through $ 8,840.40 per month
December 31, 1998
</TABLE>
-17-
<PAGE> 18
IN WITNESS WHEREOF, the parties have set their hands and seals.
Signed, sealed and delivered LESSOR:
this 4th day of August,
1992, in the presence of: Ramie A. Tritt
___________________________ By:________________________
Witness Ramie A. Tritt
___________________________
Notary Public
Signed, sealed and delivered LESSEE:
this 4th day of August,
1992, in the presence of: ATLANTA, EAR, NOSE & THROAT
ASSOCIATES, P.C.
___________________________ By:_________________________________
Witness Ramie A. Tritt, President
___________________________ ATTEST:_____________________________
Notary Public Keith Jackson, Secretary
(CORPORATE SEAL)
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<PAGE> 19
AMENDMENT TO
LEASE AGREEMENT
This Lease Amendment is made and entered into as of the 1st day of
January, 1996, between RAMIE A. TRITT as successor in interest to TRIMED
ASSOCIATES, P.C. ("Lessor") an ATLANTA, EAR, NOSE & THROAT ASSOCIATES, P.C.
("Lessee") with respect to that certain Lease Agreement which was entered into
effective the first day of October, 1988.
1. Item 1 of the Lease Agreement is hereby amended by adding under the
Lease Agreement an additional 8,030 square feet of office space more
particularly described in Exhibit "A" attached hereto (portions or all of suite
numbers 103, 107 and 135 of the Medical Quarters of North Atlanta. Such
additional space shall be subject to all of the terms and conditions of the
Lease Agreement as hereby amended.
2. Paragraph (a) of Item 3 of the Lease Agreement is hereby amended to
read as follows:
3. Base Rental.
(a) Lessee shall pay to Lessor at its offices at 5555
Peachtree Dunwoody Road, Suite 201, Atlanta, Georgia 30342, or at such
other place a Lessor shall designate in writing to Lessee, promptly on
the first day of each month, in advance, during the term of this Lease,
the Base Rental. For purposes of this subparagraph (a) of this
Paragraph 3 of this Lease, the Base Rental for the following periods
shall be the following amounts:
<TABLE>
<CAPTION>
Period Monthly Base Rental
------ -------------------
<S> <C>
January 1, 1996 through $39.508.34 per month *
December 31, 1996
January l, 1997 through $40,496.05 per month *
December 31, 1997
January 1, 1998 through $41,508.45 per month *
December 31, 1998
January 1, 1999 through The prior year's Base Rental
June 30, 2010 plus 2.5%
</TABLE>
* As adjusted as provided below.
Notwithstanding the foregoing, Lessee will be leasing an
additional 640 square feet of office space from Lessor located in suite
number 107 of the Medical Quarters of North Atlanta (more particularly
described in Exhibit "B" attached hereto). Such
<PAGE> 20
additional office space will be added to included under this Lease upon
the expiration or termination of Lessor's current lease of such space
to a third party. At such time as such additional space is added to
this Lease, the Base Rental shall be increase by the following amounts:
(i) increase to 1996 monthly rental (if the additional space is added
to the Lease in 1996) - $1,386.67 per month, (ii) increase to 1997
monthly rental (if the additional space is added to the Lease in 1996
or 1997) - $1,421.33 per month, (iii) increase to 1998 monthly rental
(if the additional space is added to the Lease in 1996, 1998 or 1998) -
$1,456.87 per month, and (iv) increase to rental in 1999 subsequent
years (if the additional space is added to the Lease in that year or
any earlier year) - the amount of additional rental for the immediately
preceding year as determined under clause (iii) immediately above or
this clause (iv) plus an additional 2.5% thereof.
3. Except as expressly modified herein, the terms of this Lease shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have set their hands and seals.
Signed, sealed and delivered in the presence of:
(Seal)
____________________________________ __________________________
Witness Ramie A. Tritt, Lessor
____________________________________
Notary Public
Signed, sealed and delivered ATLANTA EAR, NOSE & THROAT
in the presence of: ASSOCIATES, P.C., Lessee
____________________________________ By:____________________________
Witness Ramie A. Tritt, President
____________________________________ Attest:__________________________
Notary Public Keith Jackson, Secretary
(CORPORATE SEAL)
-2-
<PAGE> 21
AMENDMENT TO
LEASE AGREEMENT
This Lease Amendment is made and entered into as of the 1st day of
January, 1996, between RAMIE A. TRITT as successor in interest to TRIMED
ASSOCIATES, P.C. ("Lessor") an ATLANTA, EAR, NOSE & THROAT ASSOCIATES, P.C.
("Lessee") with respect to that certain Lease Agreement which was entered into
effective the first day of October, 1988.
1. Item 1 of the Lease Agreement is hereby amended by adding under the
Lease Agreement an additional 8,030 square feet of office space more
particularly described in Exhibit "A" attached hereto (portions or all of suite
numbers 103, 107 and 135 of the Medical Quarters of North Atlanta. Such
additional space shall be subject to all of the terms and conditions of the
Lease Agreement as hereby amended.
2. Paragraph (a) of Item 3 of the Lease Agreement is hereby amended to
read as follows:
3. Base Rental.
(a) Lessee shall pay to Lessor at its offices at 5555
Peachtree Dunwoody Road, Suite 201, Atlanta, Georgia 30342, or at such
other place a Lessor shall designate in writing to Lessee, promptly on
the first day of each month, in advance, during the term of this Lease,
the Base Rental. For purposes of this subparagraph (a) of this
Paragraph 3 of this Lease, the Base Rental for the following periods
shall be the following amounts:
<TABLE>
<CAPTION>
Period Monthly Base Rental
------ -------------------
<S> <C>
January 1, 1996 through $39.508.34 per month *
December 31, 1996
January l, 1997 through $40,496.05 per month *
December 31, 1997
January 1, 1998 through $41,508.45 per month *
December 31, 1998
January 1, 1999 through The prior year's Base Rental
June 30, 2010 plus 2.5%
</TABLE>
* As adjusted as provided below.
Notwithstanding the foregoing, Lessee will be leasing an
additional 640 square feet of office space from Lessor located
in suite number 107 of the Medical Quarters of North Atlanta
(more particularly described in Exhibit "B" attached
<PAGE> 22
hereto). Such additional office space will be added to
included under this Lease upon the expiration or termination
of Lessor's current lease of such space to a third party. At
such time as such additional space is added to this Lease, the
Base Rental shall be increase by the following amounts: (i)
increase to 1996 monthly rental (if the additional space is
added to the Lease in 1996) - $1,386.67 per month, (ii)
increase to 1997 monthly rental (if the additional space is
added to the Lease in 1996 or 1997) - $1,421.33 per month,
(iii) increase to 1998 monthly rental (if the additional space
is added to the Lease in 1996, 1998 or 1998) - $1,456.87 per
month, and (iv) increase to rental in 1999 subsequent years
(if the additional space is added to the Lease in that year or
any earlier year) - the amount of additional rental for the
immediately preceding year as determined under clause (iii)
immediately above or this clause (iv) plus an additional 2.5%
thereof.
3. Except as expressly modified herein, the terms of this Lease shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have set their hands and seals.
Signed, sealed and delivered in the presence of:
(Seal)
____________________________________ _______________________________
Witness Ramie A. Tritt, Lessor
____________________________________
Notary Public
Signed, sealed and delivered ATLANTA EAR, NOSE & THROAT
in the presence of: ASSOCIATES, P.C., Lessee
____________________________________ By:____________________________
Witness Ramie A. Tritt, President
____________________________________ Attest:__________________________
Notary Public Keith Jackson, Secretary
(CORPORATE SEAL)
-2
<PAGE> 23
IN WITNESS WHEREOF, the parties herein have hereunto set their hands
and seals, in triplicate, the day and year first above written.
LESSOR:
Signed, sealed and delivered TRIMED ASSOCIATES, INC.
this ____ day of ________ a Georgia corporation
______________________________ By:_____________________________________
Witness Ramie A. Tritt, President
______________________________ Attest:___________________________________
Notary Public Joyce B. Tritt, Secretary
(CORPORATE SEAL)
LESSEE:
Signed, sealed and delivered NORTH SUBURBAN EAR, NOSE & THROAT
this_____ day of_____________, ASSOCIATES, P.C.
______________________________ By:____________________________________
Witness Ramie A. Tritt, President
______________________________ Attest:__________________________________
Notary Public Joyce B. Tritt, Secretary
(CORPORATE SEAL)
-3-
<PAGE> 24
EXHIBIT "A"
DESCRIPTION OF THE PREMISES
-4-
<PAGE> 1
EXHIBIT 10.11
LEASE AGREEMENT
FOR
DULUTH PROFESSIONAL CENTER, L.P.
LESSOR: DULUTH PROFESSIONAL CENTER, L.P.
LESSEE: MICHAEL J. PICKFORD, M.D.
SUITE NO.: 240 SQ.FT. 1614
TERM: Five (5) years
<PAGE> 2
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<PAGE> 3
STATE OF GEORGIA )
)
COUNTY OF GWINNETT )
LEASE AGREEMENT
THIS LEASE is made and entered into this ___ day of _________, 19__,
by and between DULUTH PROFESSIONAL CENTER, L.P., a Georgia limited
partnership, with its business office at Suite 530, 975 Johnson Ferry Road,
Atlanta, Georgia, 30342, first party (hereinafter called "Landlord"); and
MICHAEL J. PICKFORD, M.D. second party (hereinafter
called "Tenant").
W I T N E S S E T H
WHEREAS, Landlord is the owner of a certain real property located in
Land Lot 295 of the 6th District of Gwinnett County, Georgia, as is more
particularly described in Exhibit "A" attached hereto and made a part hereof by
reference (hereinafter referred to as the "Property");
WHEREAS, Landlord intends to construct a two-story medical office
building (the "Building") on the Property; and
WHEREAS, Tenant desires to lease space in the Building, and Landlord
is willing to lease space in the Building to Tenant, upon the terms, conditions
and provisions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises hereof the mutual
benefits to be derived hereby, the payment by Tenant of the Rent reserved
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
PREMISES
1. Landlord does hereby rent and lease to Tenant and Tenant does
hereby rent and lease from Landlord for the practice of otolaryngology following
described space (hereinafter called the Premises"):
Approximately 2,500 square feet of usable space located on the ____
floor of the Building, said Premises to be located approximately as
shown on the drawing attached hereto as Exhibit "A-1" and made a
part hereof by
<PAGE> 4
reference. The Premises shall be prepared for Tenant's occupancy in
the manner and subject to the provisions of Exhibit "B" attached
hereto and made a part of hereof.
LEASE TERM
2. Tenant shall have and hold the Premises for a term commencing on
the date (the "Commencement Date") which is the earlier of (i) ten (10) days
after the date on which Landlord notifies Tenant that the Premises are
substantially complete or (ii) the date Tenant first occupies the Premises for
business, and shall terminate at noon on the last day (the "Expiration Date") of
the sixtieth (60) full calendar month following the Commencement Date, unless
sooner terminated or extended as hereinafter provided. Promptly following the
Commencement Date, Landlord and Tenant shall enter into a letter agreement in
the form attached hereto as Exhibit "C", specifying the Commencement Date, the
Expiration Date, the exact amount of space contained within the Premises and the
exact amount of the monthly Base Rent (as hereinafter defined) payable hereunder
from the Commencement Date through the first Lease Year, (as hereinafter
defined). The Term "Lease Year", as used herein, shall mean each and every
twelve (12) month period during the term of this Lease, with the first such
twelve (12) month period commencing on the Commencement Date, if the
Commencement Date is on the first day of calendar month; and, if not, the first
such twelve (12) month period shall commence on the first day of the calendar
month immediately following the Commencement Date.
RENT
3. Tenant shall pay to Landlord, at Suite, 530, 975 Johnson Ferry
Road, Atlanta, Georgia, 30342, or at such other place as Landlord shall
designate in writing to Tenant, an annual rental, initially in an amount equal
to $21.50 times the number of square feet of usable area contained within the
Premises, to the nearest square foot, payable in equal monthly installments
(hereinafter referred to as "Base Rent"), due on the first day of each calendar
month, in advance, in legal tender of the United States of America, without
abatement, demand, deduction or offset whatsoever, except as may be expressly
provided in this Lease. One full monthly installment of Base Rent shall be due
and payable on the date of execution of this Lease by Tenant for the first
month's Base Rent and a like monthly installment of Base Rent shall be due and
payable on or before the first day of the
-2-
<PAGE> 5
calendar month following the Commencement Date during the term hereof; provided,
that if the Commencement Date should be a date other than the first day of a
calendar month, the monthly Base Rent installment paid on the date of execution
of this Lease by Tenant shall be prorated to the end of that calendar month, and
the excess shall be applied as a credit against the next monthly Base Rent
installment. Tenant shall pay, as additional rent hereunder, all other sums due
from Tenant to Landlord under this Lease (hereinafter referred to as "Additional
Rent") (the term "Rent", as used herein, means all Base Rent and Additional Rent
payable hereunder from Tenant to Landlord).
BASE RENT ADJUSTMENT
4. Landlord and Tenant agree that the Base Rent set forth in
Paragraph 3 above shall be increased annually on the first day of each Lease
Year by an amount equal to three (3%) percent of the Base Rent payable hereunder
for the previous Lease Year.
LATE CHARGE
5. Other remedies from non-payment of Rent notwithstanding, if the
monthly Base Rent is not received by Landlord on or before the tenth (10th) day
of the month for which the Base Rent is due, or if any other payment due Lessor
by Tenant is not received by Landlord on or before the tenth (10th) day of the
month next following the month in which such payment is due as herein provided
or in which Tenant was invoiced, a late charge of five percent (5%) of such past
due amount for each month such amount is pastdue shall be due and payable as
Additional Rent in addition to such amounts owned under this Lease.
PARTIAL PAYMENT
6. No payment by Tenant or acceptance by Landlord of an amount less
than the Rent herein stipulated shall be deemed a waiver of any other Rent due.
No partial payment or endorsement on any check or any letter accompanying such
payment of Rent shall be deemed an accord and satisfaction, but Landlord may
accept such payment without prejudice to Landlord's right to collect the balance
of any Rent due under the terms of this Lease or any late charge assessed
against Tenant hereunder.
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CONSTRUCTION OF THIS AGREEMENT
7. No failure of Landlord to exercise any power given Landlord
hereunder, or to insist upon strict compliance by Tenant of his obligations
hereunder, and no custom or practice of the parties at variance with the terms
hereof shall constitute a waiver of Landlord's right to demand exact compliance
with the terms hereof. Time is of the essence of this Agreement.
USE OF PREMISES
8. Tenant shall use and occupy the Premises only as an office for
professional services associated with Tenant's practice of medicine or
dentistry, as aforesaid, and for no other purpose whatsoever, and such use shall
be performed in strict compliance with the Code of Ethics of such profession.
The Premises shall not be used for any unlawful purpose, nor shall Tenant cause,
maintain or allow any nuisance in the Premises or the Building nor use or allow
the use of the Premises for any purpose in violation of zoning requirements and
conditions applicable thereto or of any valid regulation of any governmental
body, nor in any manner to create any trespass or to vitiate the insurance or
increase the rate of insurance on the Premises or the Building. If Tenant, or
any physician practicing with Tenant, loses his license or is convicted of a
felonious criminal offense, Landlord shall have the right, at Landlord's
election, to terminate this Lease.
DEFINITIONS
9. "Landlord," as used in this Lease, shall include first party, its
representatives, assigns and successors in title to the Premises. "Tenant" shall
include second party, his heirs and representatives, and, if this Lease shall be
validly assigned or sublet, shall also include Tenant's assignees or sublessees,
as to the Premises, or portion thereof, covered by such assignment or sublease.
"Landlord" and "Tenant" include male and female, singular and plural,
corporation (and if a corporation, its officers, employees, agents or
attorneys), partnership or individual, as may fit the particular parties.
REPAIRS BY LANDLORD
10. Tenant, by taking possession of the Premises,
shall accept and shall be held to have accepted the Premises as
suitable for the use intended by this Lease. Landlord shall not
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be required, after possession of the Premises has been delivered to Tenant, to
make any repairs or improvement to the Premises, except, on written notice from
Tenant, repairs necessary for safety and tenantability, and customary office
building maintenance. Landlord shall be responsible for repair of exterior
walls, common areas and structural and mechanical repairs, provided such repairs
are not occasioned by Tenant, Tenant's invitees or anyone in the employ or
control of Tenant.
REPAIRS BY TENANT
11. Tenant shall, at its own cost and expense, maintain the Premises
in a neat and clean, first class condition, including all necessary repairs and
replacements. Tenant shall further, at his own cost and expense, repair or
restore any damage or injury to all or any part of the Building caused by Tenant
or Tenant's agents, employees, invitees, licensees, visitors or contractors,
including but not limited to any repairs or replacements necessitated by (i) the
construction or installation of improvements to the Premises by or on behalf of
Tenant, (ii) the installation, use or operation of Tenant's property, or (iii)
the moving of any property into or out of the Premises; provided, however, if
Tenant fails to make such repairs or replacements promptly, Landlord may, at its
option, make the repairs and replacements and the costs of such repairs or
replacements shall be charged to Tenant as Additional Rent and shall become due
and payable by Tenant with the monthly installment of Base Rent next due
hereunder.
ALTERATIONS AND IMPROVEMENTS
12. Tenant shall not make or allow to be made any alterations,
physical additions or improvements in or to the Premises without first obtaining
in writing Landlord's written consent for such alterations or additions, which
shall be at the sole discretion of Landlord. Any alterations, physical additions
or improvements shall at once become the property of Landlord; provided,
however, Landlord, at its option, may require Tenant to remove any physical
additions or improvements in or to restore the Premises to the condition
existing at the time Tenant took possession. All costs of alterations, additions
or improvements shall be borne by Tenant. Landlord shall, under no circumstances
during the term of this Lease, or any extensions or renewals thereof, be
required to carry any insurance on or to indemnify any party in case of any
damage or loss to said alterations, additions or improvements or to improvements
made by Landlord for
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the benefit of Tenant; and, provided further, that under no circumstances shall
Landlord be required to pay, during the term of this Lease and any extensions or
renewals thereof, any ad valorem or property tax on such alterations, additions
or improvements, Tenant hereby covenanting to pay all such taxes when they
become due. In the event any alterations, additions, improvements or repairs are
to be performed by contractors or workmen other than Landlord's contractors or
workmen, any such contractors or workmen must first be approved by Landlord.
Landlord agrees to assign to Tenant any rights it may have against the
contractor of the Premises with respect to any work performed by said contractor
in connection with improvements made by Landlord at the request of Tenant.
OPERATING EXPENSES
13. (a) Tenant agrees to reimburse Landlord, as Additional Rent
hereunder, and under any extensions or renewals of this Lease, for Tenant's
share of the annual Operating Expenses of the Building and related common areas,
including the parking areas, in excess of the amount of $5.50 per average
occupied usable square foot per year within the Building (hereinafter called the
"Base Rate"). The average occupied usable square feet within the Building shall
be determined for each calendar year by (i) adding the total usable square feet
occupied within the Building as of the first day of each calendar month of such
calendar year for each month of such calendar year; and (ii) dividing the sum
derived in (i) above by twelve (12). Tenant's share of the excess Operating
Expenses shall be determined by multiplying such excess amount per average
occupied usable square foot within the Building by the number of usable square
feet contained within the Premises (hereinafter called "Tenant's Share");
PROVIDED, HOWEVER, if Tenant has not occupied the Premises for a full calendar
year during the year in which the term of this Lease commences, Tenant's Share
shall be prorated based on the number of months and fractions thereof in which
Tenant has occupied the Premises during such year. Operating Expenses for the
first year in which any portion of the Building is occupied, if less than a full
calendar year, shall be determined by (i) dividing the total Operating Expenses
for such year by the number of months and fractions thereof during such first
year in which any portion of the Building is occupied; then (ii) dividing the
quotient derived in (i) above by the average amount of net usable square feet
occupied in the Building during such fractional year; and then (iii) multiplying
the quotient derived in (ii) above by twelve (12) months, as though the Building
were occupied and operating for a full calendar year.
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(b) Operating Expenses shall be all those expenses of
operating, servicing, managing and maintaining the Building and common areas,
including the parking facilities on the Property, in a manner deemed by Landlord
reasonable and appropriate and in the best interest of the tenants of the
Building. Operating Expenses include, without limitation, the following:
(1) All taxes and assessments, which shall include real and
personal property ad valorem taxes, and any and all costs and
expenses incurred by Landlord in seeking a reduction of any such
taxes and assessments. However, Tenant shall not be obligated for
taxes on the net income from the operation of the Building and
parking facilities, unless there is imposed in the future a tax on
rental income on the Building in lieu of the real property ad
valorem taxes, in which event such tax shall be deemed an Operating
Expense.
(2) Insurance, including, without limitation, liability and
comprehensive coverage.
(3) Utility charges, including, without limitation, water,
power, heating, lighting, ventilation, sanitary sewer and air
conditioning, but not including those utility charges actually paid
by Tenant.
(4) Janitorial and maintenance expenses, including:
(i) The wages, salaries and customary benefits of all
employees engaged in the operation and maintenance of the
Building and common areas, including the parking facilities;
any such service shall be at a competitive rate as established
in Metropolitan Atlanta, including the employer's social
security taxes and any other taxes which may be levied on such
wages and salaries.
(ii) Janitorial services and janitorial supplies and other
materials used in the operation and maintenance of the
Building.
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(iii) The cost of maintenance and service agreements on
equipment, window cleaning, grounds maintenance, pest control,
security, trash and snow removal, and other similar services
or agreements.
(5) Management expense, including, without limitation,
management fees and expenses paid pursuant to a negotiated
management contract, the terms and conditions of which shall be
customary and competitive in Metropolitan Atlanta.
(6) The costs, including interest, amortized over its useful
life, of any capital improvement made to the Building or common
areas, including the parking facilities, by or on behalf of Landlord
after the date of this Lease which is required under any
governmental law or regulation that was not applicable to the
Building or common areas, including the parking facilities, at the
time of its construction, and of the acquisition and installation of
any device or equipment designed to improve the operating efficiency
of any system within the Building or common areas, including the
parking facilities.
(7) All services, supplies, repairs, replacements or other
expenses directly and reasonably associated with servicing,
maintaining, managing and operating the Building and common areas
(including the parking facilities), including, but not limited to
lobby and other common use areas and vehicular and pedestrian
traffic areas.
(c) As soon as practicable after December 31 of each
year during the term of this Lease, Landlord shall furnish to Tenant
an itemized statement of such Operating Expenses per square foot of
average occupied usable area contained within the Building for the
calendar year then ended. Tenant may have access to Landlord's
records in order to audit or otherwise verify such expenses.
Tenant's Share of the net Operating Expenses over the Base Rate, if
any, shall be paid as follows:
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(i) For the first calendar year or portion thereof of the
term of this Lease, Tenant's share of any excess Operating Expenses
shall be payable within thirty (30) days after Tenant receives the
annual statement, and shall be prorated based on the number of
calendar days Tenant has occupied, or is obligated to occupy, the
Premises during such first calendar year if less than a full
calendar year.
(ii) Commencing with the first month immediately following
each calendar year during the term hereof, Tenant shall pay to
Landlord, together with his monthly Base Rent as provided in
Paragraph 3 hereinabove, as Additional Rent hereunder, an amount
equal to one-twelfth (1/12th) of Tenant's Share of any excess
Operating Expenses determined for the previous calendar year. In the
event at the end of any calendar year, Tenant has paid to Landlord
an amount in excess of Tenant's Share of any actual excess Operating
Expenses for such calendar year, Landlord shall reimburse to Tenant
any such excess amount (or shall apply any such excess amount to any
amount then owing to Landlord hereunder, and if none, to the next
due installment or installments of Rent due hereunder, at the option
of Landlord); and in the event at the end of any calendar year
Tenant has paid to Landlord less than Tenant's Share of any actual
excess Operating Expenses for such calendar year, Tenant shall pay
to Landlord any such deficiency within thirty (30) days after Tenant
receives the annual statement.
(iii) For the calendar year in which this Lease terminates and
is not extended or renewed, the provisions of this paragraph shall
apply, but Tenant's Share for such year shall be subject to a
prorata adjustment based upon the number of calendar days during
said calendar year which Tenant occupies the Premises and shall be
computed by using the Operating Expenses for the year ending on
December 31 immediately preceding the termination of Tenant's
occupancy of the Premises as the Operating Expenses for such last
calendar year. Tenant's Share for the final calendar year, if not
fully paid with Tenant's monthly Base Rent as provided in (ii)
above, shall be paid to Landlord by the latter of sixty (60) days
prior to the expiration of the term of this Lease, or any extension
or renewal
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thereof, or thirty (30) days after receipt of the applicable expense
statement.
LANDLORD'S FAILURE TO GIVE POSSESSION
14. Landlord shall not be liable for damages to Tenant for failure
to deliver possession of the Premises to Tenant at the commencement of the term
if such failure is due to no fault of Landlord, to the failure of any
construction or remodeling of the Premises by Tenant to be completed or to the
failure of any previous tenant to vacate the Premises. Landlord will use its
best efforts to give possession to the Tenant at the beginning of the Tenant's
term. If failure to do so is caused by the act of any previous tenant holding
over, Landlord agrees to transfer to Tenant the right to prosecute in his own
name any cause of action which Landlord may have against such tenant holding
over, Tenant to hold for himself any recovery in such action, except for any
amounts due Landlord as Rent hereunder.
ACCEPTANCE AND WAIVER
15. Landlord shall not be liable to the Tenant, his agents,
employees, guests or invitees (and, if Tenant is a corporation, its officers,
agents, employees, guests or invitees) for any damage caused to any of them due
to the Building or any part or appurtenances thereof being improperly
constructed or being or becoming out of repair, or arising from the leaking of
gas, water, sewer or steam pipes, or from electricity, but Tenant, by moving
into the Premises and taking possession thereof, shall accept, and shall be held
to have accepted the Premises as suitable for the purposes for which the same
are leased, and shall accept and shall be held to have accepted the Building and
every appurtenance thereof, and Tenant by said act waives any and all defects
therein; provided, however, that this paragraph shall not apply to any damages
or injury caused by or resulting from the negligence of Landlord.
SIGNS AND VENDING MACHINES
16. Tenant shall not paint or place signs, placards, or other
advertisement of any character upon the windows or inside walls of the Premises
except with the consent of Landlord, and Tenant shall place no signs upon the
outside walls, common areas or the roof of the Premises. Tenant shall not place
or maintain any coin operated vending machines within the Premises or the
Building without the written consent of Landlord; such
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consent shall not preclude Landlord from charging Tenant for utility costs
therefor under Paragraph 21 (b) hereof.
CARDING
17. Landlord may card the Premises "For Rent" or with any other
appropriate sign at any time within one hundred eighty (180) days prior to the
expiration, cancellation or termination of this Lease for any reason and during
such one hundred eighty (180) day period may exhibit the Premises to prospective
tenants.
REMOVAL OF FIXTURES
18. If not in default hereunder, Tenant may, prior to the expiration
of the term of this Lease, or any extension thereof, remove any fixtures and
equipment which he has placed in the Premises which can be removed without
significant damage to the Premises, provided Tenant repairs all damages to the
Premises caused by such removal.
ENTERING PREMISES
19. Landlord may enter the Premises at reasonable hours provided
that Landlord's entry shall not unreasonably interrupt Tenant's business
operations and that prior notice is given when case permits (and, if in the
opinion of Landlord any emergency exists, at any time and without notice): (a)
to make repairs, if any, which Landlord under the terms hereof must make to the
Premises, repairs to adjacent premises, or repairs to the Building; (b) to make
repairs to the Premises, adjacent premises, or the Building of which Tenant is
obligated to make and has failed to make; (c) to inspect the Premises to see
that Tenant is complying with all of the terms and conditions hereof and with
the rules and regulations hereof; (d) to remove from the Premises any articles
or signs kept or exhibited therein in violation of the terms hereof; and (e) to
exercise any other right or perform any other obligation that Landlord has under
this Lease. Landlord shall be allowed to take all material into and upon the
Premises that may be required to make any repairs, improvements and additions,
or any alterations, without in any way being deemed or held guilty of trespass
or any eviction of tenant. The Rent reserved herein shall in no wise abate while
said repairs, alterations or additions are being made and Tenant shall not be
entitled to maintain a set-off or counterclaim for damages against Landlord by
reason of loss from interruption to the business of Tenant because of the
prosecution of any such work.
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All such repairs, decorations, additions and improvements shall be done during
ordinary business hours, or, if any such work is at the request of Tenant to be
done during any other hours, the Tenant shall pay all overtime and other extra
costs as additional Rent hereunder.
PLUMBING STOPPAGE
20. Tenant shall be responsible for stopped-up drains where such
stoppage is caused by the introduction of foreign objects not intended for
disposal in such drains; and, if Landlord shall repair such drains, Tenant shall
reimburse Landlord, as Additional Rent, for the cost of such repairs, together
with the cost of any repairs or damage to the Premises or the Building and the
property of other tenants which results from such stoppage.
SERVICES OF LANDLORD
21. (a) The normal business hours of the Building shall be from 8:00
A.M. to 6:00 P.M. on Monday through Friday, and 8:00 A.M. to 1:00 P.M. on
Saturday, exclusive of national holidays. Landlord shall furnish the following
services during the normal hours of operation of the Building except as noted:
(i) Elevator service for passenger and delivery needs.
(ii) Heat and air conditioning at a temperature of approximately 75
degrees Fahrenheit during summer operations and at a
temperature of approximately 70 degrees Fahrenheit during
winter operations, subject to governmental regulations.
(iii) Hot and cold running water for all restrooms and
lavatories.
(iv) Soap, paper towels, and toilet tissue for public
restrooms.
(v) Janitorial service, which includes sanitizing, dusting,
cleaning, mopping, vacuuming and removal of trash not
requiring special handling, Monday through Friday.
(vi) Custodial, electrical and mechanical maintenance
services are provided Monday through Friday.
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(vii) Electric power, for small desk top types of machines, or hand
held devices, such as type writers, adding machines and
recording machines.
(viii) Electric lighting, at a level of at least 80 foot candles at
desk height except in corridor or storage areas, and including
the replacement of lamps and ballasts as needed.
(ix) Repairs and maintenance, for maintaining in good order at all
times, the exterior walls, windows, doors and roof of the
Building; public corridors, stairs, elevators, storage rooms
and restrooms; the air conditioning, electric and plumbing
systems of the Building; and the walks paving and landscaping
surrounding the Building.
(x) General management, including supervision, inspections, record
keeping, accounting, leasing and related management functions.
(b) The services provided in subparagraph (a) herein, and the amount
of Rent prescribed herein are predicated on and are in anticipation of certain
usage of the Premises by Tenant as follows:
(i) Air conditioning design is based on sustained outside
temperatures being no higher than 92 degrees Fahrenheit and no
lower than 22 degrees Fahrenheit with sustained occupancy of
the Premises by no more than one person per 75 square feet of
floor area and heat generated by electrical lighting and
fixtures not to exceed 4.0 watts per square foot.
(ii) For hours other than normal business hours, heating of the
building shall be held to a minimum temperature of
approximately 60 degrees Fahrenheit and cooling of the
Building shall be held to a maximum temperature of
approximately 80 degrees Fahrenheit.
(iii) Electrical power usage and consumption is based on lighting
of the Premises during normal business hours at a level of at
least
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80 foot candles at desk height, and power for small desk
top type machines and hand held devices using 100 volt,
20 amp circuits. Such heavier use items as electric
heaters, bookkeeping machines, data processing and
duplicating equipment, stoves, refrigerators, X-ray
machines, compressed air, and other heavy usage medical
equipment and the like shall not be used or installed
unless specified elsewhere herein, or by separate
written consent of Landlord.
(iv) If Tenant uses services in an amount or for a period in
excess of that provided for herein, then Landlord
reserves the right to charge Tenant as Additional Rent
hereunder a reasonable sum as reimbursement for the
direct cost of such added services. In the event of
disagreement as to the reasonableness of such charge,
the opinion of the appropriate local utility company or
an independent professional engineering firm shall
prevail.
(c) Landlord shall not be liable for any damages directly or
indirectly resulting from the installation, use or interruption of uses of any
equipment in connection with the furnishing of services referred to herein, and
particularly any interruption in services by any cause beyond the immediate
control of the Landlord; but Landlord shall exercise due care in furnishing
adequate and uninterrupted services.
X-RAY
22. Tenant shall not install X-ray machines in the Premises without
Landlord's approval, which approval shall not be unreasonably withheld. Tenant
hereby accepts the risks of and all responsibility for any injury or damage
which may result from the operation or failure of operation of any such X-ray
equipment. All X-ray equipment owned or operated by Tenant must be installed and
protected in a manner satisfactory to Landlord and in compliance with all
governmental regulations.
COMPRESSED AIR
23. If Tenant is engaged in the dental profession, Tenant shall be
responsible for furnishing compressed air and
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shall install all compressed air units in a manner satisfactory to Landlord.
GENERAL LIABILITY OF TENANT
24. Tenant shall indemnify and save harmless Landlord against all
claims for damages to persons or property by reason of the use or occupancy of
the Premises, and all expenses incurred by Landlord because of Tenant's use and
occupancy, including attorney's fees and court costs. Tenant shall be liable for
and shall hold Landlord harmless in connection with damage or injury to
Landlord, the Premises and the property and persons of Landlord's other tenants,
or any one else, if due to neglect of Tenant, or of any one in his control or
employ.
INSURANCE AND WAIVER OF SUBROGATION
25. (a) Tenant shall keep in force at Tenant's expense as long as
this Lease remains in effect and during such other times as Tenant occupies the
Premises or any part thereof, a policy or policies of comprehensive general
public liability insurance, with the premiums thereon fully paid on or before
the due dates, issued by and binding upon a solvent insurance company authorized
to transact business in Georgia, for Tenant's own protection covering the
Premises and Tenant's use thereof. Such insurance shall afford minimum
protection (which may be effected by primary and/or excess coverage) of not less
than $2,000,000.00 for bodily injury or death in any one occurrence and of not
less than $500,000.00 for property damage in any one occurrence. Tenant shall
also keep in force as set forth above, fire, extended coverage and water damage
insurance of Tenant's personal property, including, but not confined to
inventory, trade fixtures, floor coverings, furniture and all other property of
Tenant whether removable or not at termination of this Lease, including
leasehold betterments and improvements; such insurance on leasehold betterments
and improvements shall be in amounts sufficient to cover the full replacement
cost of any repair or reconstruction from any such hazard during the entire term
of this Lease, such insurance naming the Landlord as an additional named insured
as its interest may appear.
(b) Landlord shall keep in force public liability, fire, extended
coverage and water damage insurance insuring Landlord's interest in the Building
and the Premises.
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(c) Tenant shall not do or suffer to be done, or keep or suffer to
be kept, anything in, upon or about the Premises which will contravene
Landlord's policies insuring against loss or damage by fire or other hazards,
including, but not limited to, public liability, or which will prevent Landlord
from securing such policies in companies acceptable to Landlord. If anything is
done, permitted to be done or suffered to be done by Tenant or kept in, upon and
about the Premises or Building which shall cause the rate of fire or other
insurance on the Premises or Building in companies acceptable to Landlord to be
increased beyond the minimum rate from time to time applicable to the Premises
or the Building for the permitted use or permitted uses made thereof, Tenant
shall pay, as Additional Rent hereunder, the amount of any such increase
promptly upon demand by Landlord and shall cease such action until such payment
is made.
(d) Tenant waives any rights of action against Landlord for loss or
damage to its improvements, fixtures and personal property in the Premises,
except damage caused by gross negligence or willful misconduct of Landlord, its
agents or employees.
(e) Anything in this Lease to the contrary notwithstanding, Landlord
and Tenant each hereby waives any and all rights of recovery, claim, action or
cause of action, against the other, its agents, servants, partners,
shareholders, officers or employees, for any loss or damage that may occur to
the Premises, the Building and common areas, or any improvements thereto or
thereon, or any personal property of such party therein or thereon, by reason of
fire, the elements or any other cause which is insured against under the terms
of the standard fire and extended coverage insurance policies referred to in
subparagraphs (a) and (b) above, regardless of cause or origin, including the
negligence of the other party hereto, its agents, officers, partners,
shareholders, servants or employees, and covenants that no insurer shall hold
any right of subrogation against such other party.
GOVERNMENTAL REQUIREMENTS
26. Tenant shall, at its own expense, promptly comply with all
requirements of any legally constituted governmental or public authority made
necessary by reason of Tenant's occupancy of the Premises.
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ABANDONMENT OF PREMISES
27. Tenant agrees not to abandon or vacate the Premises during the
term of the Lease and to use said Premises for the purpose herein leased until
the expiration hereof.
ASSIGNMENT AND SUBLETTING
28. Tenant may not, without the prior written consent of Landlord
endorsed hereon, which consent may be arbitrarily withheld, assign this Lease or
any interest hereunder, or sublet the Premises or any part thereof, or permit
the use of the Premises by any party other than Tenant. In the event that Tenant
is a corporation or some other entity other than an individual, any sale of a
majority or controlling interest in Tenant shall be considered an assignment for
purposes of this paragraph. Consent to one assignment or sublease shall not
destroy or waive this provision, and all later assignments and sub-leases shall
likewise be made only upon the prior written consent of Landlord. Subtenants or
Assignees shall become liable to Landlord for all obligations of Tenant
hereunder, without relieving Tenant's liability hereunder.
DEFAULT
29. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder:
(i) If Tenant shall default in the payment of Rent herein
reserved when due; or
(ii) If Tenant shall be in default in performing any of the terms
or provisions of this Lease other than the provisions requiring the payment of
Rent, and fails to cure such default within fifteen (15) days after the date of
receipt of written notice of such default from Landlord; or
(iii) If Tenant is adjudicated a bankrupt; or if a permanent
receiver is appointed for Tenant's property and such receiver is not removed
within sixty (60) days after written notice from Landlord to Tenant to obtain
such removal; or if, whether voluntarily or involuntarily, Tenant takes
advantage of any debtor relief proceedings under any present or future law,
whereby the Rent or any part thereof, is, or is proposed to be, reduced or
payment thereof deferred; or if Tenant's effects should be levied upon or
attached under process against Tenant,
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not satisfied or dissolved within thirty (30) days after written notice from
Landlord to Tenant to obtain satisfaction thereof; or
(iv) The premises are deserted, vacated or not used as regularly
or consistently as would normally be expected for similar premises put to
medical office use, even though the Tenant continues to pay the stipulated Rent.
Any notice provided in this paragraph may be given by Landlord, Landlord's
Attorney or any Agent of Landlord.
LANDLORD'S REMEDIES
30. (a) Upon the occurrence of an Event of Default as defined in
Paragraph 29 above, Landlord shall have the option to do and perform any one or
more of the following, in addition to, and not in limitation of, any other
remedy or right permitted or allowed by law or in equity or by the provisions of
this Lease:
(i) Landlord, with or without terminating this Lease, may
immediately, or at any time thereafter, re-enter the Premises and correct or
repair any condition which shall constitute a failure on Tenant's part to keep,
observe, perform, satisfy or abide by any term, condition, covenant, agreement
or obligation of this Lease or the Rules and Regulations now or hereafter
adopted or of any notice given tenant by Landlord pursuant to the terms of this
Lease, and tenant shall fully reimburse and compensate Landlord upon demand.
(ii) Landlord, with or without terminating this Lease, may
immediately, or at any time thereafter, demand in writing that Tenant vacate the
Premises, whereupon Tenant shall at once vacate the Premises and remove all of
Tenant's effects therefrom, within ten (10) days of receipt by Tenant of such
notice, and whereupon Landlord shall have the right to re-enter and repossess
itself thereof, and remove all persons and effects therefrom, using such force
as may be necessary, without being guilty of trespass, forcible entry, detainer
or other tort. Any such demand, re-entry and repossession of the Premises by
Landlord shall not of itself constitute an acceptance by Landlord of a surrender
of this Lease or of the Premises by Tenant and shall not of itself constitute a
termination of this Lease by Landlord.
(iii) Landlord, with out without terminating this Lease, may
immediately, or at any time thereafter, re-enter and re-let the Premises, or any
portion thereof, at such rental and upon such other terms and conditions as
Landlord in its sole
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discretion may deem advisable, and Landlord may clean the Premises and make any
alterations or repairs to the Premises which it may deem necessary or proper to
facilitate such reletting; and Tenant shall pay all costs of such reletting,
including, but not limited to the cost of any such cleaning, alterations or
repairs to the Premises, attorney's fees, leasing inducements and brokerage
commissions; and, if this Lease shall not have been terminated, Tenant shall
continue to pay all Rent due under this Lease up to and including the date of
beginning of payment of Rent by any substitute tenant of part or all of the
Premises, and thereafter Tenant shall pay monthly during the remainder of the
term of this Lease the difference between the Rent collected from any such
subsequent tenant or tenants and the Rent reserved in this Lease, but Tenant
shall not be entitled to receive any excess of any such Rent collected over the
Rent reserved herein.
(iv) Landlord may immediately, or at any time thereafter,
terminate this Lease, and this Lease shall be deemed to have been terminated
upon receipt by Tenant of written notice of such termination; upon such
termination, Landlord shall recover from Tenant all damages Landlord may suffer
by reason of such termination, including, without limitation, unamortized sums
expended by Landlord for construction of Tenant's improvements, all arrearages
in Rent, the cost (including court costs and attorney's fees) of recovering
possession of the Premises, the cost of cleaning the Premises and the cost of
alterations of or repair to the Premises which is necessary or proper to prepare
the Premises for reletting and, in addition thereto, Landlord, at its election,
shall have and recover from Tenant either (1) an amount equal to the excess, if
any, of the total amount of all Rent to be paid by Tenant for the remainder of
the term of this Lease over the then reasonable rental value of the Premises for
the remainder of the term of this Lease, or (2) the Rent which Landlord would be
entitled to receive from Tenant pursuant to subparagraph (iii) above if the
Lease were not terminated. Such election shall be made by Landlord by serving
written notice upon Tenant of its choice of one or the two said alternatives
within thirty (30) days of the notice of termination.
(b) Landlord re-enters the Premises, or terminates this Lease, pursuant
to any of the provisions of this Lease, Tenant hereby waives all claims for
damage which may be caused by such re-entry or termination by Landlord. Tenant
shall and does hereby indemnify and hold harmless Landlord from any loss, cost
(including court costs and attorney's fees) or damages suffered by Landlord by
reason of such re-entry or termination. No such
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re-entry or termination shall be considered or construed to be a forcible entry.
(c) The exercise by Landlord of any one or more of the rights and remedies
provided in this Lease shall not prevent the subsequent exercise by Landlord of
any one or more of the other rights and remedies herein provided. All remedies
provided for in this Lease are cumulative and may, at the election of Landlord,
be exercised alternatively, successively or in any other manner and are in
addition to any other rights provided for or allowed by law or in equity.
EFFECT OF TERMINATION OF LEASE
31. Upon any termination of this Lease by Landlord, Lessee shall at
once surrender possession of the Premises to Lessor and remove all of Lessee's
effects therefrom. No termination of this Lease prior to the normal ending
thereof, by lapse of time or otherwise, shall affect Landlord's right to collect
Rent for any period prior to the termination hereof.
DESTRUCTION OR DAMAGE
32. If the Premises are totally destroyed (or so substantially
damaged as to be untenantable) by storm, fire, earthquake, or other casualty,
this Lease shall terminate as of the date of such destruction or damage, and
Rent shall be accounted for as between Landlord and Tenant as of that date. If
the Premises are damaged but not rendered wholly untenantable and restorable by
any such casualty or casualties, Rent shall abate in such proportion as the use
of the Premises has been destroyed; and, if Landlord deems that restoration is
practicable and feasible, it shall restore the Premises to substantially
the-same condition as before damage as soon as practicable, whereupon full Rent
shall recommence. If Landlord determines that restoration of the Premises is not
practicable and feasible, Landlord shall notify Tenant in writing of such
determination within a reasonable time after such casualty, whereupon this Lease
shall terminate upon Tenant's receipt of such notice, and Rent shall be
accounted for as between Landlord and Tenant as of the date of such casualty.
EMINENT DOMAIN
33. If the whole of the Premises, or such portion thereof as will make the
Premises unusable in the reasonable judgment of Landlord for the purposes herein
leased, is condemned or taken by
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any legally constituted authority for any public use or purpose, then in either
of said events, the term hereby granted shall cease from that time when
possession thereof is taken by the condemning authorities, and Rent shall be
accounted for as between Landlord and Tenant as of that date. If only a portion
of the Premises is condemned or taken by any legally constituted authority for
any public use or purpose, and such partial taking shall not, in the reasonable
judgment of Landlord, render the remainder of the Premises unusable for the
purposes herein leased, this Lease shall remain in full force and effect as to
that portion of the Premises not so taken, and Rent shall be adjusted
proportionately based on the number of usable square feet remaining in the
Premises after such taking. Tenant shall have no right or claim to any part of
any award made to or received by Landlord for such condemnation or taking, and
all awards for such condemnation or taking shall be made solely to Landlord.
SERVICE OF NOTICE
34. Except as otherwise provided by law, Tenant hereby appoints as his
agent to receive the service of all dispossessory or distraint proceedings and
notices thereunder, and all notices required under this Lease, the person in
charge of or occupying the Premises at the time of such proceeding or notice;
and if no person be in charge or occupying the Premises, then such service of
notice may be made by attaching the same to the front entrance of the Premises.
A copy of all notices under this Lease shall also be mailed to Tenant's last
known address, if different from the Premises.
RIGHTS OF MORTGAGEES
35. Tenant agrees that this Lease shall be subject and subordinate (i) to
any loan deed or loan deeds now on the Premises and to all advances already
made, or which may be hereafter made on account of said loan deeds, to the full
extent of all debts and charges secured thereby and to all renewals or
extensions of any part thereof, and to any loan deed which any owner of the
Premises may hereafter, at any time, elect to place on the Premises; (ii) to any
Assignment of Landlord's interest in Lease covering the Lease which now exists
or which any owner of the Premises may hereafter, at any time, elect to place on
the Lease; and (iii) to any Uniform Commercial Code Financing Statement covering
the personal property rights of Landlord or any owner of the Premises which now
exists or any owner of the Premises may hereafter, at any time, elect to place
on the
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foregoing personal property (all of the foregoing instruments set forth in (i),
(ii) and (iii) above being hereafter collectively referred to as "Security
Documents"). Tenant agrees upon request of Lessor, or the holder of any Security
Documents ("Holder"), to hereafter execute such paper or papers which the
counsel for Landlord or Holder may deem necessary to evidence the subordination
of the Lease to the Security Documents. In default of Tenant so doing, Landlord
or Holder is hereby empowered to execute such paper or papers in the name of
Tenant evidencing such subordination, as the act and deed of Tenant, and this
authority is hereby declared to be coupled with an interest and not revocable.
In the event of a foreclosure pursuant to any Security Documents, Tenant
shall thereafter remain bound pursuant to the terms of this Lease as if a new
and identical Lease between such purchaser at foreclosure ("Purchaser"), as
Landlord, and Tenant, as Tenant, had been entered into for the remainder of the
term hereof, and Tenant shall attorn to Purchaser upon such foreclosure sale and
shall recognize such Purchaser as the Landlord under the Lease. Such attornment
shall be effective and self-operative without the execution of any further
instrument on the part of any of the parties hereto. Tenant agrees, however, to
execute and deliver at any time and from time to time, upon the request of
Landlord or of Holder or any Purchaser, any instrument or certificate that may
be necessary or appropriate in any such foreclosure proceeding or otherwise to
evidence such attornment.
If the Holder of any Loan Deed or the Purchaser upon the foreclosure of
any of the Security Documents shall succeed to the interest of Landlord under
the Lease, Holder or Purchaser, as the case may be, shall have the same
remedies, by entry, action or otherwise for the non-performance of any agreement
contained in the Lease, for the recovery of Rent or for any other default or
event of default hereunder that Landlord had or would have had if any such
Holder or Purchaser had not succeeded to the interest of Landlord. Any such
Holder or Purchaser which succeeds to the interest of Landlord hereunder, shall
not be (a) liable for any act or omission of any prior lessor (including
Landlord); or (b) subject to any offsets or defenses which Tenant might have
against any prior lessor (including Landlord); or (c) bound by any Rent or
Additional Rent which Tenant might have paid for more than the current month to
any prior lessor (including Landlord); or (d) bound by any amendment or
modification of the Lease made without its consent. Nothing herein contained
shall be construed to permit any Holder or Purchaser to terminate the enjoyment
by
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Tenant of the Premises so long as Tenant is not in default under this Lease,
provided the Holder of the Security Documents has approved the Lease.
Tenant hereby acknowledges that if the interest of Landlord hereunder is
covered by an Assignment of Landlord's Interest in Lease, Tenant shall pay all
Rent due and payable under this Lease directly to the Holder of the Assignment
of Landlord's Interest in Lease upon notification of the exercise of the rights
thereunder by the Holder thereof.
TENANT'S ESTOPPEL
36. Tenant shall, from time to time, upon not less than ten (10) days
prior written request by Landlord, execute, acknowledge and deliver to Landlord
a written statement certifying that this Lease is unmodified and in full force
and effect (or, if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), the dates to which the
rent and other charges have been paid, that Tenant is not in default hereunder
and has no off-sets or defenses against Landlord under this Lease, and whether
or not to the best of Tenant's knowledge Landlord is in default hereunder (and
if so, specifying the nature of the default), it being intended that any such
statement delivered pursuant to this paragraph may be relied upon by a
prospective purchaser of Landlord's interest or by a mortgagee of Landlord's
interest or assignee of any security deed upon Landlord's interest in the
Premises.
ATTORNEY'S FEES AND HOMESTEAD
37. If any rent owing under this Lease is collected by or through an
Attorney at Law, Tenant agrees to pay fifteen percent (15%) thereof as
attorney's fees. Tenant waives all homestead rights and exemptions which he may
have under any law against any obligations owing under this Lease and Tenant
hereby assigns to Landlord his homestead and exemption.
PARKING
38. No rights to any parking spaces are granted under this Lease; however,
Tenant and Tenant's patients and invitees shall be entitled to use the parking
facilities located on the Property in common with and on the same basis as the
other tenants in the Building. Landlord reserves the right to relocate, and to
make alterations or additions to such parking facilities, and to promulgate and
implement reasonable rules and regulations for the
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use of the parking facilities, including the right to impose in the future
uniform parking fees which are reasonable and customary in the current market,
at any time.
STORAGE
39. If Landlord makes available to Tenant any storage space outside the
Premises, anything stored therein shall be wholly at the risk of Tenant, and
Landlord shall have no responsibility of any character in respect thereto.
WASTE DISPOSAL
40. (a) All normal trash and waste (i.e., waste that does not require
special handling pursuant to subparagraph (b) below) shall be disposed of
through the janitorial service.
(b) Tenant shall be responsible for the removal and disposal of any
waste deemed by any governmental authority having jurisdiction over the matter
to be hazardous or infectious waste or waste requiring special handling, such
removal and disposal to be in accordance with any and all applicable
governmental rules, regulations, codes, orders or requirements. Tenant agrees to
separate and mark appropriately all waste to be removed and disposed of through
the janitorial service pursuant to (a) above and hazardous, infectious or
special waste to be removed and disposed of by Tenant pursuant to this
subparagraph (b). Tenant hereby indemnifies and holds harmless Landlord from and
against any loss, claims, demands, damage or injury Landlord may suffer or
sustain as a result of Tenant's failure to comply with the provisions of this
subparagraph (b).
SURRENDER OF PREMISES
41. Whenever under the terms hereof Landlord is entitled to possession of
the Premises, Tenant at once shall surrender the Premises and the keys thereto
to Landlord in the same condition as at the commencement of the term hereof,
natural wear and tear only excepted, and Tenant shall remove all of his property
therefrom; and Landlord may forthwith re-enter the Premises and repossess itself
thereof and remove all persons and effects therefrom, using such force as may be
necessary without being guilty of forcible entry, detainer, trespass or other
tort. Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of the term of this Lease. If the last day of
the term of this Lease or any renewal
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thereof falls on Sunday or a legal holiday, this Lease shall expire on the
business day immediately preceding.
CLEANING PREMISES
42. Upon vacating the Premises, Tenant agrees to clean the Premises
thoroughly or to pay Landlord for the cleaning necessary to restore the Premises
to their condition when Tenant's possession commenced, natural wear and tear
excepted, regardless of whether any security deposit has been forfeited.
NO ESTATE IN LAND
43. This contract shall create the relationship of landlord and tenant
between Landlord and Tenant; no estate shall pass out of Landlord; Tenant has
only a usufruct, not subject to levy or sale, and not assignable by Tenant
except with Landlord's consent.
CUMULATIVE RIGHTS
44. All rights, powers and privileges conferred hereunder upon the parties
hereto shall be cumulative but not restrictive to those given by law.
PARAGRAPH TITLES; SEVERABILITY
45. The paragraph titles used herein are not to be considered a
substantive part of this Lease, but merely descriptive aids to identify the
paragraph to which they refer. Use of the masculine gender includes the feminine
and neuter, and vice versa, where necessary to impart contextual continuity. If
any paragraph or provision herein is held invalid by a court of competent
jurisdiction, all other paragraphs or severable provisions of this Lease shall
not be affected thereby, but shall remain in full force and effect.
DAMAGE OR THEFT OF PERSONAL PROPERTY
46. All personal property brought into the Premises shall be at the risk
of the Tenant only and Landlord shall not be liable for theft thereof or any
damage thereto occasioned by any acts of co-tenants, or other occupants of the
Building, or any other person, except, with respect to damage to the Premises,
as may be occasioned by the negligent or willful act of the Landlord, its
employees and agents.
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HOLDING OVER
47. In the event Tenant remains in possession of the Premises after the
expiration of the term hereof, or of any renewal term, with Landlord's
acquiescence and without any express written agreement of the parties, Tenant
shall be a tenant at will and such tenancy shall be subject to all the
provisions hereof, except that the monthly Base Rent shall be an amount equal to
two hundred (200%) percent of the monthly Base Rent payable hereunder upon such
expiration of the term hereof, or of any renewal term, as the same would be
adjusted pursuant to the provisions of Paragraph 4 hereof. There shall be no
renewal of this Lease by operation of law or otherwise. Nothing in this
Paragraph shall be construed as a consent by Landlord to Tenant's continued
occupancy of the Premises after the expiration of the term hereof, or any
renewal term.
BUILDING ALLOWANCE AND TENANT FINISHES
49. (a) Landlord will provide to Tenant an allowance of $23.00 per usable
square foot contained within the Premises for building standard items and tenant
finishes. Tenant and Landlord agree that the cost for tenant finishes and
improvements in excess of such allowance which are requested by Tenant and
approved by Landlord shall be paid by Tenant to Landlord, as Additional Rent
hereunder, payable twenty-five (25%) percent of Tenant's estimated costs prior
to the commencement of construction and the balance of actual costs upon
completion and prior to occupancy. Should Tenant fail to pay for such excess
tenant finishes when due as herein provided, such amount due shall accrue
interest at the rate of one and one-half (l-l/2%) percent per month or fraction
thereof from the date such payment is due until paid (Annual Percentage
Rate-18%).
(b) The Work Letter attached hereto as Exhibit "B", and executed by
Landlord and Tenant, is hereby made a part of this Lease Agreement, the
provisions of which shall control in the event of a conflict with the provisions
contained in this Lease.
RULES AND REGULATIONS
50. The rules and regulations in regard to the Building, annexed hereto,
and all reasonable rules and regulations which Landlord may hereafter, from time
to time, adopt and promulgate for the government and management of the Building
and common areas, including the parking facilities, are hereby made a part of
this Lease and shall, during the term of this Lease, be in all
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things observed and performed by Tenant, his agents, employees or invitees.
QUIET ENJOYMENT
51. Tenant, upon payment in full of the required Rent and full performance
of the terms, conditions, covenants and agreements contained in this Lease,
shall peaceably and quietly have, hold and enjoy the Premises during the term
hereof. Landlord shall not be responsible for the acts or omissions of any other
tenant, lessee or third party that may interfere with Tenant's use and enjoyment
of the Premises.
ENTIRE AGREEMENT
52. This Lease contains the entire agreement of the parties and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties not embodied herein shall be of any force or effect.
LIMITATION OF LIABILITY
53. Landlord's obligations and liability with respect to this Lease shall
be limited solely to Landlord's interest in the Building, as such interest is
constituted from time to time, and neither Landlord nor any partner of Landlord,
or any officer, director, shareholder, or partner of any partner of Landlord,
shall have any personal liability whatsoever with respect to this Lease.
SUBMISSION OF AGREEMENT
54. Submission of this Lease to Tenant for signature does not constitute a
reservation of space or an option to acquire a right of entry. This Lease is not
binding or effective until execution by and delivery to both Landlord and
Tenant.
CORPORATE AUTHORITY
55. If Tenant executes this Lease as a corporation, each of the persons
executing this Lease on behalf of Tenant does hereby personally represent and
warrant that Tenant is a duly organized and validly existing corporation, that
Tenant is qualified to do business in the State of Georgia, that Tenant has full
right, power and authority to enter into this Lease, and that each person
signing on behalf of Tenant is authorized to do so. In the event any such
representation and warranty is false, all
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persons who execute this Lease shall be individually, jointly and severally,
liable as Tenant. Upon Landlord's request, Tenant shall provide Landlord with
evidence reasonably satisfactory to Tenant confirming the foregoing
representations and warranties.
SPECIAL STIPULATIONS
56. The following Special Stipulations, if conflicting with the above
provisions, shall control:
(a) Notwithstanding any provision contained herein to the contrary,
in the event Tenant is a Limited Partner of Landlord and Tenant shall transfer
and assign his limited partnership interest in Duluth Professional Center, L.P.,
in accordance with the provisions of its Partnership Agreement, Tenant shall
have the right to transfer and assign this Lease to such substituted limited
partner who assumes his obligations under this Lease, whereupon Tenant, if not
in default hereunder, shall thereafter be relieved of all obligations and
liabilities hereunder, provided the prior written consent of said transfer,
assignment and release is given by the Holder or Holders of any loan deed on the
Premises.
(b) Notwithstanding any provision contained herein to the contrary,
this Lease may be terminated by Tenant, or his personal representatives, upon
the death or disability of Tenant, or upon the death or disability of a majority
in interest of Tenant if Tenant is other than an individual, by written notice
being given to Landlord from Tenant or Tenant's personal representative, in the
event of a disability, or Tenant's personal representative, in the event of such
death, within three (3) months of said death or disability, in which event this
Lease shall terminate sixty (60) days after the date of such notice, or such
earlier date as may be agreed to by Landlord, whereupon the parties hereto shall
be relieved of all obligations and liabilities hereunder, except for those
obligations and liabilities which have accrued prior to such termination and
such obligations and liabilities which by the provisions of this Lease shall
survive any such termination. For the purposes of this Lease, the term
"disability" is hereby defined as the inability of Tenant, or a majority in
interest of Tenant, as the case may be, to fully perform the material duties of
the practice for which the Premises are leased as set forth in Paragraph 1 of
this Lease as a result of either (i) a bodily injury resulting directly from an
accident or (ii) a physical or mental illness or disease, which inability
continues for a period in excess of six (6) consecutive months. If Tenant is an
individual, in the event
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of the death of Tenant, or if tenant is an entity, in the event of the death of
all holders of any interest in Tenant, and Tenant's personal representatives
fail to terminate this Lease pursuant to the provisions set forth above, or to
transfer and assign this Lease to an assignee approved by Landlord within three
(3) months of such death, then Landlord shall have the right to terminate this
Lease upon sixty (60) days' prior written notice to Tenant's personal
representatives.
[ADDITIONAL SPECIAL STIPULATIONS, IF ANY, ARE SET FORTH ON EXHIBIT "D" ATTACHED
HERETO AND MADE A PART HEREOF BY REFERENCE.)
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and
seals, the day and year first above written.
LANDLORD:
DULUTH PROFESSIONAL CENTER, L.P., a
Georgia limited partnership
Signed, sealed and delivered By: DULUTH PROFESSIONAL ASSOCIATES
in the presence of: General Partner
________________________ By: ________________________
Witness a Managing Partner
________________________
Notary Public
TENANT:
Signed, sealed and delivered
in the presence of: ___________________________(SEAL)
MICHAEL J. PICKFORD, M.D.
____________________________
Witness ___________________________(SEAL)
____________________________
Notary Public
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RULES AND REGULATIONS
(which are referred to in the within Lease and made a part thereof)
1. The sidewalks, entry passages, corridors, halls, elevators and
stairways shall not be obstructed by tenants or used by them for any purpose
other than those of ingress and egress. The floors, skylights and windows that
reflect or admit light into any place in said building shall not be covered or
obstructed by Tenants. The water closets and other water apparatus shall not be
used for any other purpose than those for which they were constructed and no
sweepings, rubbish or other obstructing substances shall be thrown therein.
2. No advertisement or other notice shall be inscribed, painted or affixed
on any part of the outside or inside of said building, except upon the doors,
and of such order, size and style, and at such places, as shall be designated by
Landlord. Interior signs on doors will be ordered for tenants by Landlord, the
cost thereof to be charged to and paid for by tenants.
3. No tenant shall do or permit to be done in his Premises, or bring or
keep anything therein, which shall in any way increase the rate of fire
insurance on the Building, or on property kept therein, or obstruct or interfere
with the rights of other tenants or in any way injure or annoy them, or conflict
with the laws relating to fires, or with the regulations of the Fire Department,
or any part thereof, or conflict with any of the rules and ordinances of the
Board of Health. Tenants, their clerks and servants, shall maintain order in the
Premises and the Building, shall not make or permit any improper noise in the
Premises or the Building or interfere in any way with other tenants or those
having business with them. Nothing shall be thrown by tenants, their clerks or
servants, out of the windows or doors, or down the passages or skylights of the
Building. No rooms shall be occupied or used as sleeping or lodging apartments
at any time. No part of the Building shall be used or in any way appropriated
for gambling, immoral or other unlawful practices, and no intoxicating liquor or
liquors shall be sold in the Building.
4. Tenants shall not employ any persons other than the janitors of
Landlord (who will be provided with pass-keys into the offices) for the purpose
of cleaning or taking charge of the Premises, except as may be specifically
provided otherwise in the Lease.
<PAGE> 33
5. No animals, birds, bicycles or other vehicles shall be allowed in the
offices, halls, corridors, elevators or elsewhere in the Building, without the
approval of Landlord.
6. All tenants and occupants shall observe strict care not to leave their
windows open when it rains or snows and, for any fault or carelessness in any of
these respects, shall make good any injury sustained by other tenants and by
Landlord for damage to paint, plastering or other parts of the Building
resulting from such fault or carelessness. No painting shall be done, nor shall
any alterations he made to any part of the Building or the Premises by putting
up or changing any partitions, doors, or windows, nor shall there be any
nailing, boring or screwing into the woodwork or plastering, nor shall any
connection be made in the electric wires or gas or electric fixtures, without
the consent in writing on each occasion of Landlord. All glass, locks and
trimmings in or upon the doors and windows of the Building shall be kept whole
and, when any part thereof shall be broken by tenant, or tenant's agent, the
same shall be immediately replaced or repaired by tenant and put in order under
the direction and to the satisfaction of Landlord, or its agents, and shall be
kept whole and in good repair. Tenants shall not injure, overload, or deface the
Building, the woodwork or the walls of the Premises, nor carry on upon the
Premises any noxious, noisy or offensive business.
7. Two keys for each office (or the equivalent of approximately 400 square
feet) will be furnished tenants without charge. No additional locks or latches
shall be put upon any door without the written consent of Landlord. Tenants, at
the termination of their lease, shall return to Landlord all keys to doors in
the Building.
8. Landlord in all cases retains the power to prescribe the weight and
position of iron safes or other heavy articles. Tenants must make arrangements
with the superintendent of the Building when the elevator is required for the
purpose of the carrying of any kind of freight.
9. The use of burning fluid, camphene, benzine, kerosene or anything
except gas or electricity, for lighting the Premises, is prohibited. No
offensive gases or liquids will be permitted.
10. If Tenants desire blinds, coverings or drapes over the windows, they
must be of such shape, color and material as may be prescribed by Landlord, and
shall be erected only with Landlord's
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<PAGE> 34
consent and at the expense of the tenant desiring them. No awnings shall be
placed on the Building.
11. If tenants require wiring for a bell or buzz system, such wiring shall
be done by the electrician of the Building only, and no outside wiring men shall
be allowed to do work of this kind unless by the written permission of Landlord,
or its agent. If telegraphic or telephonic service is desired, the wiring for
same shall be done as directed by the electrician of the Building or by some
other employee of Landlord who may be instructed by the superintendent of the
Building to supervise same, and no boring or cutting for wiring shall be done
unless approved by Landlord or its representatives, as stated.
12. At Landlord's discretion, the Building may be in the charge of a night
watchman, and every person entering or leaving the Building may be questioned by
the watchman as to the visitor's business in the Building and shall sign his or
her name on a form provided by the Building for so registering such persons.
3
<PAGE> 35
EXHIBIT "A"
All that tract or parcel of land lying and being in Land Lot 295 of the 6th
District, Gwinnett County, Georgia, being more particularly described as
follows:
BEGINNING at an iron pin set on the south right-of-way line of Duluth-Park Lane
(60-foot right-of-way), North 70 degrees 12 minutes 05 seconds East, 201.00 feet
as measured along the south right-of-way line of Duluth Park from an iron pin
set at its intersection with the east right-of-way line of Pleasant Hill Road
(150-foot right-of-way); running thence North 70 degrees 12 minutes 05 seconds
East along the south right-of-way line of Duluth Park Lane, 244.49 feet to an
iron pin found; thence South 19 degrees 47 minutes 55 seconds East, 518.39 feet
to an iron pin found on the north line of property now or formerly owned by
Gwinnett County, Georgia; thence South 89 degrees 28 minutes 40 seconds West
along the north line of said Gwinnett County property and the north line of
property now or formerly owned by the City of Duluth, 562.73 feet to an iron pin
set on the east right-of-way line of Pleasant Hill Road; thence northwesterly
along the east right-of-way line of Pleasant Hill Road and following its arc to
the left (which arc has a radius of 1198.92 feet; chord: North 04 degrees 03
minutes 44 seconds West, 149.08 feet), 149.18 feet to an iron pin set; thence
North 78 degrees 27 minutes 05 seconds East, 250.00 feet to an iron pin set;
thence North 20 degrees 05 minutes 30 seconds West, 225.00 feet to the point of
beginning; said tract containing 3.7681 acres according to plat of survey for
Duluth Professional Associates, prepared by Ian M. Bragg, Georgia Registered
Land Surveyor No. 2196, of Bragg, Wood & Associates, Inc., dated June 6, 1989,
being the same property designated as Lot 2 of Block B on Final Plat of Unit
One, Howell Station Commercial Center, prepared by Development Consultants
Group, dated November 2, 1987, last revised May 4, 1989, to be recorded in the
plat records of Gwinnett County, Georgia.
A-1
<PAGE> 36
EXHIBIT "A-1"
THE EXACT LOCATION OF THE PREMISES WILL BE DETERMINED BY TENANT
AND LANDLORD AT A FUTURE DATE. UPON SUCH DETERMINATION, THE
PREMISES SHALL BE OUTLINED ON AN EXHIBIT "A-1" TO BE SUBSTITUTED
HEREFOR.
A-2
<PAGE> 37
EXHIBIT "B" (WORK LETTER)
ATTACHED TO LEASE BETWEEN
DULUTH PROFESSIONAL CENTER, L.P. (LANDLORD)
AND
MICHAEL J. PICKFORD, M.D. (TENANT)
To induce Tenant to enter into the Lease (to which this Exhibit "B" is
attached) and in consideration of the mutual covenants hereinafter contained,
Landlord and Tenant agree as follows:
1. Landlord shall construct, or cause to be constructed, the Premises (the
"Work") in accordance with the Plans (hereinafter defined). Landlord shall cause
a preliminary layout to be prepared with Tenant's cooperation and for Tenant's
approval. Tenant's failure to approve or disapprove the layout within ten days
of its submission shall be deemed an approval. Upon approval of the layout,
Landlord shall prepare, or cause to be prepared, working drawings for the
construction of the work, adequate in detail to perform the Work and shall have
mechanical (sprinkler, air conditioning, heating, electrical and plumbing)
drawings prepared by Landlord's mechanical engineer covering mechanical elements
of the Work (together with the preliminary layout, the drawings are referred to
as the "Plans"). The Plans (and any modifications thereof) shall comply with all
governmental standards, regulations and requirements and shall be subject to
Landlord's approval (which approval shall not be unreasonably withheld).
Tenant's failure to approve or disapprove the Plans within ten years of
submission shall be deemed an approval. Tenant shall not unreasonably withhold
its approval of the Plans or any part thereof.
2. Any other work desired by Tenant, and approved by Landlord (which
approval shall not be unreasonably withheld), shall be performed by Landlord or
Landlord's contractors, unless Landlord otherwise consents in writing. If Tenant
desires any work in addition to the Work described in Section 1 hereof
("Additional Work"), Tenant shall cause the necessary drawings, plans and
specifications for the Additional Work to be included on the Plans, or shall
submit to Landlord or Landlord's agent (at Tenant's sole cost and expense) the
necessary drawings, plans and specifications for the Additional Work within ten
days of submission of the Plans to Tenant for approval. Prior to commencing any
such Work or Additional Work requested by Tenant, Landlord or Landlord's agent
shall submit to Tenant a written estimate of the cost of such work and, if
applicable, Additional
B-1
<PAGE> 38
Work. Such costs shall include a fee of five (5%) percent of Tenant's
construction costs to cover the cost of administration of the Work and
Additional Work. If Tenant shall fail to approve said estimate within ten days
from the receipt thereof, the same shall be deemed disapproved in all respects
by Tenant and Landlord shall not be authorized to proceed thereon. If Tenant
desires any changes in the Additional Work after having approved the initial
plans and cost estimate, Tenant shall be required to sign such field order
changes requested by Landlord or Landlord's contractors or agents to evidence
any such change desired by Tenant. Tenant acknowledges that no cost estimate
will be given for any changes in the Work or Additional Work after the initial
cost estimate has been approved by Tenant, and Tenant shall be responsible for
any and all costs associated with any such change.
3. (a) In addition to the building allowance provided in Paragraph 49 of
the Lease, which building allowance shall be applied toward the cost of the Work
and the excess, if any, toward the Additional Work, Landlord shall provide
Tenant a planning allowance of $1.35 per square foot of usable area contained
within the Premises ("planning allowance") to be applied toward the cost of
preparing the Plans, the cost of any changes to the Plans and any costs
necessary to file the plans with, and obtain the necessary permits and approvals
of, any governmental authority having jurisdiction thereof.
(b) Any costs in excess of said planning allowance shall be due and
payable by Tenant to Landlord within ten (10) days after receipt by Tenant of a
statement therefor. Any costs of the Work and Additional Work in excess of the
building allowance specified in the Lease shall be due and payable as provided
in the Lease.
4. Landlord, at Landlord's discretion, may permit Tenant and Tenant's
agents to enter the Premises prior to the commencement date of the term of the
Lease in order that Tenant may do such other work as may be required by Tenant
to make the Premises ready for Tenant's use and occupancy. If Landlord permits
such entry prior to such commencement date, such permission is conditioned upon
Tenant and its agents, contractors, employees and invitees working in harmony
and not interfering with Landlord and its agents, contractors and employees is
doing Landlord's Work in the Premises or for other tenants and occupants of the
building. If at any time such entry shall cause or threaten to cause disharmony
or interference, Landlord shall have the right to withdraw such permission upon
24 hours notice to Tenant. Tenant agrees that any such entry into
B-2
<PAGE> 39
and occupation of the Premises shall be deemed to be under all of the terms,
covenants, conditions and provisions of the Lease except as to the covenant to
pay the rent, and further agrees Landlord shall not be liable in any way for any
injury, loss or damage which may occur to any of Tenant's work and installations
made in the Premises or to properties placed therein prior to the commencement
of the term of the Lease, the same being at Tenant's sole risk.
5. If the substantial completion of the Premises by Landlord is delayed
due to any act or omission of Tenant or Tenant's representatives, including any
delays by Tenant in the submission of plans, drawings, specifications or other
information or in approving any drawings or estimates or in giving any
authorization or approval, the Premises shall be deemed substantially completed
on the date when they would have been ready but for such delay.
TENANT: LANDLORD:
DULUTH PROFESSIONAL CENTER, L.P.
__________________________
MICHAEL J. PICKFORD, M.D. By: DULUTH PROFESSIONAL ASSOCIATES
General Partner
__________________________
By:_______________________
a Managing Partner
B-3
<PAGE> 40
EXHIBIT "C"
ACKNOWLEDGEMENT, ACCEPTANCE AND AMENDMENT
(TO BE ATTACHED TO AND MADE A PART OF
LEASE AGREEMENT BETWEEN DULUTH
PROFESSIONAL CENTER, L.P., LANDLORD, AND
MICHAEL J. PICKFORD, M.D. (TENANT)
DATED_____________________.
Tenant hereby acknowledges that the Premises demised pursuant to the Lease
to which this Exhibit "C" is attached (the "Lease"), and all tenant finish items
to be completed by the Landlord, or Landlord's contractors, have been
satisfactorily completed in every respect, except for the punchlist items set
forth below, and Tenant hereby accepts said Premises as substantially complete
and ready for the uses intended as set forth in the Lease. Landlord shall
complete the punchlist items, if any, as soon as is reasonably possible.
Possession of the Premises is hereby delivered to Tenant, and any damages to
walls, ceilings, floors or existing work, except for any damages caused by
Landlord or Landlord's contractors in completing any punchlist items, shall be
the sole responsibility of Tenant.
If any improvements or tenant finishes are to be constructed or installed
by Tenant or Tenant's contractors, as previously approved by Landlord, Tenant
hereby agrees to indemnify and hold harmless Landlord from and against any
claims, demands, loss or damage Landlord may suffer or sustain as a result of
such work by Tenant or Tenant's contractors, including, without limitation, any
claim of lien which may be filed against the Premises or Landlord's property as
a result of such work by Tenant's contractors or representatives. In the event
any such claim of lien is filed against Landlord's property by any contractor,
laborer or materialman performing work on the Premises at Tenant's direction,
Tenant agrees to cause such lien to be discharged, by payment of the claim or
bond, within ten (10) days of receipt of demand by Landlord.
Tenant and Landlord hereby further acknowledge and agree as follows:
1. The Commencement Date (as defined in the lease) is ______________,
and the Expiration Date (as defined in the Lease) is
_________________________.
C-1
<PAGE> 41
2. The exact usable square feet contained within the Premises is
_________ square feet; and if differing from Exhibit "A-1" attached
to the Lease, the Premises are as shown and outlined in red on
Exhibit "C-1" attached hereto.
3. The initial Base Rent payable under the Lease is $__________________
per month, payable as provided in the Lease.
4. Rent under the Lease will commence as of ________________.
5. Tenant intends to occupy the Premises on _____________________.
6. _______________ (No.) keys to the Premises have been delivered to
Tenant or Tenant's representative.
7. The following punch list items are all that remain to be completed
by Landlord or Landlord's contractor:
8. This Acknowledgement, Acceptance and Amendment, when executed by
Landlord and Tenant, shall be attached to and shall become a part of
the Lease. If any provision contained herein conflicts with any
provision of the Lease, the provisions hereof shall supersede and
control, and the Lease shall be deemed modified and amended to
conform with the provisions hereof.
9. Other agreements or modifications:
C-2
<PAGE> 42
IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands and
seals, this ___ day of _________________, 19__.
TENANT: LANDLORD:
DULUTH PROFESSIONAL CENTER, L.P.
_________________________ By: DULUTH PROFESSIONAL
MICHAEL J. PICKFORD, M.D. ASSOCIATES
General Partner
_________________________ By:______________________________
a Managing Partner
C-3
<PAGE> 43
STATE OF GEORGIA
SECOND AMENDMENT TO LEASE AGREEMENT
COUNTY OF GWINETT
THIS AMENDMENT, made and entered into this 14th day of February, 1995,
by and between DULUTH PROFESSIONAL CENTER, L.P., a Georgia limited partnership
whose General Partner is Duluth Professional Associates, with its principal
office at 975 Johnson Ferry Road, N.E., Suite 450, Atlanta, Georgia, first
party (hereinafter called "Landlord") and GWINNETT PULMONARY GROUP, P.C. and
ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C. (hereinafter collectively called
"Tenant");
WITNESSETH:
WHEREAS, Landlord and Michael J. Pickford, M.D. (the "Original Tenant")
entered into that certain Lease Agreement dated December 29, 1989, the Original
Tenant having transferred to Tenant a 50% interest in said Lease Agreement by
Transfer and Assignment of Lease dated August 16, 1990, as amended by
Acknowledgment, Acceptance and Amendment dated October 31, 1990, the remaining
interest of the Original Tenant having been transferred to Atlanta Ear, Nose &
Throat Associates, P.C. by Transfer and Assignment of Lease dated as of January
1, 1995, for the demise of certain premises containing 1,641 square feet of
usable space in a medical office building located at 3540 Duluth Park Lane,
Duluth, Gwinnett County, Georgia (hereinafter referred to as the "Lease"); and
WHEREAS, Landlord and Tenant desire to enter into this Amendment to
extend the term of the Lease;
NOW, THEREFORE, in consideration of the premises hereof, the mutual
benefits to be derived hereby, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord and
Tenant hereby agree as follows:
1. The term of the Lease is hereby extended and the Lease is hereby
modified and amended to provide that the term of the Lease shall expire at noon
on the 31st day of December, 1999.
2. Effective February 1, 1995, the annual Base Rate, as set forth in
Paragraph 13 of the Lease shall be increased from $5.50 per average occupied
usable square foot to $6.50 per average occupied usable square foot, for
purposes of calculating Tenant's Share of excess Operating Expenses.
3. Tenant hereby acknowledges that the current monthly Base Rent
payable under the Lease as of February 1, 1995, is $3,254.69, subject to annual
increase on October 1 of each year during the term of this Lease, commencing
October 1, 1995, in accordance with the provisions of Paragraph 4 of the Lease.
Notwithstanding the foregoing, Tenant shall not be
<PAGE> 44
obligated for the payment of the monthly Base Rent for the one-half of the
month of February, 1995, in the amount of $1,627.35, Landlord hereby granting
to Tenant a one-half month's abatement of Base Rent.
4. Except as specifically modified and amended hereby, all other terms,
conditions and provisions of the lease shall otherwise remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands
and seals, the day and year first above written.
LANDLORD:
Signed, sealed and delivered DULUTH PROFESSIONAL CENTER, L.P., a
in the presence of: Georgia limited partnership
By: DULUTH PROFESSIONAL
____________________________ ASSOCIATES, a Georgia general
Witness partnership
General Partner
____________________________ By:____________________________
Notary Public
a Managing Partner
Signed, sealed and delivered TENANT:
in the presence of:
GWINNETT PULMONOLOGY GROUP, P.C.
____________________________ By: ___________________________________
Witness
Title: ________________________________
____________________________ By: ___________________________________
Notary Public
Title: ________________________________
(CORPORATE SEAL)
-2-
<PAGE> 45
ATLANTA EAR, NOSE & THROAT
ASSOCIATES, P.C.
Signed, sealed and delivered in the
presence of:
By:____________________________________
______________________________________ Title:_________________________________
Witness
By:____________________________________
______________________________________
Notary Public Title:_________________________________
(CORPORATE SEAL)
Notwithstanding the foregoing consent, any subsequent transfer and
assignment of the Lease shall require the consent and approval of the
undersigned, all as provided in Paragraph 25 of the Lease.
WITNESS the hand and seal of the undersigned, this 7th day of March,
1996.
DULUTH PROFESSIONAL CENTER, L.P.
By: DULUTH PROFESSIONAL
ASSOCIATES, General Partner
By:____________________________________
a Managing Partner
-3-
<PAGE> 46
STATE OF GEORGIA )
) TRANSFER AND ASSIGNMENT OF LEASE
COUNTY OF GWINNETT )
FOR VALUE RECEIVED, the undersigned, MICHAEL J. PICKFORD, M.D.
(hereinafter referred to as "Assignor"), does hereby transfer, assign, set over
and convey unto ATLANTA, EAR, NOSE & THROAT ASSOCIATES, P.C., a Georgia
professional corporation (hereinafter referred to as "Assignee") all of his
right, title and interest (being an undivided fifty (50%) percent interest),
in, to and under that certain Lease Agreement between Duluth Professional
Center, L.P., as Landlord, and Assignor, as Tenant, dated December 29, 1989,
Assignor having transferred to Tenant a 50% interest in said lease Agreement by
Transfer and Assignment of Lease dated August 16, 1990, as amended by
Acknowledgment, Acceptance and Amendment dated October 31,1990, for the demise
of 1,641 square feet of usable space in a medical office building located at
3540 Duluth Park Lane, Duluth, Gwinnett County, Georgia (hereinafter referred
to as the "Lease").
By its execution hereof, Assignee does hereby assume and agree to
perform and discharge all obligations and liabilities of Assignor under this
Lease, in the same manner as if Assignee were the original signatory thereof as
a Tenant thereunder.
Assignor and Assignee have agreed that this Transfer and Assignment
shall be effective as of the 1st day of January, 1995.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals, this the 14th day of February, 1995.
ASSIGNOR: ASSIGNEE:
ATLANTA EAR NOSE & THROAT
ASSOCIATES, P.C.
__________________________(SEAL)
MICHAEL J. PICKFORD, M.D.
By:__________________________________
Title:_______________________________
Attest:______________________________
Title:_______________________________
(CORPORATE SEAL)
-4-
<PAGE> 47
CONSENT OF LANDLORD TO TRANSFER AND ASSIGNMENT
FOR AND IN CONSIDERATION of the assumption by the Assignee named in the
within and foregoing Transfer and Assignment of Lease of all of the obligations
and liabilities of the Assignor named therein under the Lease referred to
therein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord does hereby consent and
agree to the transfer and assignment by Assignor to Assignee of all of his
right, title and interest in, to and under said Lease.
-5-
<PAGE> 48
STATE OF GEORGIA )
) THIRD AMENDMENT TO LEASE AGREEMENT
COUNTY OF GWINNETT )
THIS AMENDMENT, made and entered into this 21st day of September, 1995,
by and between DULUTH PROFESSIONAL CENTER, L.P., a Georgia limited partnership
whose General Partner is Duluth Professional Associates, with its principal
office at 975 Johnson Ferry Road, N.E., Suite 450, Atlanta, Georgia, first
party (hereinafter called "Landlord") and GWINNETT PULMONARY GROUP, P.C. and
ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C. (hereinafter called "Tenants"),
with Michael J. Pickford, M.D. (hereinafter called "Guarantor") joining in the
execution hereof for the purposes hereinafter set forth;
W I T N E S S E T H :
WHEREAS, Landlord and Michael J. Pickford, M.D. (the "Original Tenant")
entered into that certain Lease Agreement dated December 29, 1989, the Original
Tenant having transferred a 50% interest in said Lease Agreement to Gwinnett
Pulmonary Group, P.C. by Transfer and Assignment of Lease dated August 16, 1990
as amended by Acknowledgment, Acceptance and Amendment dated October 31, 1990,
the remaining 50% interest of the Original Tenant having been transferred to
Atlanta Ear, Nose & Throat Associates, P.C. by Transfer and Assignment of Lease
as of January 1, 1995, and as further amended by Second Amendment to Lease
Agreement dated February 14, 1995, for the demise of certain Premises
containing 1,641 square feet of usable space in a medical office building
located at 3540 Duluth Park Lane, Duluth, Gwinnett County, Georgia (hereinafter
referred to as the "Lease"); and
WHEREAS, Landlord and Tenant desire to enter into this Amendment to
extend the term of the Lease;
NOW, THEREFORE, in consideration of the premises hereof, the mutual
benefits to be derived hereby, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord and
Tenant hereby agree as follows:
1. The term of the Lease is hereby extended and the Lease is
hereby modified and amended to provide that the term of the Lease shall expire
at noon on the 30th day of September, 2000.
2. Except as specifically modified and amended hereby, all other
terms, conditions and provisions of the Lease shall otherwise remain unchanged
and in full force and effect.
3. Guarantor hereby joins in the execution of this Amendment to
guarantee the performance and discharge by Tenant of all obligations and
liabilities of Tenant under the Lease, as modified and amended hereby; and
Guarantor does hereby unconditionally guarantee the performance by Tenant of
all of its obligations and liabilities under the provisions of the Lease.
Guarantor hereby agrees that Landlord may bring suit against Guarantor with or
without first or contemporaneously suing Tenant or any other guarantor of
Tenant or otherwise seeking performance or proceeding to collect from Tenant or
any other guarantor of Tenant in the event of a default under the Lease; and
Guarantor further covenants with Landlord that, if default shall at any time be
made by Tenant in the payment of Rent or the performance of any other covenants
<PAGE> 49
contained in the Lease, Guarantor will pay to Landlord, its successors and
assigns, the Rent or any arrears thereof, and all damages that may arise in
consequence of any default by Tenant under the Lease, upon receipt of written
notice of such default from Landlord, its successors or assigns. Until all
obligations of Tenant to Landlord under the Lease have been paid and performed
in full, Guarantor shall have no right of subrogation to Landlord against
Tenant and Guarantor hereby waives any rights to enforce any remedy which
Landlord may have against Tenant and any rights to participate in any security
for the Lease. This guaranty shall be a continuing guaranty, and the liability
of Guarantor hereunder shall be in no way affected or diminished by reason of
any extension, renewal, amendment or modification of the Lease, which
extension, renewal, amendment
IN WITNESS WHEREOF, Landlord, Tenant and Guarantor have hereunto set
their hands and seals, the day and year first above written.
LANDLORD:
Signed, sealed and delivered DULUTH PROFESSIONAL CENTER, L.P.
in the presence of: a Georgia limited partnership.
_____________________________________
Witness By: DULUTH PROFESSIONAL ASSOCIATES,
a Georgia general partnership
General Partner
_____________________________________
Notary Public By:___________________________________
a Managing Partner
TENANT:
Signed, sealed and delivered GWINNETT PULMONARY GROUP, P.C.
in the presence of:
_____________________________________ By:___________________________________
Witness
Title:________________________________
_____________________________________
Notary Public By:___________________________________
Title:________________________________
(CORPORATE SEAL)
Signed, sealed and delivered ATLANTA EAR, NOSE & THROAT
in the presence of: ASSOCIATES, P.C.
<PAGE> 50
____________________________________ By:_________________________________
Witness
Title:______________________________
____________________________________
Notary Public
By:_________________________________
Title:______________________________
(CORPORATE SEAL)
GUARANTOR:
____________________________________
MICHAEL J. PICKFORD, M.D.
____________________________________
Witness
____________________________________
Notary Public
<PAGE> 51
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
This Agreement made this 21st day of September, 1995, among TRUST
COMPANY BANK, a Georgia banking corporation (hereinafter referred to as
"Lender"), GWINNETT PULMONARY GROUP, P.C. and ATLANTA EAR, NOSE & THROAT
ASSOCIATES, P.C. (hereinafter referred to as "Tenant") and DULUTH PROFESSIONAL
CENTER, L.P., a Georgia limited partnership (hereinafter referred to as
"Landlord").
WITNESSETH:
WHEREAS, Landlord and Michael J. Pickford, M.D. entered into that
certain Lease Agreement dated December 29, 1989, a one-half interest therein
having been transferred to Gwinnett Pulmonary Group, P.C. by Transfer and
Assignment dated August 16, 1990, as amended by Acknowledgement, Acceptance and
Amendment dated October 31, 1990, a one-half interest therein having been
transferred to Atlanta Ear, Nose & Throat Associates, P.C. by Transfer and
Assignment dated February 14, 1995, as further amended by Second Amendment to
Lease Agreement dated February 14, 1995, and as further amended by Third
Amendment to Lease Agreement dated September 21, 1995 (hereinafter referred to
as the "Lease") relating to the premises know as Suite 240 of the medical office
building located at 3540 Duluth Park Lane, Gwinnett County, Georgia (hereinafter
referred to as the "Premises"); and
WHEREAS, Lender has made or has committed to make a loan to landlord
secured by a security deed from Landlord (hereinafter referred to as the
"Mortgage") and an assignment of leases and rents from Landlord to Lender
covering the Premises (hereinafter referred to as the "Assignment"); and
WHEREAS, Tenant has agreed that the Lease shall be subject and
subordinate to the Mortgage held by Lender, provided Tenant is assured of
continued occupancy of the Premises;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, the sum of Ten Dollars ($10.00) and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
it is hereby agreed as follows:
1. Lender, Tenant and Landlord do hereby covenant and agree that
the Lease with all rights, options, liens and charges created thereby, is and
shall continue to be subject and subordinate in all respects to the Mortgage
and to any advancements made thereunder and to any renewals, modifications,
consolidations, replacements and extensions thereof.
2. Lender does hereby agree with Tenant that, so long as Tenant
complies with and performs its obligations under the Lease, (a) Lender will
take no action which will interfere with or disturb Tenant's possession or use
of the Premises or other rights under the Lease, and (b) in the event Lender
becomes the owner of the Premises by foreclosure, conveyance in lieu of
foreclosure or otherwise, the Premises shall be subject to the Lease and Lender
shall recognize Tenant as the tenant of the Premises for the remainder of the
term of the Lease in accordance with the provisions thereof, provided, however,
that Lender shall not be subject to any offsets or
<PAGE> 52
defenses which Tenant might have against any prior landlord except those which
arose under the provisions of the Lease out of such landlord's default and
accrued after Tenant had notified Lender and given Lender the opportunity to
cure same as hereinbelow provided, nor shall Lender be liable for any act or
omission of any prior landlord, nor shall Lender be bound by any rent or
additional rent which Tenant might have paid for more than the current month to
any prior landlord nor shall it be bound by any amendment or modification of the
Lease made without its consent.
3. Landlord and Tenant do hereby agree that, without Lender's
prior written consent, they will not modify, terminate or accept surrender of
the Lease and will not reduce, abate, or pay or accept prepayment of any rent
(except the regular monthly rental payments required by the Lease to be paid in
advance). Tenant does hereby agree not to look to Lender as mortgagee, in
possession, or successor in title to the Property for accountability for any
act or omission of any prior landlord, including Landlord, or for any security
deposit required by any prior landlord under the Lease unless such sum has
actually been received by Lender as cash security for Tenant's performance of
the Lease.
4. Tenant does hereby agree with Lender that, in the event Lender
becomes the owner of the Premises by foreclosure, conveyance in lieu of
foreclosure or otherwise, then Tenant shall attorn to and recognize Lender as
the landlord under the Lease for the remainder of the term thereof, and Tenant
shall perform and observe its obligations thereunder, subject only to the terms
and conditions of the Lease. Tenant further convenants and agrees to execute
and deliver upon request of Lender, or its assigns, an appropriate agreement of
attornment by any subsequent titleholder of the Premises.
5. So long as the Mortgage remains outstanding and unsatisfied,
Tenant will mail or deliver to Lender, at the address and in the manner
hereinbelow provided, a copy of all notices permitted or required to be given
Landlord by Tenant under and pursuant to the terms and provisions of the Lease
and no such notice shall be effective as against Lender unless a copy thereof
is also mailed to Lender. At any time before the rights of the landlord shall
have been forfeited or adversely affected because of any default of the
landlord, or within the time permitted the landlord for curing any default
under the Lease as therein provided (but not less than sixty (60) days from the
receipt of notice), Lender may, but shall have no obligation to, pay any taxes
and assessments, make any repairs and improvements, make any deposits or do any
other act or thing required of the landlord by the terms of the Lease; and all
payments so made and all things do done and performed by Lender shall be as
effective to prevent the rights of the landlord from being forfeited or
adversely affected because of any default under the Lease as the same would
have been if done and performed by the landlord.
6. Tenant acknowledges that Landlord will execute and deliver to
Lender an assignment of the Lease as security for said loan, and Tenant hereby
expressly consents to such assignment. Tenant agrees upon notification by
Lender to make any payments due under the Lease directly to Lender and to
otherwise perform as directed by it.
7. Landlord and Tenant hereby certify to Lender that the Lease has
been duly executed by Landlord and Tenant and is in full force and effect; that
the Lease and any
<PAGE> 53
modifications and amendments specified herein are a complete statement of the
agreement between Landlord and Tenant with respect to the leasing of the
Premises, and the Lease has not been modified or amended except as specified
herein; that to the knowledge of Landlord and Tenant no party to the Lease is
in default thereunder; that no rent under the Lease has been paid more than
thirty (30) days in advance of its due date; and that Tenant, as of this date,
has no charge, lien or claim of offset under the Lease, or otherwise, against
the rents or other charges due or to be come due thereunder.
8. Any and all notices, elections, demands, requests and responses
thereto permitted or required to be given under this Agreement shall be in
writing, signed by or on behalf of the party giving the same, and shall be
deemed to have been properly given and shall be effective upon being personally
delivered, or upon being deposited in the United States mail, postage prepaid,
certified with return receipt requested, to the other party at the address of
such other party set forth below or at such other address within the
continental United States as such other party may designate by notice
specifically designated as a notice of change of address and given in
accordance herewith; provided, however, that the time period in which a
response to any such notice, election, demand or request must be given shall
commence on the date of receipt thereof; and provided further that no notice of
change of address shall be effective until the date of receipt thereof.
Personal delivery to a party or to any officer, partner, agent or employee of
such party at said address shall constitute receipt. Rejection or other refusal
to accept or inability to deliver because of changed address of which no notice
has been received shall also constitute receipt. Any such notice, election,
demand, request or response, if given to Lender, shall be addressed as follows:
Trust Company Bank
701 Duluth Highway, N.W.
Lawrenceville, Georgia 30245
and, if given to Tenant, shall be addressed as follows:
ATLANTA EAR, NOSE & THROAT ASSOCIATES, P.C.
Suite 240, 3540 Duluth Park Lane
Duluth, Georgia 30136
and, if given to Landlord, shall be addressed as follows:
Duluth Professional Center, L.P.
c/o The Lea Richmond Company
Suite 450, 975 Johnson Ferry Road
Atlanta, Georgia 30342
9. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, legal representatives,
successors, successors-in-title and assigns. When used herein, the term
"landlord" refers to Landlord and to any successor to the interest of
Landlord under the Lease.
<PAGE> 54
IN WITNESS THEREOF, the parties hereto have executed this Agreement
under seal as of the date first above written.
Signed, sealed and delivered LENDER:
in the presence of: TRUST COMPANY BANK
_________________________________ By: ________________________________
Witness Name: ______________________________
Title: _____________________________
_________________________________
Notary Public (BANK SEAL)
Signed, sealed and delivered TENANT:
in the presence of: ATLANTA EAR, NOSE & THROAT
ASSOCIATES, P.C.
_________________________________ By:________________________________
Name:______________________________
Title:_____________________________
_________________________________ (CORPORATE SEAL)
Notary Public
Signed, sealed and delivered TENANT:
in the presence of: GWINNETT PULMONARY GROUP, P.C.
_________________________________ By:________________________________
Witness Name:______________________________
Title:_____________________________
_________________________________
Notary Public (CORPORATE SEAL)
<PAGE> 55
Signed, sealed and delivered LANDLORD:
in the presence of: DULUTH PROFESSIONAL CENTER, L.P.
By: Duluth Professional Associates
General Partner
By: (SEAL)
- ------------------------------- --------------------------
Witness
Name:
------------------------------
Title: Managing Partner
-----------------------------
- -------------------------------
Notary Public (CORPORATE SEAL)
<PAGE> 1
EXHIBIT 10.12
EASTSIDE PHYSICIANS CENTER
LEASE SUMMARY
between
Eastside Physicians Center, LP (Landlord)
a Georgia limited partnership
and
Atlanta Ear, Nose & Throat Associates (Tenant)
Date of Execution July 14, 1994
Premises Floor 4, Suite 470
Rentable Area of the premises 3,488 Square Feet (subject to adjustment
[Paragraph 1] pursuant to the final "Plans")
Commencement Date June 1, 1995 (subject to adjustment pursuant to
[Paragraph 2] the Tenant Improvement Agreement) Tenant may
select earlier Commencement Date, subject to
approval of Landlord
Expiration Date 60 months from the Commencement Date
[Paragraph 2]
Rental Commencement Date The Commencement Date, except as otherwise
provided in the Tenant Improvement Agreement
Base Rental $19.00 per annum per square foot of Rentable
[Paragraph 3] Area of Premises
Improvement Allowance $104,640 (based on rentable area of the
Premises). Tenant Allowance funds may be
applied to x-ray and audio installations to
extent funds are available
Use Medical Office
[Paragraph 6]
Tenant's Address for Notices (Paragraph 22) Prior to Commencement Date
Suite 235
5555 Peachtree Dunwoody Road
Atlanta, GA 30342
Commencement Date and After
Suite 235
5555 Peachtree Dunwoody Road
Atlanta, GA 30342
Landlord's Address for Notices and Payment c/o Meadows & Ohly, Inc.
of Rent [Paragraph 22] Suite 470
3475 Lenox Rd
Atlanta, GA 30326
SCHEDULE OF EXHIBITS
Exhibit "A" Floor Plan
Exhibit "B" Tenant Acceptance Agreement
Exhibit "C" Tenant Improvement Agreement
Exhibit "D" Rules and Regulations
Exhibit "E" Building Moving Policy
Exhibit "F" Additional Amenities Lease
<PAGE> 2
STANDARD MEDICAL OFFICE LEASE (Rev. 11/93)
- -------------------------------------------------------------------------------
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") made and entered into as of the date
specified in the Lease Summary, attached hereto, by and between the
undersigned Landlord and the undersigned Tenant.
1. DEFINITIONS. Each of the following defined terms, shall have the meaning
ascribed thereto by this paragraph 1.
A. "Building" means that certain medical office building known as EASTSIDE
PHYSICIANS CENTER, and located at 1700 Tree Lane, Snellville, Georgia 30278.
B. "Eastside Physicians Center" shall mean the Building together with the
following, as they may from time to time exist, common areas, a connecting
walkway to the Eastside Hospital, and a parking lot, together with all
alterations, additions and replacements thereto, and related amenities.
C. "Premises" shall mean that portion of the Building shown on the plan
attached hereto as Exhibit "A", as adjusted by the final "Plans", as that term
is defined in the Tenant Improvement Agreement attached hereto as Exhibit "C"
(the "Tenant Improvement Agreement").
D. "Rentable Area" of the Premises means the total of (1) the gross area
thereof (the "Premises Gross Area") as measured on the final Plans from and to
the inside glass surface of the exterior building walls, and from and to the
center of any partition walls which separate the Premises from adjoining tenant
and common areas; plus (2) the pro rata part of the common areas of the
Building (including all building corridors, entry areas, building bathrooms,
postal areas and all other facilities commonly available to all tenants). For
purposes of calculating such pro rata share, it is hereby agreed that the total
of the gross area for all Tenants of the Building constitutes 86% of the total
area of the Building, and that the total of all common areas of the Building
constitutes 14% of the total area of the Building. It is hereby further agreed
that the Rentable Area of the Premises is subject to adjustment based on the
final determination of the Premises Gross Area under the Plans.
2. PREMISES AND TERM. In consideration of the obligation of Tenant to pay Base
Rental and Additional Rental as herein provided, and in consideration of the
other terms, provisions and covenants hereof, Landlord hereby demises and
leases to Tenant, and Tenant hereby accepts and leases from Landlord the
Premises, with no easement for light or air included in the Premises, to have
and to hold the same for the term described below (the "Lease Term").
The Lease Term shall commence on the date specified in the Lease
Summary as the Commencement Date (the "Commencement Date"), which is the date
on which Landlord anticipates that the Premises will be substantially completed
in accordance with the Tenant Improvement Agreement (but which date is subject
to adjustment pursuant to the Tenant Improvement Agreement), and shall end at
6: p.m. E.S.T. on the date specified in the Lease Summary as the Expiration
Date (the "Expiration Date"). Except as provided in the Tenant Improvement
Agreement, the rental due hereunder from Tenant shall commence on the
Commencement Date. If, for any reason whatsoever, the Premises are not
substantially completed by the Commencement Date, or if Landlord, for any
reason whatsoever, cannot deliver possession of the Premises to Tenant on the
Commencement Date, this Lease shall not be void or voidable, nor shall Landlord
be liable to Tenant for any resulting loss or damages. No delay in delivery of
possession shall operate to relieve Tenant of Tenant's obligations to Landlord,
except where such delay results in an adjustment of the Commencement Date and
the Rental Commencement Date pursuant to the Tenant Improvement Agreement.
Landlord shall be deemed to have delivered possession of the Premises for
Tenant's occupancy on the date on which Landlord has notified Tenant that the
"Work", as that term is defined in the Tenant Improvement Agreement, is
substantially complete, subject only to completion of items customarily
classified as "punchlist items" in the construction industry (such date
hereinafter referred to as the "Occupancy Date"). Within ten (10) days after
the Occupancy Date, Tenant shall execute and deliver to Landlord a Tenant
Acceptance Agreement in the form attached hereto as Exhibit "B" Tenant may
state in such Tenant Acceptance Agreement any defects in the Premises remaining
to be repaired or completed by Landlord ("Punchlist Items"), provided, however,
that acceptance by Landlord of the Tenant Acceptance Agreement with a
statement of Punchlist Items shall not constitute the agreement of Landlord to
repair or complete any Punchlist Items not included in the "Working Drawings,"
as that term is defined in the Tenant Improvement Agreement. Tenant shall have
waived objection to any defects not enumerated in a Tenant Acceptance
Agreement, except for latent defects not discoverable by reasonable diligence
of Tenant, and to any defects of any nature if a Tenant Acceptance Agreement is
not executed and delivered within said ten (10) day period.
3. BASE RENTAL.
A. Tenant covenants and agrees to pay to Landlord during the Lease Term the
amounts specified in the Lease Summary (the "Base Rental") as rent for the
Premises. The Base Rental shall be paid in equal monthly installments in
advance, without demand, deduction or set off, on the first (1st) day of each
and every calendar month during the Lease Term. A prorated monthly installment
shall be paid in advance on the Commencement Date for any fraction of a month if
the Lease Term begins on any day other than the first day of any month and on
the first day of the final month of the Lease Term for any fraction of a month
if the Lease Term shall terminate on any day other than the last day of any
month. B. Commencing January 1, 1996, and on every January 1 thereafter, the
Base Rental shall be increased to an amount equal to the product of: (i) the
amount of Base Rental set forth in Paragraph 3A of this Lease (as increased from
time to time by earlier adjustments established by this Paragraph 3B) multiplied
by (ii) 1.02.
C. Tenant covenants and agrees to pay to Landlord during the Lease
Term such sums as are referred to herein as "Additional Rental" when due,
without demand, deduction or set off.
2
<PAGE> 3
4. ADDITIONAL RENTAL. Tenant shall pay, as Additional Rental, the amount,
if any, by which the number of square feet contained in the Rentable area of the
Premises under this Lease multiplied by $6.25 per square foot is less than
Tenant's Percentage Share, as hereinafter defined, of the Operating Expenses, as
hereinafter defined, for any calendar year "Tenant's Percentage Share" of the
Operating Expenses shall be an amount determined by multiplying the total
Operating Expenses of the Eastside Physicians Center for the year by a fraction,
the numerator of which shall be the Rentable Area of the Premises and the
denominator of which shall be the average of all rentable areas occupied by all
rent paying tenants in the Building for the year. The Additional Rental payable
pursuant to this paragraph shall be determined, and paid in accordance with the
following procedures:
(i) During each December of the Lease Term, or as soon thereafter as
practicable, Landlord shall give Tenant written notice of its estimate
of Additional Rental payable under this paragraph for the ensuing
calendar year. On or before the first day of each month during the
ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12)
of such estimated amounts together with the Base Rental, provided that
if such notice is not given in December, Tenant shall continue to pay
such Additional Rental during the ensuing calendar year on the basis of
the amounts payable during the calendar year just ended, until the month
after such notice is given.
(ii) As soon as practicable after the close of each calendar year
during the Lease Term, Landlord shall deliver to Tenant a statement of
the adjustments to be made for the calendar year just ended. Such
statement shall be final and binding upon Landlord and Tenant absent
manifest error. If on the basis of such statement Tenant owes an amount
that is less than the estimated payments for the calendar year just
ended previously made by Tenant, Landlord shall credit such excess to
the next payments of Additional rental coming due. Tenant shall pay as
Additional Rental the deficiency to Landlord within thirty (30) days
after delivery of the statement.
(iii) If this Lease shall terminate on a day other than the last day
of a calendar year, the amount of Additional Rental payable shall be
prorated. The termination of this Lease shall not affect the obligations
of Landlord and Tenant to be performed after such termination, pursuant
to this paragraph 4.
"Operating Expenses" as used herein shall mean all actual costs and expenses of
operation, maintenance, repair, ad valorem taxes, management, and security of
the Building. Operating Expenses shall not include (i) depreciation on the
Building and personal property, (ii) Tenant Improvement Costs, (iii) payments
by Landlord of interest and principal on any mortgage secured by the Building,
(iv) the cost of special services rendered to a particular tenant of the
Building, which are paid or reimbursed by such tenant, and (v) leasing
commissions.
5. PREPARATION OF THE PREMISES.
A. Landlord shall construct or install in the Premises the Work (as
defined in the Tenant Improvement Agreement), pursuant to the provisions of the
Tenant Improvement Agreement. Tenant agrees to comply with all of the terms and
provisions of the Tenant Improvement Agreement.
6. PERMITTED AND RESTRICTED USES, COMPLIANCE WITH LAWS AND PARKING.
A. Tenant shall use the Premises only for the purposes specified in the
Lease Summary. Tenant shall not use the Premises for any illegal purpose, nor
violate any statute, regulation, rule or order of any governmental body in its
use thereof, nor create or allow to exist any nuisances or trespasses, nor do
any act in or about the Building or the Premises or bring anything onto or unto
the Building or the Premises which will in any way materially increase the rate
of insurance on the Building or the Premises nor deface or injure the Building
or Premises or overload the floor of the Premises. Tenant shall comply, at its
own expense, with all statutes, regulations, rules, ordinances, and orders of
any governmental body, department, or agency thereof which apply to or result
from Tenant's use or occupancy of the Premises and shall abide by and observe
the Rules and Regulations attached to this Lease as Exhibit "D" and the
Building Moving Policy attached to this Lease as Exhibit "E" and also such
other rules and regulations for the use, occupancy, or operation of the
Building as may be hereafter be established in writing by Landlord.
B. Tenant shall not use and shall not permit the use of the Premises for
any business or activity that is in violation of those certain restrictive
covenants encumbering all or any portion of the Building by American Medicorp
Development Co. or its successor, and which restrictive covenants have been or
will be recorded in the real estate records for Gwinnett County, Georgia.
C. No rights to any parking spaces are granted under this Lease, however,
Tenant and Tenant's employees, trustees and licensees shall be entitled to use,
on a non-exclusive basis, the parking facilities located from time to time
adjacent to the Building and owned or leased by Landlord in common with other
tenants of the Building. Such use of the parking facilities shall be subject to
any and all rules and regulations established by Landlord with respect to
the parking facilities.
D. Anything to the contrary in this Lease notwithstanding, Landlord
reserves the right and privilege to, from time to time, alter the location,
structure and layout of the Eastside Physicians Center, including, but not
limited to, the parking areas, walkways and other common areas.
7. SERVICES. Landlord agrees to provide to Tenant the following services:
A. General cleaning and janitorial service required as a result of normal,
prudent use of the Premises and only on Mondays through Fridays, inclusive,
with New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day (herein collectively called the "Holidays") excepted;
B. Heating and air-conditioning service daily on Monday through Fridays,
inclusive, with Holidays excepted from 8:00 A.M. to 6:00 P.M. and on Saturdays,
if not a Holiday, from 8:00 A.M. to 1:00 P.M. Landlord reserves the right to
prohibit the use of machines and equipment that generate heat in their
operation. Should Tenant desire either heating or air-conditioning at times
when such services are not furnished by Landlord under the terms of this Lease,
Landlord will furnish such services as requested by Tenant upon not less than
24 hours notice from Tenant, at Tenant's expense and at such
3
<PAGE> 4
hourly charge as is from time to time determined by Landlord. Payments for such
additional services shall be deemed Additional Rental due from Tenant and shall
be due and payable on demand;
C Elevator service daily on Mondays through Fridays, inclusive, with
Holidays excepted, from 8:00 .M. to 6:00 P.M. and on Saturdays, if not a
Holiday, from 8:00 A.M. to 1:00 P.M. At least one elevator shall be operative
at all other hours; and
D Electric current for lighting and reasonable facilities for furnishing
usual and normal electric power for office space. Tenant shall not, without
Landlord's prior written consent, use any equipment, including, diagnostic
equipment, X-ray machines, or any other machines, which will increase the
amount of electricity ordinarily furnished for the use of the Premises as
general office space.
E Water shall be provided to the Premises in an amount sufficient for
private toilets and for hand washing. The cost of any water used in excess of
such amount shall be reimbursed to Landlord on demand as Additional Rental with
the amount and cost of such excess determined by Landlord in its reasonable
discretion.
8. LANDLORD'S REPAIRS AND OBLIGATIONS. Landlord shall maintain in good
order and repair, normal wear and tear, casualty and condemnation excepted, the
Eastside Physicians Center (excluding the Premises and other portions of the
Building leased to other tenants), including, without limitation, public areas,
the parking lot and landscaped areas, elevators, stairs, corridors, common
rest rooms, the mechanical, plumbing and electrical systems and the structure
itself (including the glass exterior surfaces of the Premises) as same may
exist from time to time, provided, however, the cost of any repairs or
maintenance necessitated by the intentional acts or omissions, or negligence of
Tenant, or its agents, employees, contractors, invitees, licensees, sub-tenants
or assignees, shall be reimbursed by Tenant to Landlord upon demand as
Additional Rental. Landlord shall have no duty to make any repairs or
improvements to the Premises except structural repairs necessary for safety and
tenantability, the necessity for which (i) Landlord is notified in writing by
Tenant, and (ii) is not brought about by any act or neglect of Tenant, its
agents, employees or contractors, licensees, or invitees. Tenant shall
immediately give Landlord written notice of any damage to, or defective
condition in or about the Premises or the Building known to Tenant. Landlord's
liability with respect to any defects, repairs or maintenance for which
Landlord is responsible under any of the provisions of this Lease shall be
limited to the cost of such repairs or maintenance or the curing of such
defect. Landlord shall not be liable to Tenant for damage to person or property
caused by any latent defects in the Building or the Premises, defects in the
cooling, heating, electric, water, elevator or other apparatus or systems or by
water discharged from sprinkler systems, if any, in the building or the
Premises, nor for the theft, mysterious disappearance, or loss of any property
of Tenant or Tenant's agents, employees, contractors, licensees or invitees,
whether from the Premises or any part of the Building. Landlord agrees to make
reasonable efforts to protect Tenant from interference or disturbance by third
persons, including other tenants; however, Landlord shall not be liable, and
Tenant shall not be relieved from its obligations hereunder, for any such
interference or disturbance, whether caused by another tenant or tenants of
Landlord, or by other persons.
9. TENANT'S REPAIRS AND OBLIGATIONS.
A Tenant shall at its own cost and expense keep and maintain the Premises
and all part thereof in good repair and tenantable condition and indemnify
Landlord against any loss, damage, or expense arising by reason of any failure
of Tenant so to keep the Premises in good repair and tenantable condition or
due to any act or negligent of Tenant, its agents, employees, contractors,
invitees, or licensees. If Tenant fails to perform, or cause to be performed,
such maintenance and repairs, then at the option of Landlord, in its sole
discretion, any such maintenance or repair may be performed or caused to be
performed by Landlord and the cost and expense thereof charged to tenant, and
Tenant shall pay the amount thereof to Landlord on demand as Additional Rental.
Tenant shall not install X-ray machines or other equipment which emits
radiation in the Premises without Landlord's approval, which approval shall not
be unreasonably withheld or delayed. Lessee hereby accepts the risks of and all
responsibility for any injury or damage which may result from the operation or
failure of operation of any such X-ray equipment or other equipment which emits
radiation. All such equipment owned or operated by Tenant must be installed and
protected in a manner satisfactory to Landlord and in compliance with all
governmental regulations.
B All repairs, replacements and clearing of stoppages from plumbing
fixtures within the Premises, as well as repair or replacement of special or
non-standard electrical fixtures, lights and light bulbs within the Premises
(other than standard 2X4 lights), and the furnishing of toilet paper and paper
towels to toilets and sinks located within the Premises shall be at Tenant's
expense.
10. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises without first obtaining the prior written consent
of Landlord. All such work, including additions, fixtures, and leasehold
improvements (but excluding moveable office furniture, trade fixtures, cabinets
and counter tops which are not mounted on or attached to walls, equipment, and
other personal property of Tenant) made or placed in or upon the Premises by
either tenant or Landlord shall be and become Landlord's property at the
termination of this Lease by lapse of time or otherwise, all without
compensation or payment to Tenant, and shall remain upon and in the Premises;
but said property shall be and remain Tenant's property during the Lease Term.
Before the termination of this Lease Tenant shall remove from the Premises all
its personal property which this Lease allows Tenant to remove and peaceably
surrender such Premises and the keys thereto to Landlord in the same condition
as at the Commencement Date, only normal wear and tear excepted. Such property
of Tenant as it fails to remove either from the Premises or the Building after
the termination of this Lease shall be considered as abandoned by Tenant and
may be disposed of by Landlord in any manner whatsoever without accounting to
Tenant for same or being liable in any way to Tenant for such disposition.
4
<PAGE> 5
11. SIGNS: Tenant agrees to conform to Landlord's signage program for the
Building; however, all costs and expenses for any sign, sign installation,
removal and repair shall be paid by Tenant. Tenant shall obtain the written
approval of Landlord prior to placing and maintaining, or causing or permitting
to be placed and maintained, any sign, advertising matter or other thing of any
kind, on the exterior of the Premises, or any decorating, lettering or
advertising matter on any exterior door to the Premises. tenant shall not affix
or attach anything to windows in the Premises.
12. INSPECTIONS AND RIGHT OF ENTRY. Tenant shall not change the locks on
any entrance to the Premises or install additional locks without Landlord's
prior written consent. Landlord and its agents, employees, and contractors
shall have the right to enter the Premises at such times as Landlord deems
reasonably necessary to make such repairs, additions, alterations, and
improvements as Landlord desires to make to the Building. During such time as
work is being carried on in or about the Premises, provided such work is
carried out in a manner so as not to interfere unreasonably with the conduct
of Tenant's business therein, the rent provided herein shall in no wise abate,
and Tenant waives any claim and cause of action against Landlord for damages by
reason of loss or interruption to Tenant's business and profits therefrom
Landlord and its agents, shall have the right to enter the Premises during
normal business hours, without interference with the conduct of Tenant's
business therein, to inspect and examine the Premises and to exhibit the
Premises to prospective purchasers, tenants and lenders. Tenant shall give
written notice to Landlord at least thirty (30) days prior to vacating the
Premises and shall arrange to meet with Landlord for a joint inspection of the
Premises prior to vacating.
13. ASSIGNMENT AND SUBLETTING. Tenant shall not, without Landlord's prior
written consent, (i) assign, convey, mortgage, pledge, encumber, or otherwise
transfer (whether voluntarily, by operation of law, or otherwise) this Lease
or any interest under it; (ii) allow any transfer thereof or any lien upon
Tenant's interest by operation of law; (iii) sublet the Premises or any part
thereof; or (iv) permit the use or occupancy of the Premises or any part
thereof by any one other than Tenant; and any attempt to consummate any of the
foregoing without Landlord's consent shall be void. Landlord's consent shall
not be unreasonably withheld or delayed with respect to any assignment or
sublease with respect to the Premises; provided, however, Landlord shall be
permitted to consider all relevant factors in determining whether consent is to
be granted, including, without limitation, the creditworthiness, identity,
operating history, use of the Premises and reputation of the proposed subtenant
or assignee and whether the proposed assignment or sublease (or the use of the
Premises by the proposed subtenant or assignee) will violate or cause an event
of default or breach under any ground lease, mortgage, deed to secure debt or
other instrument affecting the Building or the land underlying the Building.
Unless otherwise expressly agreed to by Landlord in writing, no sublease or
assignment by Tenant shall relieve Tenant or any of the "Owners" (as defined in
Paragraph 23 hereof) of any liability hereunder. Tenant agrees to pay, as
Additional Rental, to Landlord, on demand, all out of pocket expenses,
including all legal fees, incurred by Landlord in connection with any request
by Tenant for Landlord to consent to any assignment or subletting by Tenant.
The sale or transfer of Tenant's voting stock (if a corporation) or partnership
(if a partnership) resulting in the transfer of control of a majority of such
stock or interest, or the occupancy of the Premises by any successor firm of
Tenant or by any firm into which or with which Tenant may become merged or
consolidated shall be deemed an assignment of this Lease requiring the prior
written consent of Landlord. This paragraph shall not apply to any assignment
or sublease to a member in good standing of the medical staff of the Eastside
Medical Center, provided that Tenant shall not be released from liability
hereunder.
14. FIRE AND CASUALTY DAMAGE.
A. If the Building or the Premises is damaged partially or wholly by fire,
the elements, act of God or other casualty, and if such damage cannot, in
Landlord's reasonable estimation, be materially restored within ninety (90)
days of such damage, then Landlord or Tenant may terminate this Lease as of the
date of such fire or casualty and the Lease Term shall end on such date as if
that date had been originally fixed in this Lease for the expiration of the
Lease Term. Landlord shall notify Tenant of its estimation as to the time
required for restoration within 30 days of the date of the damage. Election to
terminate must be delivered on or before the tenth day following receipt of
Landlord's estimation of time required for restoration if such estimate is
beyond the 90 days set out in this paragraph.
B. If this Lease is not terminated pursuant to subparagraph 14A above,
then Landlord shall proceed with all due diligence to repair and restore the
Building or the Premises, as the case may be (except that Landlord may elect
not to rebuild, and thus terminate this Lease, if such damage occurs during the
last year of the Lease Term). In the event that Landlord shall fail to complete
such repairs and material restoration within one hundred twenty (120) days
after the date of such damage and Tenant's use and enjoyment of the Premises is
then materially impaired by the uncompleted restoration, Tenant may at its
option terminate this Lease by delivering written notice to Landlord, whereupon
the Lease shall end on the date of such notice as if the date of such notice
were the date originally fixed in this Lease of the Expiration Date. In no
event shall Landlord be required to rebuild, repair, or replace any personal
property, equipment, or trade fixtures which belong to Tenant.
C. If the Lease is not terminated pursuant to this paragraph 14 and if the
Premises are unfit for occupancy in whole or in part following such damage, the
Base Rental and the Additional Rental payable pursuant to paragraph 4 payable
during the period in which the Premises are unfit for occupancy shall abate and
Tenant's Percentage Share shall be reduced in proportion to the number of
square feet of Rentable Area of the Premises rendered unusable by such damage.
D. Any insurance which may be carried by Landlord or Tenant against loss
or damage to the Building or the Premises shall be for the sole benefit of the
party carrying such insurance.
E. If any such casualty stated in this paragraph 14 occurs, Landlord shall
not be liable to Tenant for inconvenience, annoyance, loss of profits,
expenses, or any other type of injury or damage resulting from the repair of
any such damage, or from any repair, modification, arranging, or rearranging of
any portion of the Premises or any part or all of the Building or for
termination of this Lease as provided in this paragraph 14.
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<PAGE> 6
F. Anything in this Paragraph 14 to the contrary notwithstanding, for purposes
of this Paragraph 14, Landlord shall not be obligated to commence any repair or
restoration until insurance proceeds are actually recovered by Landlord, and
Landlord's restoration obligations shall be limited to the extent of the
insurance proceeds actually received by Landlord therefor (plus the amount of
any deductible or co-insurance payments applicable to such insurance) which
have not been required by the holder of any mortgage or deed to secure debt
encumbering any portion of the Building to be applied toward the reduction of
any indebtedness secured by the Building.
15. INSURANCE, LIABILITY AND INDEMNIFICATION.
A. Tenant shall carry and maintain throughout the Lease Term fire and extended
coverage insurance insuring Tenant's interest in its improvements and
betterments to the Premises and any and all furniture, equipment supplies, and
other property, owned, leased, held, or possessed by it and contained therein,
such insurance coverage to be in an amount equal to the full insurable value of
such improvements and property.
B. Tenant also agrees to carry and maintain throughout the Lease Term a policy
or policies of worker's compensation and commercial general liability
insurance, including personal injury and property damage, with broad form and
contractual liability endorsements, in the amount of One Million Dollars
($1,000,000.00) per occurrence and Two Million Dollars ($2,000,000.00) annual
aggregate for property damage and personal injuries or deaths of persons
occurring in or about the Premises. Said policies shall: (i) name Landlord and
any other persons designated by Landlord as an additional insured(s), (ii) be
issued by an insurance company which is acceptable to Landlord and licensed to
do business in the State of Georgia, and (iii) provide that said insurance
shall not be canceled unless thirty (30) days prior written notice shall have
been given to Landlord and any designees of Landlord. Said policies, or
certificates thereof, shall be delivered to Landlord by Tenant upon
commencement of the term of the Lease and upon each renewal of said insurance.
C. Tenant shall obtain from its insurers under all policies of fire, theft,
public liability, workmen's compensation and other insurance maintained by it
at any time during the term of this Lease insuring or covering the Building or
any portion thereof or operations therein, a waiver of all rights of
subrogation which the insurer might have against Landlord, and Tenant shall
indemnify Landlord against any loss or expense, including reasonable attorney's
fees, resulting from the failure to obtain such waiver. In the event Tenant's
waiver of subrogation is obtainable only at extra charge by the insurers,
Landlord shall have the option of either paying such charge or waiving this
requirement.
D. In addition to and without limiting any other indemnity and hold harmless
provision contained herein, Tenant agrees to indemnify and hold Landlord
harmless from and defend Landlord against any and all claims or liability for
any injury or death to any person or damage to any property whatsoever: (i)
either (a) occurring in, on or about the Premises, or (b) occurring in, on, or
about any facilities the use of which Tenant may have in conjunction with other
tenants of the Building, when such injury, death or damage shall be caused by
the act, neglect or fault of, or omission of any duty with respect to the same,
by Tenant, its agents, employees, contractors, invitees, licensees, subtenants,
or assignees; (ii) arising from any work or thing whatsoever done by or
benefiting the Tenant in or about the Premises or from transactions of the
Tenant concerning the Premises; (iii) arising from any breach or event of
default on the part of the Tenant in the performance of any covenant or
agreement on the part of the Tenant to be performed pursuant to the terms of
this Lease; or (iv) otherwise arising from any act, omission or neglect of the
Tenant, or any of its agents, employees, contractors, invitees, licensees,
subtenants or assignees.
E. Landlord shall not be liable to Tenant or to any person, firm, corporation
or other business association claiming by, through or under Tenant, for failure
to furnish or for delay in furnishing any service or utility provided in this
Lease and no such failure or delay by Landlord shall be an actual or
constructive eviction of Tenant nor shall any such failure or delay operate to
relieve Tenant from the prompt and punctual performance of each and all the
covenants to be performed herein by Tenant.
F. Anything in this Lease to the contrary notwithstanding, Landlord's
obligations and liability with respect to this Lease shall be limited solely
to Landlord's interest in the Eastside Physicians Center, as such interest is
constituted from time, and neither Landlord nor any officer, director,
shareholder, nor partner or joint venturer of Landlord, nor any partner of any
partner of Landlord, shall have any personal liability whatsoever with respect
to this Lease. In any action or proceeding brought to enforce this obligation
of Landlord to Tenant under this Lease, Landlord and Tenant agree that any
final judgment or decree shall be enforceable against Landlord only to the
extent of Landlord's interest in the Eastside Physicians Center, as aforesaid,
and any such judgment or decree shall not be capable of execution against, nor
be a lien on, any assets of Landlord other than its interest in the Eastside
Physicians Center, as aforesaid.
16. CONDEMNATION.
A. If all or any substantial part of the Building or the Premises should be
taken for any public or quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the use of
the Premises for the purpose for which it is then being used, this Lease shall
terminate effective when the physical taking shall occur in the same manner as
if the date of such taking were the Expiration Date.
B. If part of the Building or the Premises is taken for any public or
quasi-public use under any governmental law, ordinance, or regulation, or by
rights of eminent domain, or by private purchase in lieu thereof, and this
Lease is not terminated as provided in subparagraph 16A above, this Lease shall
not terminate but the Base Rental and the Additional Rental payable hereunder
during the unexpired portion of this Lease shall be reduced to such extent, if
any, as may be fair and reasonable under all of the circumstances and Landlord
shall undertake to restore the Building and the Premises to a condition
suitable for Tenant's use, as near to the condition thereof immediately prior
to such taking as is reasonably feasible under all circumstances.
C. Tenant reserves to itself and does not assign to Landlord any damages or
claims for damages payable for Tenant's trade fixtures or for any fixtures or
equipment installed by Tenant, or any damages or claims for damages which are
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considered "special damages" including but not limited to such items as moving
expenses, and business losses resulting from such appropriation, reserving such
right as it may have, if any, to proceed for a separate award therefore, from
the condemning body.
17. HOLDING OVER. In no event shall there be any renewal of this Lease by
operation of law. If Tenant remains in possession of the Premises after the
termination of this Lease and without a new lease executed by Landlord and
Tenant, Tenant shall be deemed to be occupying the Premises as a
tenant-at-sufferance at an amount equal to one hundred fifty percent (150%) of
the (i) Base Rental and (ii) Additional Rental provided for in this Lease and
otherwise subject to all the covenants and provisions of this Lease, insofar as
the same are applicable.
18. EVENTS OF DEFAULT AND REMEDIES.
A. The occurrence of any of the following shall constitute an event of
default.
(i) The Base Rental, Additional Rental or any other sum of money
payable under this Lease is not paid when due;
(ii) Tenant's interest in the Lease or the Premises shall be subjected
to any attachment, levy, or sale pursuant to any order or decree
entered against Tenant in any legal proceeding and such order or
decree shall not be vacated within thirty (30) days of entry thereof;
(iii) Tenant breaches or fails to comply with any term, provision,
condition, or covenant of this Lease (other than the payment of Base
Rental, Additional Rental and any other sum due and payable hereunder)
or with any of the Rules and Regulations or Building Moving Policy now
or hereafter established from time to time by Landlord to govern the
operation of the Building;
(iv) Tenant fails to bond off or otherwise remove any lien filed
against the Premises or the Building by reason of Tenant's actions,
within three (3) days after Tenant has notice of the filing of such
lien;
(v) The appointment of a receiver to take possession of all or
substantially all of the assets of Tenant or an assignment of Tenant
for the benefit of Creditors, or any action taken or suffered by Tenant
under any insolvency, bankruptcy, or reorganization act (other than a
petition of involuntary bankruptcy which is dismissed within thirty
(30) days of date of filing), shall, at Landlord's option, constitute
an event of default by Tenant; or
(vi) Tenant is liquidated or dissolved or its charter expires or is
revoked, or Tenant is dissolved or partitioned.
B. Upon the occurrence of an event of default and, in the case of an
event of default under subparagraph 18A(i) above, if such event of
default is not cured within five (5) days of the due date, and in the
case of an event of default under subparagraph 18A(ii) and A(iii)
above, if such event of default is not cured within fifteen (15) days
after written notice of such event of default is given by Landlord to
Tenant, Landlord shall have the option to do and perform any one or
more of the following in addition to, and not in limitation of, any
other remedy or right permitted it by law or in equity or by this
Lease;
(i) Landlord, with or without terminating this Lease, may re-enter the
Premises and perform, correct or repair any condition which shall
constitute a failure on Tenant's part to keep, observe, perform,
satisfy, or abide by any term, condition, covenant, agreement, or
obligation of this Lease or of the Rules and Regulations now in effect
hereafter adopted, and Tenant shall fully reimburse and compensate
Landlord on demand for all costs and expenses incurred by Landlord in
such performance, correction or repairing, including accrued interest
as provided in the next sentence. All sums so expended to cure Tenant's
default shall accrue interest from the date of demand until date of
payment at a rate of interest per annum equal to the lesser of (a)
eighteen percent (18%), or (b) the highest rate permitted by law
(ii) Landlord, with or without terminating this Lease, may re-enter the
Premises and remove therefrom Tenant and all property belonging to or
placed on the Premises by, at the direction of, or with consent of
Tenant. Any such re-entry and removal by Landlord shall not of itself
constitute an acceptance by Landlord of a surrender of this Lease or of
the Premises by Tenant and shall not of itself constitute a termination
of this Lease by Landlord.
(iii) Landlord, with or without terminating this Lease, may relet the
Premises or any part thereof for such time or times, at such rental or
rentals and upon such other terms and conditions as Landlord in its
sole discretion may deem advisable, and Landlord may make any
alterations or repairs to the Premises which it may deem necessary or
proper to facilitate such reletting, and Tenant shall pay all costs of
such reletting including but not limited to the cost of any such
alterations and repairs to the Premises, attorneys' fees, and brokerage
commissions, and if this Lease shall not have been terminated, Tenant
shall continue to pay all rent and all other charges due under this
Lease up to and including the date of beginning of payment of rent by
any subsequent tenant of part or all of the Premises, and thereafter
Tenant shall pay monthly during the remainder of the Lease Term the
difference, if any, between the rent and other charges collected from
any such subsequent tenant or tenants and the rent and other charges
reserved in this Lease, but Tenant shall not be entitled to receive any
excess of any such rents collected over the rents reserved herein;
(iv) Landlord may terminate this Lease, and this Lease shall be deemed
to have been terminated upon written notice of such termination,
Landlord shall recover from Tenant all damages Landlord may suffer by
reason of such termination including, without limitation, unamortized
sums expended by Landlord for construction of tenant improvements, all
arrearage in rentals, costs, charges, additional rentals, and
reimbursements, the cost (including court costs and actual attorneys'
fees) of recovering possession of the Premises, the cost of any
alteration of or repair to the Premises which is necessary or proper to
prepare the same for re-letting and, in addition thereto, Landlord at
its election shall have and recover from Tenant either (a) an amount
equal to the excess, if any, of the total amount of all rents and other
charges to be paid by Tenant for the remainder of the Lease Term over
the then reasonably rental value of the Premises for the remainder of
the Lease Term discounted to the net present value as of the date paid
using a five (5) percent annum discount rate, or (b) the rents and
other
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charges which Landlord would be entitled to receive from Tenant if the
Lease were not terminated
C. If Landlord re-enters the Premises or terminates this Lease pursuant to
any of the provisions of this Lease, Tenant hereby waives all claims for
damages which may be caused by such re-entry or termination by Landlord. Tenant
shall and does hereby agree to indemnify and hold Landlord harmless from any
loss, cost (including court costs and actual attorneys' fees), or damages
suffered by Landlord by reason of such re-entry or termination. No such
re-entry or termination shall be considered or construed to be a forcible entry.
D. No course of dealing between Landlord and Tenant or any failure or
delay on the part of Landlord in exercising any rights of Landlord under any
provisions of this Lease, nor shall any waiver of an event of default on one
occasion operate as a waiver of any subsequent event of default or of any other
event of default. All remedies provided for in this Lease are cumulative and
may, at the election of Landlord, be exercised alternatively, successively, or
in any other manner and are in addition to any other rights provided for or
allowed by law or in equity.
E. Tenant shall pay, as a late charge in the event any installment of Base
Rental, Additional Rental, or other charge to be paid by Tenant hereunder is
not paid when due on demand, (i) a late fee of $10.00 per day for each and
every day past the due date of the payment, which late fee Tenant acknowledges
is an agreed upon reimbursement to Landlord for the administrative expense
incurred by Landlord as a result of Tenant's late payment and not a penalty;
and (ii) interest on the amount past due (excluding late fees) at a rate per
annum equal to the lesser of (a) eighteen percent (18%), or (b) the highest rate
permitted by law, from due date until paid. Should Tenant make a partial
payment of past due accounts, the amount of such partial payment shall be
applied first to late fees, second, to accrued but unpaid interest and third,
to reduce all other past due amounts, in the order of their maturity. In the
event Tenant's check is returned by the bank for non-payment, Tenant agrees to
pay all expenses incurred by Landlord as a result thereof (with a minimum
charge being no less than $25.00). All checks are accepted subject to
collection. In the event checks are returned for non-payment, late fees and
interest shall be due as if no check had been received.
F. If any Base Rental, Additional Rental or other debt or amount owing by
Tenant to Landlord hereunder is collected by or through an attorney at law,
Tenant agrees to pay actual attorneys fees incurred by Landlord as a result of
Landlord's exercise of any remedy or right permitted it by law or in equity or
by this Lease.
19. HAZARDOUS SUBSTANCES AND WASTE DISPOSAL.
A. Tenant hereby covenants that Tenant shall not cause or permit any
"Hazardous Substances" (as hereunder defined) to be placed, held, located or
disposed of, in, on, or at the Premises or any part thereof and neither the
Premises nor any part thereof shall ever be used as a dump site or storage site
(whether permanent or temporary) for any Hazardous Substances during the Lease
Term.
B. For purposes of this Lease, "Hazardous Substances" shall mean and
include those elements or compounds which are contained in any list of
hazardous substances adopted by the United States Environmental Protection
Agency (the "EPA") or the list of toxic pollutants designated by Congress or
the EPA or which are defined as hazardous, toxic, pollutant, infectious or
radioactive by any other Federal, state or local statute, law ordinance, code,
rule, regulation, order or decree regulating, relating to, or imposing
liability or standards of conduct concerning, any hazardous toxic or dangerous
waste, substance or material, as now or at any time hereafter in effect.
C. All normal trash and waste (i.e. waste that does not require special
handling pursuant to subparagraph 19D below) shall be disposed of through the
janitorial service.
D. Tenant shall be responsible, at its sole cost and expense, for the
removal and disposal of any waste deemed by any governmental authority having
jurisdiction over the matter to be hazardous or infectious waste or waste
requiring special handling, such removal and disposal to be in accordance with
any and all applicable governmental rules, regulations, codes, orders or
requirements. Tenant hereby indemnifies and holds harmless Landlord from and
against any loss, claims, demands, damage or injury Landlord may suffer or
sustain as a result of Tenant's failure to comply with the provisions of this
subparagraph 19D. This Paragraph shall survive cancellation, termination or
expiration of this Lease.
20. SUBORDINATION, ATTORNMENT AND FINANCIAL DISCLOSURES.
A. Except as provided in subparagraph 20C below, this Lease and all rights
of Tenant hereunder are and shall be subject and subordinate to (i) the lien of
any mortgage, deed to secure debt, deed of trust, or other instrument in the
nature thereof which may now or hereafter affect Landlord's estate or interest
in and to the Building and the land underlying the Building and to any other
instrument encumbering the fee title of the Premises and to any modifications,
renewals, consolidations, extensions, or replacements thereof, and (ii) all
ground leases which now or hereafter affect the Building or the Land underlying
the Building.
B. Tenant shall, upon demand, execute, and deliver to Landlord or the
holder or the holder of any such mortgage, deed to secure debt, deed or trust,
or other instrument or to the lessor under any such ground lease, any and all
instruments that may be requested by Landlord or such holder or such lessor to
evidence the subordination of this Lease and all rights hereunder to the lien
of any such mortgage, deed to secure debt, deed or trust, or other instrument,
or the grant of any such ground lease and each such renewal, modification,
consolidation, replacement, and extension thereof, and if Tenant shall fail at
any time, within ten (10) days following the giving of a written request
therefor, to execute, acknowledge, and deliver any such instrument, Landlord or
such holder of such lessor, in addition to any other remedies available to it
in consequence thereof, may execute, acknowledge, and deliver to same as the
attorney-in-fact of Tenant and in Tenant's name, place, and stead, and Tenant
hereby irrevocably makes, constitutes, and appoints Landlord or such holder or
such lessor, and their respective successors and assigns, such attorney-in-fact
for that purpose. Upon execution of such document by Tenant, Landlord shall
make reasonable efforts to obtain a non-disturbance agreement from such party
to whom the document was delivered.
C. Tenant shall, upon demand, at any time or times, execute, acknowledge,
and deliver to Landlord or to the holder of any mortgage, deed to secure debt,
deed of trust, or other instrument affecting or encumbering the Building of the
land
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underlying the Building or to the lessor under any ground lease affecting the
Building or the land underlying the Building, without expense, any and all
instruments that may be necessary to make this Lease superior to the lien of
any such mortgage, deed to secure debt, deed of trust or other instrument or
the grant of any such ground lease, and each renewal, consolidation,
replacement, and extension thereof, and, if Tenant shall fail at any time,
within ten (10) days following the giving of a written request therefor, to
execute, acknowledge, and deliver any such instrument, Landlord or such holder
or such lessor, in addition to any other remedies available to it in
consequence thereof, may execute, acknowledge, and deliver the same as the
attorney-in-fact of Tenant and in Tenant's name, place, and stead, and Tenant
hereby irrevocably makes, constitutes, and appoints Landlord or such holder or
such lessor, and their respective successors and assigns, such attorney-in-fact
for that purpose.
D. Tenant acknowledges that Tenant's ability to perform its obligations
hereunder, including payment of all rents and performance of all other duties
set out herein, are substantial inducements to Landlord to enter into this Lease
and are key to Landlord's ability to secure financing for the property from
time to time. Accordingly, Tenant and all guarantors agree to provide such
financial statements, as may be required by Landlord's potential or then
current lender. All such data shall be submitted within (10) days of date of
request by Landlord. Landlord agrees that all such data shall remain
confidential and shall be disclosed only to qualified lending institutions.
21. TENANT'S RIGHT TO TERMINATE.
Landlord and tenant acknowledge that, as of the date of this Lease,
construction of the Eastside Physicians Center has not commenced. In the event
that construction of the Eastside Physicians Center has not commenced on or
before March 31, 1994, then Tenant shall have the option, which option shall be
exercised by written notice to Landlord given on or before April 15, 1994, to
terminate this Lease and receive a refund of the Rental Deposit. Failure by
Tenant to give such notice on or before April 15, 1994, shall constitute a
waiver of such option. For purposes of this Paragraph 21, construction of the
Eastside Physicians Center shall be deemed to have "commenced" upon the
beginning of work at the site of the Eastside Physicians Center to lay footings
and foundations.
22. MISCELLANEOUS.
A. Tenant represents and warrants to Landlord that no broker, agent,
commission salesman, or other person has represented Tenant in the negotiations
for and procurement of this Lease and of the Premises and that no commissions,
fees, or compensation of any kind are due and payable in connection herewith to
any broker, agent, commission salesman, or other person. Tenant agrees to
indemnify and hold Landlord harmless from all loss, cost and damage (including
reasonable attorneys' fees and court costs) suffered or incurred by Landlord as
a result of a breach by Tenant of the representation and warranty contained in
the immediately preceding sentence or as a result of Tenant's failure to pay
commissions, fees or compensation due to any broker who represented Tenant,
whether or not disclosed. Spirit Realty, which is an affiliate of the General
Partner of Landlord, has represented Landlord and will receive compensation in
accordance with a separate agreement between Spirit Realty and Landlord.
B. Except for legal process which may also be served as by law provided or
as provided below, all notices required or desired to be given with respect to
this Lease in order to be effective shall be in writing and shall be deemed to
be given to and received by the party intended to receive such notice when hand
delivered or three (3) days after such notice shall have been deposited, postage
prepaid, to the United States mail, certified, return receipt requested,
properly addressed (i) if to Landlord, at Landlord's Address for Notices
specified in the Lease Summary, or (ii) if to Tenant, Tenant's Address for
Notices specified in the Lease Summary. In the event of a change of address by
either party, such party shall give written notice thereof in accordance with
the foregoing. The Base Rental, Additional Rental and other sums due hereunder
shall be paid in legal tender at Landlord's Address for Notices, as same may be
changed by notice as herein provided from time to time. To the extent permitted
by law, Tenant hereby (i) appoints and designates the Premises as a proper place
for service of process upon Tenant, and agrees that service of process upon any
person apparently employed by Tenant upon the Premises or leaving process in a
conspicuous place within the Premises or by attaching it to the main entrance of
the Premises shall constitute personal service of such process upon Tenant.
C. This Lease constitutes and contains the sole and entire agreement of
Landlord and Tenant and no prior oral or written representation or agreement
between the parties and affecting the Premises shall have legal effect. No
modification or amendment of this Lease shall be binding upon the parties
unless such modification or amendment is in writing and signed by Landlord and
Tenant. The content of each and every exhibit, attachment and Lease Summary
which is referenced in this Lease as being attached hereto is incorporated into
this Lease as fully as if set forth in the body of this Lease.
D. At any time and from time to time, Tenant, on or before the date
specified in a request therefor made by Landlord, which date shall not be
earlier than ten (10) days from the making of such request, shall execute,
acknowledge, and deliver to Landlord a certificate evidencing whether or not
(i) this Lease is in full force and effect, (ii) this Lease has been amended in
any way, (iii) there are any existing events of default on the part of Landlord
hereunder to the knowledge of Tenant and specifying the nature of such events
of default, if any, and (iv) rent, and other amounts due hereunder, if any,
have been paid (and the date to which same have been paid). In addition, the
certificate shall state such other matters relating to the Lease as may be
requested by Landlord. Each certificate delivered pursuant to this subparagraph
may be relied on by any prospective purchaser or transferee or Landlord's
interest hereunder or of any part of Landlord's property or by any mortgagee of
Landlord's interest hereunder or of any part of Landlord's property or by an
assignee of any such mortgagee or by any ground lessor of Landlord's interest
hereunder.
E. If any clause or provision of this Lease is or becomes illegal,
invalid, or unenforceable because of present or future laws or any rule or
regulation of any governmental body or entity, effective during its term, the
intention of the parties hereto is that the remaining parts of this Lease shall
not be affected thereby, unless such invalidity is, in the sole determination
of Landlord, essential to the rights of both parties in which event Landlord
has the right to terminate this Lease on written notice to Tenant.
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F. The captions used in this Lease are for convenience only and do not in any
way limit or amplify the terms and provisions hereof.
G. The words "Landlord" and "Tenant" as used herein shall include the
respective contracting party, whether singular or plural, and whether an
individual, masculine or feminine, or a partnership, joint venture, business
trust, or corporation. The provisions of this Lease shall inure to the benefit
of and be binding upon Landlord and Tenant, and their respective successors,
heirs, legal representatives, and assigns, subject, however, in the case of
Tenant, to the provisions of paragraph 13. It is understood and agreed that the
interest of "Landlord" under this Lease may be assigned in whole or part, at any
time and from time to time, and the term "Landlord", as used in this Lease,
means only the owner(s), or the lessee(s), from time to time of the Building
and/or the land underlying the Building so that in the event of any sale or
sales of the Building and/or the land underlying the Building, or of any lease
thereof, the Landlord named herein shall be and hereby is entirely freed and
relieved of all covenants and obligations of Landlord hereunder accruing
thereafter to the extent of such sale or lease, and it shall be deemed without
further agreement that the purchaser, or the lessee, as the case may be, has
assumed and agreed, to the same extent, to carry out any and all covenants and
obligations of Landlord hereunder during the period such party has possession of
all or such portion of the Building and/or the land underlying the Building
which it has purchased or leased.
H. The laws of the State of Georgia shall govern the interpretation, validity,
performance, and enforcement of this Lease.
I. Time is of the essence of this Lease. Unless specifically provided
otherwise, all references to terms of days or months shall be construed as
references to calendar days or calendar months, respectively. In the event that
any time period (other than the Lease Term) specified herein shall expire on a
weekend or a holiday, then such time period shall be automatically extended to
the next following business day.
J. This Lease may be executed in any number of counterparts, each of which
shall be deemed an original and any of which shall be deemed to be complete in
itself and may be introduced into evidence or used for any purpose without the
production of the other counterparts.
K. Landlord shall be excused from the performance of any of its duties and
obligations under this Lease, for the period of delay caused by labor disputes,
governmental regulations, riots, war, insurrection, acts of God or other causes
beyond the control of Landlord.
L. If Tenant signs as a corporation, each of the persons executing this Lease
on behalf of Tenant do hereby covenant and warrant that Tenant is a duly
authorized and existing corporation, that Tenant has and is qualified to do
business in Georgia, that the corporation has full right and authority to enter
into this Lease, that each and both of the persons executing this Lease on
behalf of the corporation are authorized to do so, and that such execution is
fully binding on the corporation. If Tenant signs as a partnership, joint
venture, or sole proprietorship (each being herein called "Entity") each of the
persons executing on behalf of Tenant does hereby covenant and warrant that
Tenant is a duly authorized and existing Entity, that Tenant has full right and
authority to enter into this Lease, that all persons executing this Lease on
behalf of the Entity are authorized to do so, and that such execution is fully
binding on the entity and its partners, joint ventures, or principal, as the
case may be.
M. This Lease is not in recordable form, and Tenant agrees not to record or
permit the recording of this Lease.
N. So long as Tenant observes and performs the covenants and agreements
contained herein, it shall at all times during the Lease Term peacefully and
quietly have and enjoy possession of the Premises, but always subject to the
terms hereof.
O. When Landlord's consent is required, by this Lease, such consent shall not
be unreasonably withheld or delayed.
P. When Landlord's "costs" are referred to herein, "costs" shall be defined as
Landlord's actual costs.
23. GUARANTY
In the event Tenant is a corporation, partnership or any entity other than
an individual, in order to induce Landlord to execute the foregoing Lease, and
for other consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned parties (collectively, jointly and severally
referred to as the "Owners") do hereby absolutely and unconditionally, jointly
and severally, guarantee to Landlord, its successors and assigns, the full
performance and observance of all the covenants, conditions, and agreements
provided to be performed and observed by Tenant in this Lease, including,
without limitation, the prompt payment of the Rent and all other amounts
provided in said Lease to be paid by Tenant.
The Owners hereby waive acceptance of this Guaranty, and notice of
non-payment, non performance or non-observance, and all other notices and all
proof or demands. Further, the Owners expressly agree that its obligations
hereunder shall in no way be terminated, affected or impaired by reason of the
granting by Landlord of any indulgences to tenant or by reason of the assertion
against Tenant of any of the rights or remedies reserved to Landlord pursuant to
the provisions of said Lease by operation of law or otherwise. The Owners
further covenant and agree that this guaranty shall remain and continue in full
force and effect as to any renewal, modification or extension of the lease
whether or not the Owners shall have received any notice of or consented to such
renewal, modification or extension. The Owners further agree that its liability
hereunder shall be primary, and that in any right of action which shall accrue
to the Landlord under the lease, the Landlord may, at its option, proceed
against the Tenant. It is agreed that the failure of the Landlord to insist in
any one or more instance upon strict performance or observance of any of the
terms, provisions, or covenants of the Lease or this Guaranty or to exercise any
right therein or herein contained shall not be construed or deemed to be a
waiver or relinquishment for the future of such term, provision, covenant or
right, but the same shall continue and remain in full force and effect. Receipt
by the Landlord of rent or other payments with knowledge of the breach of any
provisions of the Lease shall not be deemed a waiver of such breach or of this
Guaranty. This Guaranty shall be binding upon and inure to the benefit of the
parties and their respective heirs, administrators, executors, successors and
assigns.
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24. DEATH OR DISABILITY
In the event the Lessee is an individual (or a corporation solely owned by
an individual Physician) and Lessee (or its owner) should die, become physically
or mentally unable to perform one or more important duties associated with his
profession, such as to cause his withdrawal from the practice of medicine and
the withdrawal of privileges to practice at all licensed hospitals, then at the
option of the Lessee, his heirs, legal representatives or assigns, this Lease
shall terminate on the date on which Lessor receives written notice from Lessee
of such death or disability and the exercise by Lessee of the option to
terminate granted herein, such election being valid only if accompanied by
payment for all amounts due and which would become due to Lessor by Lessee
within the following six months.
25. OPTION TO RETAIN PREMISES
On or before ninety (90) days prior to the expiration date of this Lease,
Tenant may notify Landlord in writing of its desire to elect to remain as a
tenant in the Premises, which notice shall state the term Tenant has selected
(which may be any annual increment up to five (5) years). Landlord shall prepare
a lease on the form then used by Landlord for space in the building and at the
rental rate quoted by Landlord for comparable space in building and for a
comparable term. Tenant shall have ten (10) days from date such completed form
is presented by Landlord to execute and deliver the Lease to Landlord. In the
event Tenant should not give such notice to Landlord or fails to sign such Lease
within such period, Tenant shall have no rights hereunder and Landlord may
proceed to lease the Premises to others, effective upon the expiration of this
Lease.
IN WITNESS WHEREOF, the parties hereto have duly executed and sealed this Lease
as of the date and year first above stated.
LANDLORD:
Eastside Physicians Center, L.P.
a Georgia limited partnership
By: Meadows & Ohly, Inc.
General Partner
By: (Signature) (SEAL)
----------------------------
Title:
TENANT:
Atlanta Ear, Nose & Throat Associates
By: /s/ Ramie A. Tritt, PRESIDENT
-----------------------------
OWNER: (Name Printed) OWNER:
Michael J. Pickford, M.D. /s/ Michael J. Pickford
----------------------------------
Ramie A. Tritt, M.D. /s/ Ramie A. Tritt
----------------------------------
Daniel M. Adams, M.D. /s/ Daniel M. Adams MD
----------------------------------
Keith R. Jackson, M.D. /s/ Keith R. Jackson
----------------------------------
<PAGE> 12
24. DEATH OR DISABILITY
In the event the Lessee is an individual (or a corporation solely owned by
an individual Physician) and Lessee (or its owner) should die, become physically
or mentally unable to perform one or more important duties associated with his
profession, such as to cause his withdrawal from the practice of medicine and
the withdrawal of privileges to practice at all licensed hospitals, then at the
option of the Lessee, his heirs, legal representatives or assigns, this Lease
shall terminate on the date on which Lessor receives written notice from Lessee
of such death or disability and the exercise by Lessee of the option to
terminate granted herein, such election being valid only if accompanied by
payment for all amounts due and which would become due to Lessor by Lessee
within the following six months.
25. OPTION TO RETAIN PREMISES
On or before ninety (90) days prior to the expiration date of this Lease,
Tenant may notify Landlord in writing of its desire to elect to remain as a
tenant in the Premises, which notice shall state the term Tenant has selected
(which may be any annual increment up to five (5) years). Landlord shall prepare
a lease on the form then used by Landlord for space in the building and at the
rental rate quoted by Landlord for comparable space in building and for a
comparable term. Tenant shall have ten (10) days from date such completed form
is presented by Landlord to execute and deliver the Lease to Landlord. In the
event Tenant should not give such notice to Landlord or fails to sign such Lease
within such period, Tenant shall have no rights hereunder and Landlord may
proceed to lease the Premises to others, effective upon the expiration of this
Lease.
IN WITNESS WHEREOF, the parties hereto have duly executed and sealed this Lease
as of the date and year first above stated.
LANDLORD:
Eastside Physicians Center, L.P.
a Georgia limited partnership
By: Meadows & Ohly, Inc.
General Partner
By: (SEAL)
----------------------------
Title:
TENANT:
Atlanta Ear, Nose & Throat Associates
By: /s/ Ramie A. Tritt, PRESIDENT
-----------------------------
OWNER: (Name Printed) OWNER:
Michael J. Pickford, M.D.
----------------------------------
<PAGE> 13
[FLOOR PLAN]
<PAGE> 14
EXHIBIT A
EASTSIDE PHYSICIANS CENTER
FIRST FLOOR
-------------
[DIAGRAM]
SECOND FLOOR THIRD FLOOR
--------- --------
[DIAGRAM] [DIAGRAM]
FOURTH FLOOR
----------
[DIAGRAM]
<PAGE> 15
EXHIBIT "B"
TENANT ACCEPTANCE AGREEMENT
This Agreement made this _____ day of _________ 19 ___ between Eastside
Physicians Center, L P, a Georgia limited partnership (hereinafter referred to
as "Landlord") and Atlanta Ear, Nose & Throat Associates (hereinafter referred
to as "Tenant").
W I T N E S S E T H
WHEREAS, Landlord and Tenant entered into a Lease, dated ________ 19___,
(hereinafter referred to as the "Lease") for Suite 470 (hereinafter referred to
as the "Premises") in the building known as Eastside Physicians Center.
NOW, THEREFORE, pursuant to the provisions of the Lease, Landlord and
Tenant mutually agree as follows
1 Capitalized terms not defined herein shall have the meanings
set forth in the Lease
2 The Commencement Date of the Lease Term is March 15, 1995. The
Expiration Date of the Lease Term is February 15, 2000. The Rentable Area of
the Premises is 3,488.
3 Tenant is in possession of, and has accepted, the Premises
demised by the Lease, and acknowledges that all the work (including the Work)
to be performed by the Landlord in the Premises as required by the terms of the
Lease has been satisfactorily completed, except for the items set out on the
attached Exhibit B-1. Tenant further certifies that all conditions of the Lease
required of Landlord as of this date have been fulfilled and there are no
defenses or setoffs against the enforcement of the Lease by Landlord.
IN WITNESS WHEREOF, the parties hereto have duly executed and sealed
this Agreement, as of the date and year first above stated.
LANDLORD TENANT
Eastside Physicians Center, L P Atlanta Ear, Nose & Throat Associates
By ______________________ (SEAL) By _________________________________
Title
_____________________________________________________________________________
EXHIBIT "B-1"
As of this ______ day of _____________________ 19 ___ the following punchlist
(if "none", so state)
items remain to be completed
Tenant Name Initial
___________________________ ________________ Landlord
Suite Number ________________ Tenant
________________
<PAGE> 16
EXHIBIT "C"
TENANT IMPROVEMENT AGREEMENT
THIS AGREEMENT made as of the _____ day of _______________ 19 ____ between
Eastside Physicians Center, L.P., a Georgia Limited Partnership ("Landlord")
and Atlantic Ear, Nose and Throat Associates ("Tenant").
Reference is made to the Lease Agreement dated _______________ 19 ___
(the "Lease") for premises as set out on Exhibit A of the Lease (the
"Premises"), located in the property known as Eastside Physicians Center (the
"Eastside Physicians Center"), which property is more particularly described in
the Lease.
The terms "Plans", "Work", "Space Plan", "Working Drawings", "Finish
Selections" and "Landlord's Space Planner" are defined in Section XIV, below.
Capitalized terms not defined in this Agreement shall have the meanings set
forth in the Lease.
1. BASIC TERMS
A. Space Planner: Chegwidden, Dorsey, Holmes Architecture &
Planning Inc.
B. Date to Complete Planning: One Hundred Twenty calendar days
prior to the Commencement Date as shown on the Lease
Summary (including any Space Plan, Working Drawings and
Finish Selections).
C. Date to Substantially Complete Work: Commencement Date under
the Lease, as adjusted pursuant to this Agreement.
D. Improvement Allowance Provided by Landlord: $30.00 per
square foot of Rentable Area of the Premises.
E. Number of Space Plan Revisions at Landlord's Cost: Two.
F. Number of Working Drawings Revisions at Landlord's Cost:
One.
II. BASIC AGREEMENT. On or before the "Date To Complete Planning"
described above, Tenant shall (a) provide Space Planner with all information
concerning Tenant's requirements in order for Space Planner to prepare the
Plans, and (b) arrange for Space Planner to prepare the Plans, and obtain
Landlord's written approval thereof. However, Tenant shall not be responsible
for delays caused by Landlord or Landlord's Space Planner, as further described
in Section III, below.
On or before the Commencement Date set forth in the Lease
Summary of the Lease, Landlord shall substantially complete the Work shown on
the final approved Plans. However, Landlord shall not be responsible for delays
caused by Tenant or Tenant's agents or employees and as further described in
Section IV, below.
Landlord shall bear the cost of the Plans (including any
engineering reports, or other studies or tests in connection therewith, but
excluding any furniture planning) up to the amounts specified above. Tenant
shall bear any costs of the Plans over the allowances set out above, all costs
in connection with designing non-building standard items, and all costs of
subsequent changes, additions, and modifications to the plans.
Landlord shall bear the cost of the Work (including the cost of
building permits and sales tax) up to the Improvement Allowances described
above (if any), and Tenant shall bear any costs over such amounts.
III. DELAYS IN PLANNING. The Commencement Date under the Lease
shall be postponed for each day that final Plans are not prepared and approved
by the "Date to Complete Planning" described above, including any revisions
reasonably required by Landlord pursuant to Section V and revisions by Tenant
to reduce Tenant's Cost pursuant to Section IX (collectively called "Delays in
Planning"). However, the Rental Commencement Date shall be postponed only to
the extent that substantial completion of the Work is delayed beyond the
Commencement Date set forth in the Lease Summary of the Lease as a result of
one or more of the following events (collectively called "Landlord Delays")
(a) Landlord takes more than five (5) working days to approve
or disapprove the Plans or revisions thereof after receiving the same (or such
longer time as may be reasonably required in order to obtain any engineering or
HVAC report or due to other special or unusual features of the Work or Plans);
(b) Landlord's Space Planner takes more than five (5) working
days to meet with Tenant after receiving a written request for a meeting, or
takes more than seven (7) working days to prepare or revise the Plans after
meeting with Tenant and receiving all information from Tenant required in order
to do so (provided this provision shall apply only if Tenant uses "Landlord's
Space Planner" as described in Section XIV below to prepare the Plans); or
(c) Landlord takes more than thirty (30) working days to
provide Tenant with cost estimates after receiving Plans sufficiently detailed
for such purposes (provided this provision (c) shall only apply if Landlord
elects to provide cost estimates under Section IX below).
C-1
<PAGE> 17
IV. DELAYS IN CONSTRUCTION
A. The Commencement Date under the Lease shall be postponed for each day
that Landlord fails to substantially complete the Work thereby as a result of
strikes, acts of God, shortages of materials or labor, governmental approvals or
requirements, the various causes set forth below, or any other causes beyond
Landlord's reasonable control. The Work shall not be considered complete until
Landlord shall have obtained a temporary or final certificate of occupancy.
B. The Commencement Date, but not the Rental Commencement Date, shall
be postponed as a result of one or more of the following (collectively called
"Tenant Delays"):
(a) Delays in Planning as described above (except for
Landlord Delays):
(b) Tenant's requests for changes to the Work or Change
Orders under Section VIII, or
(c) Tenant's failure to furnish an amount equal to
Landlord's reasonable estimate of Tenant's Cost (if any)
within 10 days, as described in Section IX (which shall
give Landlord the absolute right to postpone the Work
until such amount is furnished to Landlord);
(d) Tenant's requirement of any upgrades, special work or
other non-building standard items, or items not
customarily provided by Landlord to office tenants, to
the extent that the same involve longer lead times,
installation times, delays or difficulties in obtaining
building permits, requirements for any governmental
approval, permit or action beyond the issuance of normal
building permits (as described in Section VI), or other
delays not typically encountered in connection with
Landlord's standard office improvements;
(e) The performance by Tenant or Tenant's agents or
employees of any work at or about the Premises or
Eastside Physicians Center, or
(f) any act or omission of Tenant or Tenant's agents or
employees, or any breach by Tenant of any provision
contained in this Agreement or in the Lease, or any
failure of Tenant to cooperate with Landlord or
otherwise act in good faith in order to cause the Work
to be designed and performed in a timely manner.
V. LANDLORD'S APPROVAL OF PLANS. Landlord shall either approve
any Plans or revisions submitted pursuant to this Agreement or disapprove the
same with suggestions for making the same acceptable within the time required
under Section III. Except as otherwise provided herein, Landlord shall not
unreasonably withhold approval if the Plans provide for a customary office
layout, with finishes and materials generally conforming to building standard
finishes and materials currently being used by Landlord at the Eastside
Physicians Center, are compatible with the Eastside Physicians Center's shell
and core construction, and if no modifications will be required for the
Physician Center's electrical, heating, air-conditioning, ventilation, plumbing,
fire protection, life safety, or other systems or equipment, and will not
require any structural modifications to the Physician Center, whether required
by heavy loads or otherwise Landlord may request that Tenant approve Landlord's
suggested changes in writing (such approval not to be unreasonably withheld).
Landlord's approval of the Plans shall not be deemed a warranty as to the
adequacy or legality of the design, and Landlord hereby disclaims any
responsibility or liability for the same. Anything to the contrary
notwithstanding, Landlord may in its absolute discretion elect to disapprove any
proposed Plans which show (i) the gross area of the Premises being more than ten
percent (10%) smaller than the Premises Gross Area, as defined in the Lease
Summary to the Lease; and (ii) any reduction in the gross area of the Premises
from the Premises Gross Area indicated in the Lease Summary where such reduction
results in a space remaining between Tenant's space and any other party wall,
exterior wall or corridor partition which, in the sole opinion of Landlord,
would leave an unusable or unleasable area due to its size, configuration or
location. Furthermore, in the event that the proposed Plans show a gross area of
the Premises greater than the Premises Gross Area as set forth in the Lease
Summary, Landlord may in its absolute discretion elect to disapprove such Plans
if the configuration of the Premises shown on such Plans infringes on any area
of the Eastside Physicians Center reserved for others, being designed for
others, or being constructed for others, or to the extent that such increase
leaves a remaining unleased area which, in the sole opinion of Landlord, would
be unleasable due to its location, size or configuration.
VI. GOVERNMENTAL APPROVAL OF PLANS. Landlord shall apply for any
normal building permits required for the Work which are issued pursuant to a
local building code as a ministerial matter. If the Plans must be revised in
order to obtain such building permits, Landlord shall promptly notify Tenant.
In such case, Tenant shall promptly arrange for the plans to be revised to
satisfy the building permit requirements and shall submit the revised Plans to
Landlord for approval as a Change Order under Section VIII. Landlord shall have
no obligation to apply for any zoning, parking or sign code amendments,
approvals, permits or variances, or any other governmental approval, permit or
action (except normal building permits as described above). If any such other
matters are required, Tenant shall promptly seek to satisfy such requirements
or revise the Plans to eliminate such requirements. Delays in substantially
completing the Work by the Commencement Date as a result of requirements for
building permits or other governmental approvals, permits or actions shall
affect the Commencement Date and the Rental Commencement Date to the extent
provided in Section IV.
- C-2 -
<PAGE> 18
VII. CHANGES AFTER PLANS ARE APPROVED. If Tenant shall desire any
changes, alterations, or additions to the final Plans after they have been
approved by Landlord, Tenant shall submit a detailed written request or revised
Plans (the "Change Order") to Landlord for approval. If reasonable and
practicable and generally consistent with the Plans theretofor approved,
Landlord shall not unreasonably withhold approval, but all costs in connection
therewith, including without limitation construction costs, permit fees, and
any additional plans, drawing and engineering reports or other studies or
tests, or revisions of such existing items, shall be paid for by Tenant as a
Tenant's Cost under Section IX.
VIII. UNUSED IMPROVEMENT ALLOWANCE. If all or any portion of any
Improvement Allowance shall not be used, Tenant shall be entitled to the
savings and Tenant shall receive a credit therefor to Base Rental.
IX. TENANT'S COST.
A. Any amounts that Tenant is required to pay under this Agreement
shall be referred to as "Tenant's Costs" herein. Tenant's Cost shall be deemed
Additional Rental under the Lease. Tenant shall deposit the estimated amount of
such Additional Rental with Landlord within 10 days after requested by
Landlord. In connection with submitting any cost analysis to Tenant under this
Section, Landlord may request Tenant's written approval of such analysis.
Tenant shall not unreasonably withhold such approval, and shall approve or
disapprove the same in writing within five (5) days after requested by
Landlord. If Tenant reasonably disapproves any such analysis, Tenant shall meet
with the Space Planner and eliminate or substitute items in order to reduce
Tenant's Cost.
B. Any cost analysis based on a Space Plan or so-called "pricing plan"
will be preliminary in nature to the extent that: (a) Tenant thereafter makes
changes in the Working Drawings or the Work, (b) overtime labor is required in
order to substantially complete the Work by the Work Completion Date, (c)
concealed conditions are encountered on the job site, (d) new legal
requirements become effective following preparation of the estimate, or (e)
there are strikes, acts of God, shortages of materials or labor, or other
causes beyond Landlord's reasonable control.
X. COMPLETION.
A. Landlord shall be deemed to have "substantially completed" the Work
for purposes hereof if Landlord has caused all of the Work to be completed
substantially except for Punchlist Items, and a temporary or final certificate
of occupancy shall have been issued.
B. Landlord reserved the right to substitute comparable or better
materials and items for those shown in the Plans, so long as they do not
materially and adversely affect the appearance or function of the Premises.
XI. WORK PERFORMED BY TENANT. Landlord, at Landlord's
discretion, may permit Tenant and Tenant's agents and contractors to enter the
Premises prior to completion of the Work in order to make the Premises ready
for Tenant's use and occupancy. If Landlord permits such entry prior to
completion of the Work, then such permission is conditioned upon Tenant and
Tenant's agents, contractors, workmen, mechanics, suppliers and invitees
working in harmony and not interfering with Landlord and Landlord's contractors
in doing the Work or with other tenants or occupants of the Building. If at any
time such entry shall cause or threaten to cause such disharmony or
interference, Landlord shall have the right to withdraw such permission upon
twenty-four (24) hours oral or written notice to Tenant. Tenant agrees that any
such entry onto the Premises shall be deemed to be under all of the terms,
covenants, conditions and provisions of the Lease (including, without
limitation, all insurance requirements), except as to the covenant to pay
Rental thereunder, and further agrees that Landlord shall not be liable in any
way for any injury, loss or damage which may occur to any items of work
constructed by Tenant or to other property of Tenant that may be placed in the
Premises prior to completion of the Work, the same being at Tenant's sole risk.
XII. LIABILITY. The parties acknowledge that Landlord is not an
architect or engineer, and that the Work will be designed and performed by
independent architects, engineers and contractors. Accordingly, Landlord does
not guarantee or warrant that the Plans will be free from errors or omissions,
nor that the Work will be free from defects, and Landlord shall have no
liability therefor.
XIII. CERTAIN DEFINITIONS.
A. "Work" herein means the construction of the improvements shown on
the final approved Plans, and any demolition, preparation or other work
required in connection therewith, including without limitation, any work
required to be performed outside the Premises in order to obtain building
permits for the work to be performed within the Premises (if Landlord elects to
perform such work outside the Premises).
B. "Landlord's Space Planner" herein means the space planner (if any)
regularly used by Landlord and with whom Landlord has a written contractual
arrangement for space planning services at the Eastside Physicians Center.
C. "Finish Selections" herein means the type and color of floor and
wall coverings, wall paint and any other finishes.
- C-3 -
<PAGE> 19
D "Plans" herein means, collectively, any Space Plan, Working
Drawings, or other plans, drawings or specifications, and Finish Selections
(and in the event of any inconsistency between any of the same, or revisions
thereto, the latest dated item approved by Landlord shall control). The Plans
shall be signed or initialed by Tenant, if requested by Landlord.
E "Space Plan" herein means a preliminary floor plan, generally
showing demising walls, corridor doors, interior partition walls and interior
doors. The term "Space Plan" for purposes of this Agreement shall also refer to
any so-called "pricing plan", i.e. a more detailed Space Plan, drawn to scale,
showing: (1) any special walls, glass partitions or corridor doors, (2) any
restrooms, kitchens, computer rooms, file rooms and other special purpose
rooms, and any sinks or other plumbing facilities, or other special facilities
or equipment, (3) communications system, indicating telephone and computer
outlet locations, and (4) any other details or features reasonably required in
order to obtain preliminary cost estimate as described in Section IX above, or
otherwise reasonably requested by Landlord or Landlord's Space Planner.
F "Working Drawings" herein means fully dimensioned architectural
construction drawings and specifications, and any required engineering drawings
(including mechanical, electrical, plumbing, air conditioning, ventilation and
heating), and shall include any applicable items described above for the Space
plan, and if applicable, (1) electrical outlet locations, circuits and
anticipated usage therefor, (2) reflected ceiling plan, including lighting,
switching, and any special ceiling specifications, (3) duct locations for
heating, ventilating and air conditioning equipment, (4) details of all
millwork, (5) dimensions of all equipment and cabinets to be built in, (6)
furniture plan showing details of space occupancy, (7) keying schedule, (8)
lighting arrangement, (9) location of print machines, equipment in lunchrooms,
concentrated file and library loadings and any other equipment or systems (with
brand names wherever possible) which require special consideration relative to
air conditioning, ventilation, electrical, plumbing, structural, fire
protection, life-fire safety system, or mechanical systems, (10) special
heating, ventilating and air conditioning equipment and requirements, (11)
weight and location of heavy equipment, and anticipated loads for special usage
rooms, (12) demolition plan, (13) partition construction plan, (14) Finish
Selections, (15) cabinet work elevations, and any other details or features
reasonably required in order to obtain a more firm cost estimate as described
in Section IX, above, or otherwise reasonably requested by Landlord or
Landlord's Space Planner.
XIV. INCORPORATION INTO LEASE; DEFAULT. THE PARTIES AGREE THAT THE
PROVISIONS OF THIS AGREEMENT ARE HEREBY INCORPORATED BY THIS REFERENCE INTO THE
LEASE FULLY AS THOUGH SET FORTH THEREIN. In the event of any express
inconsistencies between the Lease and this Agreement, the latter shall govern
and control. Any default by a party hereunder shall constitute a default by
that party under the Lease and said party shall be subject to the remedies and
other provisions applicable thereto under the Lease.
LANDLORD: Eastside Physicians Center, L.P.
By: /s/ [illegible signature]
-----------------------------------------
TENANT: Atlanta Ear, Nose & Throat Associates
By: /s/ [illegible signature]
-----------------------------------------
C-4
<PAGE> 20
EXHIBIT "D"
RULES AND REGULATIONS
EASTSIDE PHYSICIANS CENTER
1. The sidewalks, and public portions of the Building, such as
entrances, passages, lobbies, courts, elevators, vestibules, stairways,
corridors or halls, and the street, alleys or way surrounding or in the
vicinity of the Building shall not be obstructed, even temporarily, or
encumbered by the Tenant or used for any purpose other than ingress and egress
to and from the Premises.
2. No awnings or other projections shall be attached to the
outside walls of the Building. No curtains, blinds, shades, louvered openings,
tinted coating, film or screens shall be attached to or hung in, or used in
connection with, any window, glass surface or door of the Premises, without the
prior written consent of Landlord, unless installed by Landlord.
3. No sign, advertisement, decorating, notice or other lettering
or other thing of any kind shall be exhibited, inscribed, painted or affixed by
Tenant on any part of the outside of the Premises or Building or on corridor
walls or windows or other glass surfaces (including without limitation glass
storefronts). Signs on entrance door or doors shall conform to building standard
signs, samples of which will be displayed by Landlord on request. Signs on doors
shall, at Tenant's expense, be inscribed, painted or affixed for each tenant by
sign makers approved by Landlord. In the event of the violation of the
foregoing by Tenant, Landlord may remove same without any liability, and may
charge the expense incurred by such removal to Tenant.
4. The sashes, sash doors, skylights, windows, heating,
ventilating and air conditioning vents and doors that reflect or admit light
and air into the halls, passageways or other public places in the Building
shall not be covered or obstructed by Tenant, nor shall any bottles, parcels,
or other articles be placed on the window sills.
5. No show cases, specimen containers, waste containers, or other
articles shall be put in front of or affixed to any part of the exterior of the
Building, nor placed in the public halls, corridors, or vestibules without the
prior written consent of Landlord.
6. The water closets and wash basins and other plumbing fixtures
shall not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other substances shall be
thrown therein. All damages resulting from any misuse of the fixtures shall be
borne by Tenant.
7. Tenant shall not in any way deface any part of the Premises or
the Building.
8. No bicycles, vehicles, or animals of any kind shall be brought
into or kept in or about the Premises. No cooking shall be done or permitted by
Tenant on the premises except in conformity to law and then only in the utility
kitchen, if any, as set forth in Tenant's layout, which is to be primarily used
by Tenant's employees for heating beverages and light snacks. Tenant shall not
cause or permit any unusual or objectionable odors to be produced upon or
permeate from the Premises.
9. No space in the Building shall be used for manufacturing,
distribution, or for the storage of merchandise or for the sale of merchandise,
goods, or property of any kind at auction.
10. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the building or
neighboring buildings or premises or those having business with them, whether
by the use of any machinery or equipment, musical instruments, radio, talking
machine, unmusical noise, whistling, singing, or in any other way. Tenant
shall not throw anything out of the doors, windows or skylights or down the
passageways. Tenant shall not cause or permit any unseemly or disturbing
activity or conduct to be visible through any window, opening, doorway, or
other glass surface or any other means of visibility that disturbs or
interferes with (i) tenants or other occupants of the building or of their
licensees or invitees or (ii) neighboring buildings or premises or those having
business with them, including without limitation receptions, parties,
recreation and other activities of a social nature.
11. Neither Tenant, nor any of Tenant's servants, employees,
agents, visitors, or licensees, shall at any time bring or keep upon the
Premises any inflammable, combustible or explosive fluid, or chemical
substance, other than reasonable amounts of cleaning fluids or solvents
required in the normal operation of Tenant's business offices.
D-1
<PAGE> 21
12. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by Tenant, nor shall any changes be made in existing
locks or the mechanism thereof, without the prior written approval of Landlord
and unless and until a duplicate key is delivered to Landlord. Tenant shall,
upon the termination of its tenancy, restore to Landlord all keys of stores,
offices and toilet rooms, either furnished to, or otherwise procured by,
Tenant, and in the event of the loss of any keys so furnished. Tenant shall pay
to Landlord the cost thereof.
13. Tenant shall not overload any floor. Tenant shall obtain Landlord's
consent before bringing any safes, freight, furniture, or bulky articles into
the Building and Landlord can specify to Tenant the location for the placement
of such articles. All removals, or the carrying out of any safes, freight,
furniture, or bulky matter of any description must take place during the hours
which Landlord or its agent may determine from time to time. Landlord reserves
the right to inspect all freight to be brought into the Building and to exclude
from the Building all freight which violates any of these Rules and Regulations
or the Lease of which these Rules and Regulations are a part.
14. Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's opinion, tends to impair the reputation of the Building or
its desirability as a building for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
15. Landlord reserves the right to exclude all persons from the
Building between the hours of 6:00 p.m. and 7:00 a.m. and at all hours on
Sundays, legal holidays and after 1:00 p.m. on Saturdays. Landlord shall in no
case be liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. In the case of invasion, mob, riot,
public excitement or other circumstances rendering such action advisable in the
Landlord's opinion, Landlord reserves the right to prevent access to the
Building during the continuance of the same by such action as Landlord may deem
appropriate, including closing doors.
16. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose or for any other activity not appropriate, in
Landlord's sole discretion, to an office building of the quality and stature of
the Building.
17. The requirements of Tenant will be attended to only upon application
at the office of the Building. Building employees shall not perform any work or
do anything outside their regular duties, unless under special instructions
from the office of Landlord.
18. Canvassing, soliciting, and peddling in the Building are prohibited
and tenant shall cooperate to prevent the same.
19. There shall not be used in any space, or in the public halls of any
building, either by Tenant or by its jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and side guards. All deliveries shall be via the elevator designated for
such activities by Landlord.
20. Tenant, in order to obtain maximum effectiveness of the cooling
system, shall lower and/or close blinds or drapes when sun's rays fall directly
on windows of Premises. Tenant shall not remove the standard blinds installed
in the Premises.
21. All paneling, rounds or other wood products not considered
furniture shall be of fire retardant materials. Before installation of any such
materials, certification of the materials' fire retardant characteristics shall
be submitted to Landlord or its agents in a manner satisfactory to Landlord.
22. Tenant shall not install any vending machines in the Building or
Premises without Landlord's consent.
23. Neither Tenant, nor any of Tenant's servants, employees, agents,
visitors, patients, invitees, or licensees, shall at any time light, use or
smoke cigarettes, cigars, pipes, or other tobacco products in or about the
public portion of the Building, including, without limitation, parking areas,
entrances, passages, walkways, restrooms, lobbies, courts, elevators,
vestibules, stairways, corridors and halls. Landlord may take all appropriate
steps to enforce such "no smoking" policy, including the posting of no smoking
signs, demanding that persons who violate the "no smoking" policy cease and
desist from such violation and removing violators from the Building. Landlord
shall in no case be liable for damages in enforcing the "no smoking" policy.
Landlord agrees to make reasonable efforts to enforce the "no smoking" policy;
however, Landlord shall not be liable, and Tenant shall not be relieved from its
obligations hereunder, for any violation of the "no smoking" policy established
in this rule, whether caused by another tenant or tenants of Landlord or by
other persons.
D-2
<PAGE> 22
EXHIBIT "E"
BUILDING MOVING POLICY
The following rules pertain to (i) moving Tenant's furniture, equipment
and supplies into or out of the Building, and (ii) the delivery of
substantial amounts of equipment, furniture or supplies to existing
tenants in the Building. Any movers that do not adhere to the following
rules will not be allowed to enter the Building or will be required to
discontinue the move.
1. No move into or out of the Building shall take place during normal
business hours of the Building. Moves must be scheduled after 5:30 p.m.
on weekdays or during weekends and holidays.
2. Building management must be notified at least ten (10) days prior to
your proposed moving date in order to coordinate dates and the details
of the move. A representative of the moving company must contact the
management office at least five (5) days prior to the proposed moving
date. The service elevator, which must be used for your move, will be
available only if the management office has been timely notified.
3. All moving company employees should be in uniform or wear some form of
identification. All moving company employees must be bonded.
4. There will be no smoking inside of the building by any employee of the
moving company.
5. Prior to the move, the moving company must submit a Certificate of
Insurance naming Landlord as an additional insured. The moving company
must carry insurance with a least the following coverage.
a. Worker's compensation insurance in the amount of $100,000.
b. Comprehensive General Liability insurance shall include coverage
for hazards on premises-operation, elevators, products and
completed operations and also personal injury coverage and
contractual liability coverage designating the assumption of
liability under performance of the act of moving. Such insurance
shall be in limits no less than $500,000 per person bodily; and
$500,000 per occurrence for property damage. Property damage
insurance shall be in broad form, including completed
operations.
c. An umbrella policy with a limit of $1,000,000 per occurrence.
Each moving company transporting supplies, furniture, and/or
equipment through the Building shall secure and present to the
building manager a certificate reflecting these coverages at
least twenty-four (24) hours before the move takes place. Please
make sure your moving company meets the above requirements so
they will be permitted to move your practice to the building.
6. The route to be followed in the Building during the move must be
approved by Landlord. The moving company must provide and install
adequate protective coverings on all vulnerable corners, walls, door
facings, elevator cabs and other areas along the route to be followed
during the move. These areas will be inspected for damage after the
move.
7. Clean masonite sections must be used as runners on all finished floor
areas here heavy furniture or equipment is being moved with wheel or
skid type dollies. The masonite must be at least one-fourth inch thick.
All sections of masonite should be taped to prevent sliding.
8. Do not stick duct tape onto the floors, walls, door jambs, or doors.
9. All vendor and moving company boxes and cartons are to be removed from
the premises by the vendor or moving company. They are not to be
disposed of in the dumpster.
10. It is the Tenant's responsibility to notify Landlord of items to be
moved which are unusually large or heavy (in excess of 3,500 pounds) or
which may require review by Landlord. Dimensions and weight may prohibit
the safe transport and placement within acceptable structural
guidelines. Any large items that cannot be placed in the service
elevator will require special hoisting arrangements which will be made
through the Landlord. Tenant's moving company should include in the bid
price to the Tenant any additional charges required for extra services
which may need to be provided by the moving company to hoist large
items.
11. Access control personnel will be notified as to the move-in schedule and
will monitor the progress of the move. Any changes in the move-in
schedule must be reported to Landlord or Landlord's representative
immediately. An emergency phone number will be required by the access
control personnel for the moving company's supervisor and for the
Tenant's representative responsible for coordinating the move.
12. When ordering equipment, furniture, supplies, etc. at any time before or
after your move, please specify "Inside Delivery" to your suite, because
Landlord is not responsible for deliveries to your suite.
<PAGE> 23
EXHIBIT "F"
ADDITIONAL AMENDMENTS LEASE
1. Landlord agrees that tenant shall have the first right of refusal on
any adjoining space. Tenant will notify landlord in writing if there is a desire
to add the available space to the current lease. This option expires 1/3/95.
2. Landlord acknowledges that tenant will install an x-ray room within
their suite.
3. Landlord acknowledges that tenant may use improvement allowances
for fixtures and equipment including but not limited to x-ray equipment,
cabinets, and audiological equipment.
4. Landlord agrees to notify tenant in writing ninety (90) days prior
to the expiration of the lease of the renewal options that are available.
LANDLORD:
Eastside Physicians Center, L.P.
a Georgia limited partnership
By: Meadows & Ohly, Inc.
General Partner
By: /s/ [Illegible] (SEAL)
Title:
--------------------------
TENANT:
Atlanta Ear, Nose & Throat
Associates, P.C.
By: /s/ [Illegible]
--------------------------------
F-1
<PAGE> 1
EXHIBIT 10.13
PHYSICIANS' SPECIALTY CORP.
1996 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for
Physicians' Specialty Corp. (the "Company") and its shareholders the benefits
arising from capital stock ownership by employees, officers and directors of,
and consultants or advisors to, the Company who are expected to contribute to
the Company's future growth and success. Except where the context otherwise
requires, the term "Company" shall include all present and future subsidiaries
of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended or replaced from time to time (the "Code"). Those
provisions of the Plan which make express reference to Section 422 shall apply
only to Incentive Stock Options (as that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the
Plan shall be authorized by action of the Board of Directors of the Company (or
a Committee designated by the Board of Directors) and may be either incentive
stock options ("Incentive Stock Options") meeting the requirements of Section
422 of the Code or non-statutory options which are not intended to meet the
requirements of Section 422 of the Code.
(b) Administration. The Plan will be administered by a
committee (the "Committee") appointed by the Board of Directors of the Company,
whose construction and interpretation of the terms and provisions of the Plan
shall be final and conclusive. The delegation of powers to the Committee shall
be consistent with applicable laws or regulations (including, without
limitation, applicable state law and Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), or any successor rule
("Rule 16b-3")). The Committee may in its sole discretion grant options to
purchase shares of the Company's Common Stock, $.001 par value per share
("Common Stock") and issue shares upon exercise of such options as provided in
the Plan. The Committee shall have authority, subject to the express
provisions of the Plan, to construe the respective option agreements and the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option
agreements, which need not be identical, and to make all other determinations
in the judgment of the Committee necessary or desirable for the administration
of the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any option agreement in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and it shall be the sole and final judge of such expediency. No director or
person acting pursuant to authority delegated by the Board of Directors shall
be liable for any action or determination under the Plan made in good faith.
Subject to adjustment as provided in Section 15 below, the aggregate number of
shares of
<PAGE> 2
Common Stock that may be subject to Options granted to any person in a calendar
year shall not exceed 35% of the maximum number of shares which may be issued
and sold under the Plan, as set forth in Section 4 hereof, as such section may
be amended from time to time.
(c) Applicability of Rule 16b-3. Those provisions of the
Plan which make express reference to Rule 16b-3 shall apply to the Company only
at such time as the Company's Common Stock is registered under the Exchange
Act, subject to the last sentence of Section 3(b), and then only to such
persons as are required to file reports under Section 16(a) of the Exchange Act
(a "Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are,
at the time of grant, employees, officers or directors of, or consultants or
advisors to, the Company or any subsidiaries of the Company as defined in
Sections 424(e) and 424(f) of the Code ("Participants") provided, that
Incentive Stock Options may only be granted to individuals who are employees of
the Company (within the meaning of Section 3401(c) of the Code). A person who
has been granted an option may, if he or she is otherwise eligible, be granted
additional options if the Committee shall so determine.
(b) Grant of Options to Reporting Persons. The selection
of a director or an officer who is a Reporting Person (as the terms "director"
and "officer" are defined for purposes of Rule 16b-3) as a recipient of an
option, the timing of the option grant, the exercise price of the option and
the number of shares subject to the option shall be determined either (i) by
the Board of Directors, (ii) by a committee consisting of two or more
directors having full authority to act in the matter, each of whom shall be a
"Independent Director" as defined by Rule 1.62-27 of the Code or (iii) pursuant
to provisions for automatic grants set forth in Section 3(c) below. For the
purposes of the Plan, a director shall be deemed to be a "Non-Employee
Director" only if such person qualifies as a "Non-Employee Director" within the
meaning of Rule 16b-3, as such term is interpreted from time to time. If at
least two of the members of the Board of Directors do not qualify as a
"Non-Employee Director" within the meaning of Rule 16b-3, as such term is
interpreted from time to time, then the granting of options to officers and
directors who are Reporting Persons under the Plan shall not be determined in
accordance with this Section 3(b) but shall be determined in accordance with
the other provisions of the Plan.
(c) Directors' Options. Commencing on the date this plan
is adopted by the Board of Directors, directors of the Company who are not
employees or stockholders of the Company owning in excess of 5% of the
outstanding Common Stock of the Company ("Eligible Directors") will receive an
option ("Director Option") to purchase 7,500 shares of Common Stock. Future
Eligible Directors of the Company will be granted a Director Option to purchase
7,500 shares of Common Stock on the date that such person is first elected or
appointed a director ("Initial Director Option"). Commencing on the day
immediately following the date of the annual meeting of stockholders for the
Company's fiscal year ending December 31, 1997, each Eligible Director will
receive an automatic grant ("Automatic Grant") of a Director Option
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<PAGE> 3
to purchase 2,500 shares of Common Stock, other than Eligible Directors who
received an Initial Director Option since the most recent Automatic Grant, on
the day immediately following the date of each annual meeting of stockholders,
as long as such director is a member of the Board of Directors. The exercise
price for each share subject to a Director Option shall be equal to the fair
market value of the Common Stock on the date of grant. Director Options shall
become exercisable as set forth in the option agreement and will expire the
earlier of 10 years after the date of grant or 90 days after the termination of
the director's service on the Board unless such Director Option is an Incentive
Stock Option in which case such Director Option shall be subject to the
additional terms and conditions set forth in Section 11.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be
shares of authorized but unissued or reacquired Common Stock. Subject to
adjustment as provided in Section 15 below, the maximum number of shares of
Common Stock of the Company which may be issued and sold under the Plan is
550,000 shares. If an option granted under the Plan shall expire, terminate or
is cancelled for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for
subsequent option grants under the Plan.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement in such form not
inconsistent with the Plan as may be approved by the Board of Directors. Such
option agreements may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock
deliverable upon the exercise of an option shall be determined by the Board of
Directors at the time of grant of such option; provided, however, that in the
case of an Incentive Stock Option, the exercise price shall not be less than
100% of the Fair Market Value (as hereinafter defined) of such stock, at the
time of grant of such option, or less than 110% of such Fair Market Value in
the case of options described in Section 11(b). "Fair Market Value" of a share
of Common Stock of the Company as of a specified date for the purposes of the
Plan shall mean the closing price of a share of the Common Stock on the
principal securities exchange (including the Nasdaq National Market) on which
such shares are traded on the day immediately preceding the date as of which
Fair Market Value is being determined, or on the next preceding date on which
such shares are traded if no shares were traded on such immediately preceding
day, or if the shares are not traded on a securities exchange, Fair Market
Value shall be deemed to be the average of the high bid and low asked prices of
the shares in the over-the-counter market on the day immediately preceding the
date as of which Fair Market Value is being determined or on the next preceding
date on which such high bid and low asked prices were recorded. If the shares
are not publicly traded, Fair Market Value of a share of Common Stock
(including, in the case of any repurchase of
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<PAGE> 4
shares, any distributions with respect thereto which would be repurchased with
the shares) shall be determined in good faith by the Board of Directors. In no
case shall Fair Market Value be determined with regard to restrictions other
than restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the
Plan may provide for the payment of the exercise price by delivery of cash or a
check to the order of the Company in an amount equal to the exercise price of
such options, or by any other means which the Board of Directors determines are
consistent with the purpose of the Plan and with applicable laws and
regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board).
7. Option Period.
Subject to earlier termination as provided in the Plan, each
option and all rights thereunder shall expire on such date as determined by the
Board of Directors and set forth in the applicable option agreement, provided,
that such date shall not be later than (10) ten years after the date on which
the option is granted.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either
in full or in installments at such time or times and during such period as
shall be set forth in the option agreement evidencing such option, subject to
the provisions of the Plan. Subject to the requirements in the immediately
preceding sentence, if an option is not at the time of grant immediately
exercisable, the Board of Directors may (i) in the agreement evidencing such
option, provide for the acceleration of the exercise date or dates of the
subject option upon the occurrence of specified events, and/or (ii) at any time
prior to the complete termination of an option, accelerate the exercise date or
dates of such option.
9. Nontransferability of Options.
No option granted under this Plan shall be assignable or
otherwise transferable by the optionee except by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
in the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder. An option may be exercised during the lifetime of the
optionee only by the optionee. In the event an optionee dies during his
employment by the Company or any of its subsidiaries, or during the three-month
period following the date of termination of such employment, his option shall
thereafter be exercisable, during the period specified in the option agreement,
by his executors or administrators to the full extent to which such option was
exercisable by the optionee at the time of his death during the periods set
forth in Section 10 or 11(d).
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<PAGE> 5
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive
Stock Options and except as otherwise determined by the Committee at the date
of grant of an Option, and subject to the provisions of the Plan, an optionee
may exercise an option at any time within three months following the
termination of the optionee's employment or other relationship with the Company
or within one (1) year if such termination was due to the death or disability
of the optionee but, except in the case of the optionee's death, in no event
later than the expiration date of the Option. If the termination of the
optionee's employment is for cause or is otherwise attributable to a breach by
the optionee of an employment or confidentiality or non-disclosure agreement,
the option shall expire immediately upon such termination. The Board of
Directors shall have the power to determine what constitutes a termination for
cause or a breach of an employment or confidentiality or non-disclosure
agreement, whether an optionee has been terminated for cause or has breached
such an agreement, and the date upon which such termination for cause or breach
occurs. Any such determinations shall be final and conclusive and binding upon
the optionee.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be
Incentive Stock Options shall be subject to the following additional terms and
conditions:
(a) Express Designation. All Incentive Stock Options
granted under the Plan shall, at the time of grant, be specifically designated
as such in the option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an
Incentive Stock Option is to be granted under the Plan is, at the time of the
grant of such option, the owner of stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company (after taking into
account the attribution of stock ownership rules of Section 424(d) of the
Code), then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(i) The purchase price per share of the Common
Stock subject to such Incentive Stock Option shall not be less
than 110% of the Fair Market Value of one share of Common
Stock at the time of grant; and
(ii) The option exercise period shall not exceed
five years from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so
provide, options granted to any employee under the Plan (and any other
incentive stock option plans of the Company) which are intended to constitute
Incentive Stock Options shall not constitute Incentive Stock Options to the
extent that such options, in the aggregate, become exercisable for the first
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<PAGE> 6
time in any one calendar year for shares of Common Stock with an aggregate Fair
Market Value, as of the respective date or dates of grant, of more than
$100,000.
(d) Termination of Employment, Death or Disability. No
Incentive Stock Option may be exercised unless, at the time of such exercise,
the optionee is, and has been continuously since the date of grant of his or
her option, employed by the Company, except that:
(i) an Incentive Stock Option may be exercised
within the period of three months after the date the optionee
ceases to be an employee of the Company (or within such lesser
period as may be specified in the applicable option
agreement), provided, that the agreement with respect to such
option may designate a longer exercise period and that the
exercise after such three-month period shall be treated as the
exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of
the Company, or within three months after the optionee ceases
to be such an employee, the Incentive Stock Option may be
exercised by the person to whom it is transferred by will or
the laws of descent and distribution within the period of one
year after the date of death (or within such lesser period as
may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor
provisions thereto) while in the employ of the Company, the
Incentive Stock Option may be exercised within the period of
one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser
period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors
may, in its sole discretion, include additional provisions in option agreements
covering options granted under the Plan, including without limitation
restrictions on transfer, repurchase rights, rights of first refusal,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Board of Directors; provided, that
such additional provisions shall not be inconsistent with any other term or
condition of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an
Incentive Stock Option within the meaning of Section 422 of the Code.
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<PAGE> 7
(b) Acceleration, Extension, Etc. The Board of Directors
may, in its sole discretion, (i) accelerate the date or dates on which all or
any particular option or options granted under the Plan may be exercised or
(ii) extend the dates during which all, or any particular, option or options
granted under the Plan may be exercised; provided, however, that no such
extension shall be permitted if it would cause the Plan to fail to comply with
Section 422 of the Code or with Rule 16b-3 (if applicable).
13. General Restrictions.
(a) Investment Representations. The Company may require
any person to whom an Option is granted, as a condition of exercising such
option, to give written assurances in substance and form satisfactory to the
Company to the effect that such person is acquiring the Common Stock subject to
the option or award, for his or her own account for investment and not with any
present intention of selling or otherwise distributing the same, and to such
other effects as the Company deems necessary or appropriate in order to comply
with federal and applicable state securities laws, or with covenants or
representations made by the Company in connection with any public offering of
its Common Stock, including any "lock-up" or other restriction on
transferability.
(b) Compliance With Securities Law. Each Option shall be
subject to the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such option upon any securities exchange or automated quotation system or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition is necessary as a condition of, or in
connection with the issuance or purchase of shares thereunder, such option may
not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall
have been effected or obtained on conditions acceptable to the Board of
Directors. Nothing herein shall be deemed to require the Company to apply for
or to obtain such listing, registration or qualification, or to satisfy such
condition.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder
with respect to any shares covered by the option (including, without
limitation, any rights to receive dividends or non-cash distributions with
respect to such shares) until the date of issue of a stock certificate to him
or her for such shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date such stock certificate is
issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations
and Related Transactions.
(a) Recapitalizations and Related Transactions. If,
through or as a result of any recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other
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<PAGE> 8
similar transaction, (i) the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or other
securities of the Company, or (ii) additional shares or new or different shares
or other non-cash assets are distributed with respect to such shares of Common
Stock or other securities, an appropriate and proportionate adjustment shall be
made in (x) the maximum number and kind of shares reserved for issuance under
or otherwise referred to in the Plan, (y) the number and kind of shares or
other securities subject to any then outstanding options under the Plan, and
(z) the price for each share subject to any then outstanding options under the
Plan, without changing the aggregate purchase price as to which such options
remain exercisable. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 15 if such adjustment (i) would cause the Plan to fail
to comply with Section 422 of the Code or with Rule 16b-3 or (ii) would be
considered as the adoption of a new plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. All
outstanding Options under the Plan shall become fully exercisable for a period
of sixty (60) days following the occurrence of any Trigger Event, whether or
not such Options are then exercisable under the provisions of the applicable
agreements relating thereto. For purposes of the Plan, a "Trigger Event" is
any one of the following events:
(i) the date on which shares of Common
Stock are first purchased pursuant to a tender offer or
exchange offer (other than such an offer by the Company, any
Subsidiary, any employee benefit plan of the Company or of any
Subsidiary or any entity holding shares or other securities of
the Company for or pursuant to the terms of such plan),
whether or not such offer is approved or opposed by the
Company and regardless of the number of shares purchased
pursuant to such offer;
(ii) the date the Company acquires
knowledge that any person or group deemed a person under
Section 13(d)-3 of the Exchange Act (other than the Company,
any Subsidiary, any employee benefit plan of the Company or of
any Subsidiary or any entity holding shares of Common Stock or
other securities of the Company for or pursuant to the terms
of any such plan or any individual or entity or group or
affiliate thereof which acquired its beneficial ownership
interest prior to the date the Plan was adopted by the Board),
in a transaction or series of transactions, has become the
beneficial owner, directly or indirectly (with beneficial
ownership determined as provided in Rule 13d-3, or any
successor rule, under the Exchange Act), of securities of the
Company entitling the person or group to 30% or more of all
votes (without consideration of the rights of any class or
stock to elect directors by a separate class vote) to which
all shareholders of the Company would be entitled in the
election of the Board of Directors were an election held on
such date;
(iii) the date, during any period of two
consecutive years, when individuals who at the beginning of
such period constitute the Board of Directors
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<PAGE> 9
of the Company cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the stockholders of the Company, of each new
director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of such period; and
(iv) the date of approval by the
stockholders of the Company of an agreement (a "reorganization
agreement") providing for:
(A) The merger of consolidation of the
Company with another corporation where the stockholders of the
Company, immediately prior to the merger or consolidation, do
not beneficially own, immediately after the merger or
consolidation, shares of the corporation issuing cash or
securities in the merger or consolidation entitling such
shareholders to 80% or more of all votes (without
consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all stockholders
of such corporation would be entitled in the election of
directors or where the members of the Board of Directors of
the Company, immediately prior to the merger or consolidation,
do not, immediately after the merger or consolidation,
constitute a majority of the Board of Directors of the
corporation issuing cash or securities in the merger or
consolidation; or
(B) The sale or other disposition of all
or substantially all the assets of the Company.
(c) Board Authority to Make Adjustments. Any adjustments
under this Section 15 will be made by the Board of Directors, whose
determination as to what adjustments, if any, will be made and the extent
thereof will be final, binding and conclusive. No fractional shares will be
issued under the Plan on account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of any sale, merger, transfer
or acquisition of the Company or substantially all of the assets of the Company
in which the Company is not the surviving corporation, and provided that after
the Company shall have requested the acquiring or succeeding corporation (or an
affiliate thereof), that equivalent options shall be substituted and such
successor corporation shall have refused or failed to assume all options
outstanding under the Plan or issue substantially equivalent options, then any
or all outstanding options under the Plan shall accelerate and become
exercisable in full immediately prior to such event. The Committee will notify
holders of options under the Plan that any such options shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the options will terminate upon expiration of such notice.
(b) Substitute Options. The Company may grant options
under the Plan in substitution for options held by employees of another
corporation who become employees of the
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Company, or a subsidiary of the Company, as the result of a merger or
consolidation of the employing corporation with the Company or a subsidiary of
the Company, or as a result of the acquisition by the Company, or one of its
subsidiaries, of property or stock of the employing corporation. The Company
may direct that substitute options be granted on such terms and conditions as
the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer
upon any optionee any right with respect to the continuation of his or her
employment by the Company or interfere in any way with the right of the Company
at any time to terminate such employment or to increase or decrease the
compensation of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts
as compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares
received upon such exercise will not constitute compensation with respect to
which any other employee benefits of such employee are determined, including,
without limitation, benefits under any bonus, pension, profit-sharing, life
insurance or salary continuation plan, except as otherwise specifically
determined by the Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time
to time, modify or amend the Plan in any respect; provided, however, that if at
any time the approval of the stockholders of the Company is required under
Section 422 of the Code or any successor provision with respect to Incentive
Stock Options, the Board of Directors may not effect such modification or
amendment without such approval; and provided, further, that the provisions of
Section 3(c) hereof shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employer Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
(b) The modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected,
the Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to
amend or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions
of the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
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20. Withholding.
(a) The Company shall have the right to deduct from
payments of any kind otherwise due to the optionee any federal, state or local
taxes of any kind required by law to be withheld with respect to any shares
issued upon exercise of options under the Plan. Subject to the prior approval
of the Company, which may be withheld by the Company in its sole discretion,
the optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so delivered
or withheld shall have a Fair Market Value equal to such withholding obligation
as of the date that the amount of tax to be withheld is to be determined. An
optionee who has made an election pursuant to this Section 20(a) may only
satisfy his or her withholding obligation with shares of Common Stock which are
not subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements.
(b) The acceptance of shares of Common Stock upon
exercise of an Incentive Stock Option shall constitute an agreement by the
optionee (i) to notify the Company if any or all of such shares are disposed of
by the optionee within two years from the date the option was granted or within
one year from the date the shares were issued to the optionee pursuant to the
exercise of the option, and (ii) if required by law, to remit to the Company,
at the time of and in the case of any such disposition, an amount sufficient to
satisfy the Company's federal, state and local withholding tax obligations with
respect to such disposition, whether or not, as to both (i) and (ii), the
optionee is in the employ of the Company at the time of such disposition.
(c) Notwithstanding the foregoing, in the case of a
Reporting Person whose options have been granted in accordance with the
provisions of Section 3(b) herein, no election to use shares for the payment of
withholding taxes shall be effective unless made in compliance with any
applicable requirements of Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, (i)
the cancellation of any or all outstanding options under the Plan and the grant
in substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when
adopted by the Board of Directors, but no Incentive Stock Option granted under
the Plan shall become
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exercisable unless and until the Plan shall have been approved by the Company's
stockholders. If such stockholder approval is not obtained within twelve
months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring stockholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 21) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation,
options may be granted under the Plan at any time after the effective date and
before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance
with Section 16, the Plan shall terminate upon the earlier of (i) the close of
business on the day next preceding the tenth anniversary of the date of its
adoption by the Board of Directors, or (ii) the date on which all shares
available for issuance under the Plan shall have been issued pursuant to the
exercise or cancellation of options granted under the Plan. If the date of
termination is determined under (i) above, then options outstanding on such
date shall continue to have force and effect in accordance with the provisions
of the instruments evidencing such options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify
awards or options granted to participants who are foreign nationals or employed
outside the United States to recognize differences in laws, rules, regulations
or customs of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.
24. Governing Law.
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.
Adopted by the Board of Directors on November 25, 1996
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EXHIBIT 10.14
1996 HEALTH CARE PROFESSIONALS STOCK OPTION PLAN
ARTICLE I
THE PLAN
1.1 Name. This Plan shall be known as the "1996 Health Care
Professionals Stock Option Plan." Capitalized terms used herein are defined in
Article VI hereof.
1.2 Purpose. The purpose of the Plan is to promote the growth and
general prosperity of the Company by permitting the Company to grant Options to
purchase Common Stock of the Company to Advisors, thereby providing them with
an additional incentive to contribute to the success of the Company.
1.3 Effective Date. The Plan shall become effective upon the
Effective Date.
1.4 Eligibility to Participate. Any Advisor shall be eligible to
participate in the Plan.
1.5 Shares Subject to the Plan. The shares of Common Stock to be
issued pursuant to the Plan shall be either authorized and unissued shares of
Common Stock or shares of Common Stock issued and thereafter acquired by the
Company.
1.6 Maximum Number of Plan Shares. Subject to adjustment pursuant
to the provisions of Section 4.2, and subject to any additional restrictions
elsewhere in the Plan, the maximum aggregate number of shares of Common Stock
that may be issued and sold hereunder shall not exceed 275,000 shares.
1.7 Options and Stock Granted Under Plan. Plan Shares with
respect to which an Option shall have been exercised shall not again be
available for grant hereunder. If an Option terminated for any reason without
being wholly exercised, a new Option may be granted hereunder covering the
number of Plan Shares to which such Option termination relates.
1.8 Conditions Precedent. The Company shall not issue any
certificate for Plan Shares pursuant to the Plan prior to fulfillment of all of
the following conditions:
(a) The admission of the Plan Shares to listing on all
stock exchanges on which the Common Stock is then listed, unless the
Board or Committee determines in its sole discretion that such listing
is neither necessary nor advisable;
(b) The completion of any registration or other
qualification of the offer or sale of Plan Shares under any federal or
state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body that the
Board or Committee shall in its sole discretion deem necessary or
advisable; and
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(c) The obtaining of any approval or other clearance from
any federal or state governmental agency that the Board or Committee
shall in its sole discretion determine to be necessary or advisable.
1.9 Reservation of Shares of Common Stock. During the term of the
Plan, the Company shall at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of the
Plan as to the number of Plan Shares. In addition, the Company shall from time
to time, as is necessary to accomplish the purposes of the Plan, seek or obtain
from any regulatory agency having jurisdiction any requisite authority that is
necessary to issue Plan Shares hereunder. The inability of the Company to
obtain from any regulatory agency having jurisdiction the authority deemed by
the Company's counsel to be necessary to the lawful issuance of any Plan Shares
shall relieve the Company of any liability in respect to the non-issuance of
Plan Shares as to which the requisite authority shall not have been obtained.
1.10 Tax Withholding.
(a) Condition Precedent. The issuance of Plan Shares
pursuant to the exercise of any Option under the Plan is subject to
the condition that if at any time the Committee shall determine, in
its discretion, that the satisfaction of withholding tax or other
withholding liabilities under any federal, state or local law is
necessary or desirable as a condition of, or in connection with such
issuances, then the issuances shall not be effective unless the
withholding shall have been effected or obtained in a manner
acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When an
Optionee is required by the Committee to pay to the Company an amount
required to be withheld under applicable income tax laws in connection
with the exercise of an Option, which payment may be made (i) in cash,
(ii) by check, (iii) if permitted by the Committee, by delivery to the
Company of shares of Common Stock already owned by the Optionee having
a Fair market Value on the Tax Date equal to the amount required to be
withheld, (iv) through the withholding by the Company of a portion of
the Plan Shares acquired upon the exercise of the Options having a
Fair Market Value on the Tax Date equal to the amount required to be
withheld or (v) in any other form of valid consideration, as permitted
by the Committee in its discretion.
1.11 Exercise of Options.
(a) Method of Exercise. Each Option shall be exercisable
in accordance with the terms of the Option Agreement pursuant to which
the Option was granted. No Option may be exercised for a fraction of
a Plan Share.
(b) Payment of Purchase Price. The purchase price of any
Plan Shares purchased shall be paid at the time of exercise of the
Options either (i) in cash, (ii) by
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certified or cashier's check, (iii) if permitted by the Committee, by
shares of Common Stock, (iv) if permitted by the Committee, by cash or
certified or cashier's check for the par value of the Plan Shares plus
a promissory note for the balance of the purchase price, which note
shall provide for full personal liability of the maker and shall
contain such other terms and provisions as the Committee may
determine, including without limitation the right to repay the note
partially or wholly with Common Stock, (v) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the Plan
Shares purchased upon exercise of the Options or to pledge them as
collateral for a loan and promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay such purchase price or (vi)
in any other form of valid consideration, as permitted by the
Committee in its discretion. If any portion of the purchase price or
a note given at the time of exercise is paid in shares of Common
Stock, those shares shall be valued at the then Fair Market Value.
1.12 Acceleration in Certain Events. The Committee may accelerate
the exercisability of any Option in whole or in part at any time.
Notwithstanding the provisions of any Option Agreement, the following
provisions shall apply:
(a) Mergers and Reorganizations. If the Company or its
stockholders enter into an agreement to dispose of all or
substantially all of the assets of the Company by means of a sale,
merger, or other reorganization, liquidation or otherwise, all Options
shall become immediately exercisable with respect to the full number
of shares subject to such Options during the period commencing as of
the date of the agreement to dispose of all or substantially all of
the assets or stock of the Company and ending when the disposition of
assets or stock contemplated by that agreement is consummated or the
Options are otherwise terminated in accordance with its provisions or
the provisions of this Plan, whichever occurs first; provided that no
Option will be immediately exercisable under this Section on account
of any agreement of merger or other reorganization when the
stockholders of the Company immediately before the consummation of the
transaction will own at least 50% of the total combined voting power
of all the classes of the stock entitled to vote of the surviving
entity immediately after the consummation of the transaction. An
Option shall not become immediately exercisable, however, if the
transaction contemplated in the agreement is a merger or
reorganization in which the Company shall survive.
(b) Change in Control. In the event of a change in
control or threatened change in control of the Company, all Options
granted prior to the change in control or threatened change in control
shall become immediately exercisable. A "change in control" will be
deemed to have occurred for purposes hereof (i) upon the occurrence of
a change of stock ownership of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A
promulgated under the Securities Act, and any successor Item of a
similar nature; or (ii) upon the acquisition of beneficial ownership,
directly or indirectly, by any person (as such term is used in
Sections 13(d)
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and 14(d)(2) of the Exchange Act) of securities of the Company
representing 33% or more of the combined voting power of the Company's
then outstanding securities; or (iii) a change during any period of
two consecutive years of a majority of the members of the Board for
any reason, unless the election, or the nomination for election by the
Company's stockholders, of each director was approved by a vote of a
majority of the directors then still in office who were directors at
the beginning of the period; provided that a change in control will
not be deemed to have occurred for purposes hereof with respect to any
person meeting the requirements of clauses (i) and (ii) of Rule
13d-1(b)(1) promulgated under the Securities Act.
1.13 Written Notice Required. Any Option shall be deemed to be
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment of the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with Section
1.11.
1.14 Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the issuance and delivery of the Plan
Shares (and the exercise of an Option, if applicable) shall comply with all
relevant provisions of state and federal law (including without limitation (i)
the Securities Act, the rules and regulations promulgated thereunder, and (ii)
the requirements of any stock exchange upon which the Plan Shares may than be
listed) and shall be further subject to the approval of counsel for the Company
with respect to such compliance. The Committee may also require an Optionee to
furnish evidence satisfactory to the Company, including without limitation a
written and signed representation letter and consent to be bound by any
transfer restrictions imposed by law, legend, condition, or otherwise, that the
Plan Shares are being acquired only for investment and without any present
intention to sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each Optionee shall consent to the
imposition of a legend on the certificate representing the Plan Shares issued
pursuant to the exercise of an Option restricting their transfer as required by
law of this Section.
1.15 Service of Optionee. Nothing in the Plan or in any Option
granted hereunder shall confer upon any Optionee any right to continued service
as an Advisor of the Company or any of its Subsidiaries or limit in any right
of the Company or any Subsidiary at any time to terminate or alter the terms of
that service.
1.16 Rights of Optionees Upon Termination of Service. The
Committee shall provide in each Option Agreement for the circumstances under
which Options granted hereunder terminate; provided, however, that in the event
an Optionee ceases to serve as an Advisor for Cause of voluntarily leaves the
employment of a Clinic in breach of his employment agreement with such Clinic;
the Optionee's Options shall automatically expire. The Committee also shall
address in each Option Agreement the exercisability of Options following the
death, Permanent Disability or Retirement of an Optionee.
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1.17 Transferability of Options. The Committee may, in its
discretion, provide that Options granted hereunder may be transferred by the
Optionee to members of his immediate family, trusts for the benefit of such
immediate family members and partnerships in which such immediate family
members are the only partners, provided that there cannot be any consideration
for the transfer.
1.18 Information to Optionees. The Company shall furnish to each
Optionee a copy of the annual report, proxy statements and all other reports
sent to the Company's stockholders. Upon written request, the Company shall
furnish to each Optionee a copy of its most recent Form 10-K Annual Report and
each quarterly report to stockholders issued since the end of the Company's
most recent fiscal year.
ARTICLE II
ADMINISTRATION
2.1 Committee. Subject to Section 2.2, the Plan shall be
administered by a Committee consisting of not fewer than two members of the
Board from time to time. Except as otherwise provided by the terms of this
Plan or by the Board, the Committee shall have all the power and authority of
the Board hereunder. The Committee shall have the full and final authority in
its discretion, but subject to the provisions of the Plan, to determine from
time to time the Advisors to whom Options shall be granted and the number of
Plan Shares subject to each Option; to interpret the Plan, to prescribe, amend
and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, to determine and interpret the details and
provisions of each Option Agreement, to modify or amend any Option Agreement or
waive any conditions or restrictions applicable to any Options (or the exercise
thereof), and to make all other determinations necessary or advisable for the
administration of the Plan.
2.2 Grants Prior to Initial Public Offering. Notwithstanding the
provisions of Section 2.1, prior to the date of the Company's initial public
offering of Common Stock, the Plan shall be administered by the full Board, and
the Board shall have all of the powers of the Committee hereunder.
2.3 Appointment of Committee. The Committee shall be appointed by
the Board; provided that the Board may remove any Committee member, with or
without cause.
2.4 Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the
Committee shall constitute the action of the Committee. Meetings of the
Committee may take place by telephone conference call.
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2.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Advisors, their
service, death, Retirement, Permanent Disability, or other termination of
service, and such other pertinent facts as the Committee may require. The
Company shall furnish the Committee with such clerical and other assistance as
is necessary in the performance of its duties.
ARTICLE III
NONQUALIFIED STOCK OPTIONS
3.1 Options Terms and Conditions. The terms and conditions of
Options granted pursuant to this Plan may differ from one another as the
Committee shall, in its discretion, determine as long as all Options granted
pursuant to this Plan satisfy the requirements of this Article.
3.2 Duration of Options. Each Option granted pursuant to this
Plan and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted pursuant to this Plan
expire later than 10 years after the date on which the Option is granted. In
addition, each Option shall be subject to early termination as provided
elsewhere in the Plan or Option Agreement.
3.3 Purchase Price. The purchase price for the Plan Shares
acquired pursuant to the exercise, in whole or in part, of any Option granted
pursuant to this Plan shall not be less than the Fair Market Value of the Plan
Shares at the time of the grant of the Option.
3.4 Individual Option Agreements. Each Optionee receiving Options
pursuant to this Plan shall be required to enter into a written Option
Agreement with the Company. In such Option Agreement, the Optionee shall agree
to be bound by the terms and conditions of the Plan, the Options made pursuant
hereto, and such other matters as the Committee deems appropriate.
ARTICLE V
TERMINATION, AMENDMENT, AND ADJUSTMENT
4.1 Termination and Amendment. The Plan shall terminate on
November __, 2006. The Plan may be amended, altered or discontinued by the
Board, or, if the Board has delegated this authority to the Committee, by the
Committee, without approval of the stockholders. In the event any law, or any
rule or regulation issued or promulgated by the Internal Revenue Service,
Securities and Exchange Commission, National Association of Securities Dealers,
Inc., and stock exchange upon which the Common Stock is listed for trading or
other governmental or quasi-governmental agency having jurisdiction over the
Company, its Common Stock or the Plan, requires the Plan to be amended, the
Plan will be amended at that time and all Options then
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outstanding will be subject to such amendment. No amendment, alteration or
discontinuation of the Plan shall, without the consent of the individual who
has received an Option hereunder, alter or impair any of that individual's
rights or obligations under any Option granted under the Plan prior to that
amendment, alteration or discontinuation.
4.2 Adjustments. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split, or reverse stock split, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of Plan Shares as to which Options
may be granted under the Plan. A corresponding adjustment changing the number
or kind of shares allocated to unexercised Options or portions thereof, which
shall have been granted prior to any such change, shall likewise be made. Any
such adjustment in outstanding Options shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the Option,
but with a corresponding adjustment in the price for each share covered by the
Option. The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Board or Committee, and any
such adjustment may provide for the elimination or fractional share interests.
ARTICLE IV
MISCELLANEOUS
5.1 Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other compensation plans in
effect for the Company or any Subsidiary or affiliate of the Company, nor shall
the Plan preclude the Company or any Subsidiary or affiliate thereof from
establishing any other forms of incentive or other compensation plans.
5.2 Plan Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company and any Subsidiary or affiliate of
the Company that adopts the Plan.
5.3 Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.
ARTICLE V
DEFINITIONS
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
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6.1 "Advisor" means a physician or dentist to whom the Company
chooses to grant Options in accordance with the Plan that is an Employee or
(ii) has entered into a Consulting Agreement; provided that (i) bona fide
services are rendered by such person and such services are not rendered in
connection with the offer or sale of securities in a capital-raising
transaction and (ii) such person is not a Reporting Person.
6.2 "Board" means the Board of Directors of the Company.
6.3 "Cause" has the same meaning as that provided in the
Optionee's employment agreement with a clinic.
6.4 "Clinic" means a professional corporation or association that
is managed by the Company's wholly owned subsidiary, PSC Management Corp.
pursuant to a management services agreement.
6.5 "Committee" means the Committee appointed in accordance with
Section 2.1.
6.6 "Common Stock" means the Common Stock, par value $.001 per
share, of the Company or, in the event that the outstanding shares of such
Common Stock are hereafter changed into or exchanged for shares of a different
stock or security of the Company or some other corporation, such other stock or
security.
6.7 "Company" means Physicians' Specialty Corp., a Delaware
corporation, or one or more of its Subsidiaries.
6.8 "Consulting Agreement" means an agreement between the Company
and a physician or dentist with respect to which the physician or dentist
provides medical and surgical services to enrollees of managed care contracts
held by the Company or any Subsidiary of the Company.
6.9 "Effective Date" means November 25, 1996.
6.10 "Employee" means an employee of a Clinic.
6.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
6.12 "Fair Market Value" means such value as determined by the
Board or Committee on the basis of such factors as it deems appropriate;
provided that if the Common Stock is traded on a national securities exchange
or transactions in the Common Stock are quoted on the Nasdaq National Market
System, such value as shall be determined by the Committee on the basis of the
last reported sales price for the Common Stock on the date for which such
determination is relevant, as reported on the national securities exchange or
the Nasdaq National Market System, as the case may be. If the Common Stock is
not listed and traded upon a recognized securities exchange or on the Nasdaq
National Market System, the Committee shall make a determination
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of Fair Market Value on the basis of the mean between the closing bid and asked
quotations for such stock on the date for which such determination is relevant
(as reported by a recognized stock quotation service) or, in the event that
there shall be no bid or asked quotations on the date for which such
determination is relevant, then on the basis of the mean between the closing
bid and asked quotations on the date nearest preceding the date for which such
determination is relevant for which such bid and asked quotations were
available.
6.13 "Option" means a Nonqualified Stock Option granted pursuant to
Article III.
6.14 "Option Agreement" means an agreement between the Company and
an Optionee with respect to one or more Options.
6.15 "Optionee" means an Advisor to whom an Option has been granted
hereunder.
6.16 "Permanent Disability" has the same meaning as that provided
in Section 22(e)(3) of the Code.
6.17 "Plan" means the 1996 Health Care Professionals Stock Option
Plan, as amended from time to time.
6.18 "Plan Shares" means shares of Common Stock issuable pursuant
to the Plan.
6.19 "Reporting Person" means an individual who is subject to the
reporting requirements of Section 16 of the Exchange Act as a result of his
relationship with the Company.
6.20 "Retirement" occurs when an Optionee terminates his
relationship with a Clinic on or after the date the Optionee (a) turns 65 years
old or (b) turns 55 years old and has completed 10 years of service with the
Clinic or has otherwise been determined by the Board.
6.21 "Securities Act" means the Securities Act of 1933, as amended.
6.22 "Subsidiary" means a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
6.23 "Tax Date" means the date the amount of tax to be withheld is
determined.
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EXHIBIT 10.15
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, made and entered into as of
the ___ day of , 199_ ("Agreement"), by and between Physicians' Specialty
Corp., a Delaware corporation (the "Corporation"), and __________________
(Indemnitee ):
WHEREAS, highly competent persons have become more reluctant
to serve corporations as directors, officers, or in other capacities, unless
they are provided with better protection from the risk of claims and actions
against them arising out of their service to and activities on behalf of such
corporations; and
WHEREAS, the Board of Directors of the Corporation (the
"Board") has determined that the ability to attract and retain such persons is
in the best interests of the Corporation's shareholders and that such persons
should be assured that they will have better protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the
Corporation to obligate itself contractually to indemnify such persons to the
fullest extent permitted by applicable law, so that such persons will serve or
continue to serve the Corporation free from undue concern that they will not be
adequately indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance
of Article of the Certificate of Incorporation of the Corporation (the
"Certificate"); any rights granted under the Certificate and any resolutions
adopted pursuant thereto shall not be deemed to be a substitute therefor nor to
diminish or abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee may serve, continue to serve and to take
on additional service for or on behalf of the Corporation;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Corporation and Indemnitee do hereby covenant
and agree as follows:
Section 1. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the
Corporation of a nature that would be required to be reported in response to
Item 6(e) of Schedule l4A of Regulation l4A (or in response to any similar item
on any similar schedule or form) promulgated under the Securities Exchange Act
of 1934 (the "Act"), whether or not the Corporation is then subject to such
reporting requirement; provided, however, that, without limitation, such a
Change in Control shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule l3d-3 under the Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities without
the
<PAGE> 2
prior approval of at least two-thirds of the members of the Board in office
immediately prior to such person attaining such percentage interest; (ii) the
Corporation is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board (including for this purpose any new director whose election or
nomination for election by the Corporation's shareholders was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute
at least a majority of the Board.
(b) "Corporate Status" means the status of a person who
is or was a director, officer, employee, agent or fiduciary of the Corporation
or any majority owned subsidiary or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person is or was serving at the request of the Corporation.
(c) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the Proceeding in respect of
which indemnification is sought by Indemnitee.
(d) "Expenses" means all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(e) "Independent Counsel" means a law firm, or a member
of a law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Corporation or Indemnitee in any other matter material to either such
party, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Corporation or Indemnitee in an action to
determine Indemnitee's rights under this Agreement.
(f) "Proceeding" means any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing
or any other proceeding, whether civil, criminal, administrative or
investigative, except one initiated by an Indemnitee pursuant to Section 11 of
this Agreement to enforce his rights under this Agreement.
Section 2. Services by Indemnitee. Indemnitee may at any
time and for any reason resign from any position (subject to any other
contractual obligation or any obligation imposed by operation of law), without
affecting the indemnification hereunder, except as specifically provided in
this agreement.
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Section 3. Indemnification - General. The Corporation shall
indemnify, and advance Expenses to, Indemnitee as provided in this Agreement to
the fullest extent permitted by applicable law in effect on the date hereof and
to such greater extent as applicable law may thereafter from time to time
permit. The rights of Indemnitee provided under the preceding sentence shall
include, but shall not be limited to, the rights set forth in the other
Sections of this Agreement.
Section 4. Proceedings Other Than Proceedings by or in the
Right of the Corporation. Indemnitee shall be entitled to the rights of
indemnification provided in this Section if, by reason of his Corporate Status,
he is, or is threatened to be made, a party to any threatened, pending, or
completed Proceeding, other than a Proceeding by or in the right of the
Corporation. Pursuant to this Section, Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by his or on his behalf in connection with any such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal Proceeding, had
no reasonable cause to believe his conduct was unlawful.
Section 5. Proceedings by or in the Right of the Corporation.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to any threatened, pending, or completed Proceeding brought by or
in the right of the Corporation to procure a judgment in its favor. Pursuant
to this Section, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred by his or on his behalf in connection with any such Proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation. Notwithstanding the
foregoing, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in any such Proceeding as to which Indemnitee shall
have been adjudged to be liable to the Corporation if applicable law prohibits
such indemnification unless the Chancery Court of the State of Delaware or the
court in which such Proceeding shall have been brought or is pending, shall
determine that indemnification against Expenses may nevertheless be made by the
Corporation.
Section 6. Indemnification for Expenses of a Party Who is
Wholly or Partly Successful. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of his Corporate Status,
a party to and is successful, on the merits or otherwise, in any Proceeding, he
shall be indemnified against all Expenses actually and reasonably incurred by
his or on his behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or otherwise, as
to one or more but less than all claims, issues or matters in such Proceeding,
the Corporation shall indemnify Indemnitee against all Expenses actually and
reasonably incurred by his or on his behalf in connection with each
successfully resolved claim, issue or matter. For the purposes of this Section
and without limiting the foregoing, the termination of any claim, issue or
matter in any
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such Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
Section 7. Indemnification for Expenses of a Witness.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding,
he shall be indemnified against all Expenses actually and reasonably incurred
by his or on his behalf in connection therewith.
Section 8. Advancement of Expenses. The Corporation shall
advance all Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by Indemnitee and shall include or be preceded or accompanied
by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced
if it shall ultimately be determined that Indemnitee is not entitled to be
indemnified against such Expenses.
Section 9. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement in
connection with any Proceeding, and for the duration thereof, Indemnitee shall
submit to the Corporation a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of any such request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for
indemnification pursuant to Section 9(a) hereof, a determination, if required
by applicable law, with respect to Indemnitee's entitlement thereto shall be
made in such case: (i) if a Change in Control shall have occurred, by
Independent Counsel (unless Indemnitee shall request that such determination be
made by the Board or the shareholders, in which case in the manner provided for
in clauses (ii) or (iii) of this Section 9(b)) in a written opinion to the
Board, a copy of which shall be delivered to Indemnitee; (ii) if a Change of
Control shall not have occurred, (A) by the Board by a majority vote of a
quorum consisting of Disinterested Directors, or (B) if a quorum of the Board
consisting of Disinterested Directors is not obtainable, or even if such quorum
is obtainable, if such quorum of Disinterested Directors so directs, either (x)
by Independent Counsel in a written opinion to the Board, a copy of which shall
be delivered to Indemnitee, or (y) by the shareholders of the Corporation, as
determined by such quorum of Disinterested Directors, or a quorum of the Board,
as the case may be; or (iii) as provided in Section 10(b) of this Agreement.
If it is so determined that Indemnitee is entitled to indemnification, payment
to Indemnitee shall be made within twenty (20) days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
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request any documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any costs or expenses (including
attorneys' fees and disbursements) incurred by Indemnitee in so cooperating
with the person, persons or entity making such determination shall be borne by
the Corporation (irrespective of the determination as to Indemnitee's
entitlement to indemnification) and the Corporation hereby indemnifies and
agrees to hold Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected as
follows: (i) if a Change of Control shall not have occurred, Independent
Counsel shall be selected by the Board, and the Corporation shall give written
notice to Indemnitee advising his of the identity of Independent Counsel so
selected; or (ii) if a Change of Control shall have occurred, Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board, in which event (i) shall apply), and
Indemnitee shall give written notice to the Corporation advising it of the
identity of Independent Counsel so selected. In either event, Indemnitee or
the Corporation, as the case may be, may within 7 days after such written
notice of selection shall have been given, deliver to the Corporation or to
Indemnitee, as the case may be, a written objection to such selection. Such
objection may be asserted only on the grounds that Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 1 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection
is made, Independent Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection is without merit.
If, within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 9(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Corporation or Indemnitee
may petition the Chancery Court of the State of Delaware, or other court of
competent jurisdiction, for resolution of any objection which shall have been
made by the Corporation or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by such court or by such other person as such court shall designate, and the
person with respect to whom an objection is so resolved or the person so
appointed shall act as Independent Counsel under Section 9(b) hereof. The
Corporation shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with its actions
pursuant to this Agreement, and the Corporation shall pay all reasonable fees
and expenses incident to the procedures of this Section 9(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the
due commencement date of any judicial proceeding or arbitration pursuant to
Section 11(a)(iii) of this Agreement, Independent Counsel shall be discharged
and relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
Section 10. Presumption and Effects of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making
a determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this
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Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 9(a) of this Agreement, and the Corporation shall have
the burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.
(b) If the person, persons or entity empowered or
selected under Section 9 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within 60 days
after receipt by the Corporation of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) prohibition of such
indemnification under applicable law; provided, however, that such 60-day
period may be extended for a reasonable time, not to exceed an additional 30
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith require(s) such additional time
for the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
10(b) shall not apply (i) if the determination of entitlement to
indemnification is to be made by the shareholders pursuant to Section 9(b) of
this Agreement and if (A) within 15 days after receipt by the Corporation of
the request for such determination the Board has resolved to submit such
determination to the shareholders for their consideration at an annual meeting
thereof to be held within 75 days after such receipt and such determination is
made thereat, or (B) a special meeting of shareholders is called within 15 days
after such receipt for the purpose of making such determination, such meeting
is held for such purpose within 60 days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 9(b)
of this Agreement.
Section 11. Remedies of Indemnitee.
(a) In the event that (i) a determination is made
pursuant to Section 9 of this Agreement, (ii) advancement of Expenses is not
timely made pursuant to Section 8 of this Agreement, (iii) the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 9(b) of this Agreement and such determination shall not have been made
and delivered in a written opinion within 90 days after receipt by the
Corporation of the request for indemnification, (iv) payment of indemnification
is not made pursuant to Section 7 of this Agreement within ten (10) days after
receipt by the Corporation of a written request therefor, or (v) payment of
indemnification is not made within ten (10) days after a determination has been
made that Indemnitee is entitled to indemnification or such determination is
deemed to have been made pursuant to Section 9 or 10 of this Agreement,
Indemnitee shall be entitled to an adjudication in the Chancery Court of the
State of Delaware, or in any other court of competent jurisdiction, of his
entitlement to such indemnification or advancement of Expenses. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by
a single arbitrator in Delaware. Indemnitee shall commence such
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proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 11(a). The Corporation shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been
made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section shall be conducted in all respects as a de novo trial or
arbitration on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred in any
judicial proceeding or arbitration commenced pursuant to this Section, the
Corporation shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to
have been made pursuant to Section 9 or 10 of this Agreement that Indemnitee is
entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant to
this Section, absent (i) a misstatement by Indemnitee of a material fact, or an
omission of a material fact necessary to make Indemnitee's statement not
materially misleading, in connection with the request for indemnification, or
(ii) prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this
Section, seeks a judicial adjudication of, or an award in arbitration to
enforce, his rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any and all expenses (of the kinds
described in the definition of Expenses) actually and reasonably incurred by
his in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in such judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall
be appropriately prorated.
Section 12. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the certificate of incorporation or by-laws of the
Corporation, any agreement, a vote of shareholders for a resolution of
directors, or otherwise. No termination of this Agreement pursuant to Section
13 herein shall be effective as to any Indemnitee with respect to any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
termination and he shall continue to be fully indemnified for such actions or
omissions in accordance with the terms of this Agreement.
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(b) To the extent that the Corporation maintains an
insurance policy or policies ("an O&D Policy") providing liability insurance
for directors, officers, employees, agents or fiduciaries of the Corporation or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person serves at the request of the
Corporation, Indemnitee shall be covered by such policy or policies in
accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee, agent or fiduciary under
such policy or policies.
(c) In the event of any payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
(d) The Corporation shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
Section 13. Duration of Agreement. This Agreement shall
continue until and terminate upon the later of (i) three (3) years after the
date that Indemnitee shall have ceased to serve as a director, officer,
employee, agent or fiduciary of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which Indemnitee served at the request of the Corporation; or (b) the final
termination of all pending Proceedings in respect of which Indemnitee is
granted rights of indemnification or advancement of Expenses hereunder and of
any proceeding commenced by Indemnitee pursuant to Section 11 of this
Agreement. This Agreement shall be binding upon the Corporation and its
successors and assigs and shall inure to the benefit of Indemnitee and his
heirs, executors and administrators.
Section 14. Severability. If any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b)
to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any Section of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that is not
itself invalid, illegal or unenforceable shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
Section 15. Exception to Right of Indemnification or
Advancement of Expenses. Except as provided in Section 11(d), Indemnitee shall
not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim therein, brought or made
by him against the Corporation.
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Section 16. Identical Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 17. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 18. Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly
to notify the Corporation in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any Proceeding or matter which may be subject to indemnification or
advancement of Expenses covered hereunder.
Section 20. Notices. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if (i) delivered by hand and receipted for by the party to whom
such notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
-----------------------
(b) If to the Corporation, to:
Physicians' Specialty Corp.
c/o Premier Health Care
3414 Peachtree Road, Suite 238
Atlanta, GA 30326
or to such other address as may have been furnished to Indemnitee (address) by
the Corporation or to the Corporation by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware.
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Section 22. Miscellaneous. Use of the masculine pronoun
shall be deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
CORPORATION
PHYSICIANS' SPECIALTY CORP.
By:
---------------------------
Name:
Title:
INDEMNITEE
------------------------------------
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EXHIBIT 10.16
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by an * and [ ], have been
separately filed with the Commission.
GROUP PRACTICE
MANAGED CARE AGREEMENT
PARTIES
THIS AGREEMENT is by and between CIGNA HealthCare of Georgia, Inc. ("CIGNA"),
and The ENT Center of Atlanta, Inc. and is entered into as of the Effective
Date.
PURPOSE
CIGNA contracts directly or indirectly with Payors, employers, individuals,
insurers, sponsors and others, to provide, insure, arrange for or administer the
provision of health care services;
CIGNA contracts with physicians, hospitals and other health care practitioners
and entities, to provide, arrange for or administer, at predetermined rates, the
delivery of such health care services;
CIGNA and The ENT Center of Atlanta, Inc. desire to enter into this Agreement
relating to certain health care services for individuals;
In consideration of the mutual promises herein, the parties agree as follows:
I. DEFINITIONS
Defined terms are set forth herein and in the Program Attachments.
CIGNA AFFILIATE means any direct or indirect subsidiary of CIGNA Corporation.
COINSURANCE means a payment that a Participant is required to make to a
Participating Provider for Covered Services under a Service Agreement, which is
calculated as a percentage of the contracted reimbursement rate of such
services.
COPAYMENT OR DEDUCTIBLE means a payment that a Participant is required to make
to a Participating Provider under a Service Agreement, which is calculated as a
fixed dollar payment.
COVERED SERVICES means those health care services provided to a Participant in
accordance with a Service Agreement.
<PAGE> 2
EMERGENCY means an illness or accident in which the onset of symptoms is both
sudden and so severe as to require immediate medical or surgical treatment. This
includes accidental injuries or medical emergencies of a life-threatening nature
or when serious impairment of bodily functions would result if treatment were
not rendered immediately.
PARTICIPANT means any individual, or eligible dependent of such individual,
whether referred to as "Insured," "Subscriber," "Member," "Participant,"
"Enrollee," "Dependent" or otherwise, who is eligible for Covered Services
pursuant to a Service Agreement.
PARTICIPATING HOSPITAL means a hospital that has a direct or indirect
contractual agreement with CIGNA and to which a Participating Provider may admit
Participants for care and treatment in accordance with Program Requirements.
PARTICIPATING PROVIDER means a hospital, a physician or any other health care
practitioner or entity that has a direct or indirect contractual arrangement
with CIGNA to provide Covered Services.
PAYOR means CIGNA or such other entity which, pursuant to a Service Agreement,
funds, administers, offers or insures Covered Services and which has agreed to
act as Payor in accordance with this Agreement.
PROGRAM means the Health Maintenance Organization (HMO) or other types of health
care or administrative services which are provided by or arranged by CIGNA or
CIGNA Affiliates and which are specifically described in applicable Program
Attachments and Program Requirements.
PROGRAM REQUIREMENTS means the rules and procedures that establish conditions to
be followed by Participating Providers with respect to Programs. Reference to
Program Requirements includes the Summary of Program Requirements distributed by
CIGNA.
QUALITY MANAGEMENT means the processes established and operated by CIGNA or its
designee relating to the quality of Covered Services.
REPRESENTED PHYSICIAN means a physician: (a) who is employed by, associated with
or otherwise represented by The ENT Center of Atlanta, Inc.; (b) who is
authorized by The ENT Center of Atlanta, Inc. to provide services pursuant to
this Agreement; (c) who has completed a CIGNA Physician Application; and (d) who
has agreed with The ENT Center of Atlanta, Inc. to be subject to the
requirements of this Agreement to the extent applicable to Represented
Physician.
SERVICE AGREEMENT means those agreements among CIGNA or a CIGNA Affiliate, and
an employer, insurer, labor union, trust or other organization or entity, or an
individual, that specifies services to be provided to or for the benefit of, or
arranged for or reimbursed to or
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for the benefit of Participants, the terms and conditions under which those
services are to be provided or reimbursed, and is consistent with applicable
Program Requirements.
UTILIZATION MANAGEMENT means the processes to review and determine whether
certain health care services provided or to be provided to Participants are in
accordance with Program Requirements.
II. PARTIES' OBLIGATIONS
A. SERVICES
1. The ENT Center of Atlanta, Inc., its Represented Physicians
and CIGNA shall act in accordance with the terms of this
Agreement and applicable Program Attachments and Program
Requirements. The ENT Center of Atlanta, Inc. shall accept the
rates set forth in this Agreement as payment in full for all
services provided to Participants pursuant to this Agreement.
2. The ENT Center of Atlanta, Inc. through its Represented
Physicians shall provide Covered Services with the same
standard of care, skill and diligence customarily used by
similar physicians in the community in which such services are
rendered. The ENT Center of Atlanta, Inc. and its Represented
Physicians shall render Covered Services in the same manner,
in accordance with the same standards, and with the same
availability, as offered to other patients. The ENT Center of
Atlanta, Inc. and its Represented Physicians shall not
differentiate or discriminate in the treatment of any
Participant because of race, color, national origin, ancestry,
religion, sex, marital status, sexual orientation, age, health
status or source of payment.
3. The ENT Center of Atlanta, Inc. and its Represented Physicians
shall provide Covered Services at locations approved by CIGNA.
Locations shall not be eliminated or changed without sixty
(60) days' prior written notice to CIGNA.
4. The ENT Center of Atlanta, Inc. shall designate one or more
Participating Hospitals where Represented Physicians will
admit Participants under their care unless otherwise approved
by CIGNA or its designee. The ENT Center of Atlanta, Inc. and
its Represented Physicians shall admit Participants only to
Participating Hospitals except in the case of an Emergency or
as otherwise described in applicable Program Requirements or
as otherwise required by law.
5. For referrals, The ENT Center of Atlanta, Inc. and its
Represented Physicians shall refer Participants to
Participating Providers except in the case of an Emergency or
as otherwise described in applicable Program Requirements or
as otherwise required by law.
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6. The ENT Center of Atlanta, Inc. and its Represented Physicians
shall be bound by and comply with the provisions of applicable
state and federal laws, regulations, and Program Requirements.
The ENT Center of Atlanta, Inc. and its Represented Physicians
shall comply with the requirements of and shall participate in
Quality Management and Utilization Management.
7. CIGNA shall establish a system of Participant identification,
communicate Program Requirements to Participating Providers
and identify Participating Providers to Payors and
Participants.
8. CIGNA shall contract, directly or indirectly, with Payors who
agree to pay in accordance with this Agreement for Covered
Services rendered by The ENT Center of Atlanta, Inc. and its
Represented Physicians
9. CIGNA shall, upon specific request by The ENT Center of
Atlanta, Inc., identify the Payor responsible for payment of
Covered Services.
10. Upon written request by CIGNA, The ENT Center of Atlanta, Inc.
shall prohibit a Represented Physician from continuing to
provide services to Participants under this Agreement. The ENT
Center of Atlanta, Inc. shall take such action within thirty
(30) days of the receipt of CIGNA's request, unless CIGNA
requests immediate action by The ENT Center of Atlanta, Inc.
subject to any notice requirements in The ENT Center of
Atlanta, Inc. contract with the Represented Physicians.
B. COMPENSATION AND BILLING
1. The ENT Center of Atlanta, Inc. shall receive payments for
Covered Services as set forth in this Agreement. Compensation
arrangements and rates are set forth in applicable Program
Attachments.
2. The ENT Center of Atlanta, Inc. shall comply with the
limitations on billing Participants as set forth in applicable
Program Attachments.
3. The ENT Center of Atlanta, Inc. shall bill for Covered
Services according to the following:
a. The ENT Center of Atlanta, Inc. shall submit claims
on the appropriate claim form for all non-covered
capitated services within sixty (60) days of the date
those services are rendered. Claims received after
this sixty (60) day period may be denied for payment.
The ENT Center of Atlanta, Inc. shall submit claims
to the location described in the applicable Program
Requirements.
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b. Any amount owing under this Agreement shall be paid
within thirty (30) days after receipt of a complete
claim, unless additional required information is
requested within the thirty (30) day period, or the
claim involves coordination of benefits, except as
otherwise provided in the applicable Program
Attachments.
4. The following provisions apply regarding coordination of
benefits:
a. Certain claims for services rendered to Participants
are claims for which another payor may be primarily
responsible under coordination of benefit rules. The
ENT Center of Atlanta, Inc. shall bill such claims to
the primary payor when information regarding such
primary payor is available, or upon designated
Payor's request.
b. When designated Payor is primary under applicable
coordination of benefits rules, Payor shall pay
benefits as set forth in this Agreement without
regard to the obligations of any secondary payor.
c. When designated Payor is determined to be secondary
to any other payor including Medicare, Payor will pay
no greater amount than the difference between the
amount payable to The ENT Center of Atlanta, Inc. by
the primary payor and the amount for Covered Services
owing under this Agreement. Payor shall not be liable
for any amount unless Payor has received The ENT
Center of Atlanta, Inc.'s claim for such secondary
payment within ninety (90) days of the date when
Payor is determined to be secondary.
d. Where another payor is primary under coordination of
benefits rules, The ENT Center of Atlanta, Inc. shall
follow that payor's billing rules.
5. The ENT Center of Atlanta, Inc. may bill an individual
directly for any services provided following the date the
individual ceases to be a Participant. Designated Payor has no
obligation under this Agreement to pay for services rendered
to individuals who no longer are Participants.
C. RECORDS
1. CIGNA and The ENT Center of Atlanta, Inc. agree that clinical
records of Participants shall be regarded as confidential and
both shall comply with all applicable federal and state laws
and regulations regarding such records.
2. The ENT Center of Atlanta, Inc. shall maintain and furnish
such records and documents as may be required by applicable
laws, regulations and Program Requirements. The ENT Center of
Atlanta, Inc. shall cooperate with CIGNA
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<PAGE> 6
to facilitate the information and record exchanges necessary
for Quality Management, Utilization Management, peer review,
or other programs required for CIGNA's operations.
3. The ENT Center of Atlanta, Inc. shall provide CIGNA or its
designee with reasonable access during regular business hours
to specified clinical and medical records of Participants
maintained by The ENT Center of Atlanta, Inc. for the period
required by applicable law and at any time thereafter that
such access is reasonably required in connection with a
Participant's health care.
4. Designated Payor shall be responsible for obtaining
Participant's consent to the release of medical record
information by The ENT Center of Atlanta, Inc. for the
purposes stated in this section, and such Payor shall
indemnify and hold harmless The ENT Center of Atlanta, Inc.
for any claim by a Participant for breach of confidentiality
resulting from The ENT Center of Atlanta, Inc.'s compliance
with this section.
D. PARTICIPANT GRIEVANCE
The ENT Center of Atlanta, Inc. shall cooperate with CIGNA in the
implementation of its Participant grievance procedure and shall assist
CIGNA in taking appropriate corrective action. The ENT Center of
Atlanta, Inc. shall comply with all final determinations made by CIGNA
pursuant to such grievance procedure.
E. INSURANCE AND LIABILITY
1. Throughout the term of this Agreement, The ENT Center of
Atlanta, Inc. will ensure Represented Physicians have general
and professional liability coverage in a form and amount
acceptable to CIGNA. The ENT Center of Atlanta, Inc. shall
require each Represented Physician to maintain such coverages
in a form and amount acceptable to CIGNA. The ENT Center of
Atlanta, Inc. shall give CIGNA certificates of insurance
evidencing the coverages described herein upon request. The
ENT Center of Atlanta, Inc. shall give CIGNA thirty (30) days'
prior written notice of cancellation, modification or
termination of any such insurances. The ENT Center of Atlanta,
Inc. shall give CIGNA prompt written notice of any claims
against The ENT Center of Atlanta, Inc.'s or any of its
Represented Physicians' liability coverage.
2. The ENT Center of Atlanta, Inc. shall notify CIGNA immediately
of the initiation of any complaint, inquiry, investigation, or
review with or by any licensing or regulatory authority, peer
review organization, hospital committee, or other committee,
organization or body which reviews quality of medical care
which complaint, inquiry, investigation, or review directly or
indirectly, evaluates or focuses on the quality of care
provided by The ENT Center of
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Atlanta, Inc. or its Represented Physicians either in any
specific instance or in general.
3. Neither party hereto shall be liable for defending or for the
expense of defending the other party, its agent, or employees,
against any claim, legal action, dispute resolution or
administrative or regulatory proceeding arising out of or
related to such other party's actions or omissions under this
Agreement. Neither party hereto shall be liable for any
liability of the other party, its agents, or employees,
whether resulting from judgement, settlement, award, fine or
otherwise, which arises out of such other party's actions or
omissions under this Agreement.
F. INDEMNIFICATION
Each party agrees to indemnify, defend and hold harmless the other, its
agents and employees from and against any and all liability or expense,
including defense costs and legal fees, incurred in connection with
claims for damages of any nature, including but not limited to bodily
injury, death, personal liability, property damage, or other damages
arising from the performance of or failure to perform, its obligations
under this Agreement, or incurred as a result of the indemnifying
party's violation of applicable law, unless it is determined that the
liability was the direct consequence of negligence or willful
misconduct on the part of the indemnified party, its agents or
employees.
G. INSPECTIONS
Upon reasonable notice and at reasonable hours, CIGNA or its agents may
inspect The ENT Center of Atlanta, Inc.'s premises and operations to
ensure that they are adequate to meet Participants' needs.
H. REPRESENTATIONS
1. Each Represented Physician represents and warrants that the
information set forth in the CIGNA Physician Application is
true and correct. The ENT Center of Atlanta, Inc. shall
promptly notify CIGNA of any changes in the information
contained in any Represented Physician's Application within
thirty (30) days of such change.
2. The ENT Center of Atlanta, Inc. represents and warrants that
only Represented Physicians will be allowed to provide Covered
Services.
3. The ENT Center of Atlanta, Inc. represents and warrants that
it is authorized to act on behalf of its Represented
Physicians and will provide evidence of authority upon
request.
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<PAGE> 8
4. The ENT Center of Atlanta, Inc. will provide evidence of
Represented Physicians' agreement to abide by the terms of
this Agreement upon request.
5. CIGNA makes no representations or guarantees concerning the
number of Participants it can or will refer to The ENT Center
of Atlanta, Inc. under this Agreement.
I. CONFIDENTIALITY
The following information is confidential and or proprietary: 1) the
terms and conditions of this Agreement, including financial rates; 2)
all information provided by CIGNA to The ENT Center of Atlanta, Inc.
regarding CIGNA's or its Affiliates' Service Agreements, marketing
strategies, or plans for development of new products, services or
programs; and 3) all other information designated by CIGNA as
confidential or proprietary. Neither The ENT Center of Atlanta, Inc.
nor any of its agents or representatives, including Represented
Physicians whether during the term of this Agreement or subsequent
thereto, shall disclose any of such information
III. MISCELLANEOUS OBLIGATIONS
A. INDEPENDENT CONTRACTOR RELATIONSHIP
1. This Agreement is not intended to create nor shall be
construed to create any relationship between CIGNA and The ENT
Center of Atlanta, Inc. other than that of independent
entities contracting for the purpose of effecting provisions
of this Agreement. Neither party nor any of their
representatives shall be construed to be the agent, employer,
employee or representative of the other.
2. Nothing in this Agreement, including The ENT Center of
Atlanta, Inc. and its Represented Physicians' participation in
the Quality Management and Utilization Management process,
shall be construed to interfere with or in any way affect
Represented Physicians' obligation to exercise independent
medical judgement in rendering health care services to
Participants.
B. TERM OF AGREEMENT
This Agreement shall begin on the Effective Date and shall continue for
a three (3) year term and year to year thereafter, unless terminated as
set forth below.
C. TERMINATION
1. For Cause. The ENT Center of Atlanta, Inc. or CIGNA may
terminate this Agreement at any time for cause. Cause for
termination includes, but is not limited to, the following:
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<PAGE> 9
a. Material failure of CIGNA, when acting as Payor, to
make required compensation payments to The ENT Center
of Atlanta, Inc.
b. Failure of CIGNA to maintain licenses or
certifications required to operate in conformity with
this Agreement.
c. Any material change or alteration by CIGNA of Program
Requirements if such action is unacceptable to The
ENT Center of Atlanta, Inc., providing that The ENT
Center of Atlanta, Inc. gives CIGNA notice of
rejection of such action within thirty (30) days of
receipt by The ENT Center of Atlanta, Inc. of CIGNA's
notice concerning the change or alteration.
d. Habitual neglect or continued failure by either party
to perform its duties under this Agreement.
e. Initiation of bankruptcy proceedings by or against
either party.
f. Material breach of this Agreement by either party.
g. Failure by The ENT Center of Atlanta, Inc. or its
Represented Physicians to maintain licenses required
to perform The ENT Center of Atlanta, Inc.'s duties
under this Agreement, or to comply with applicable
laws, regulations or Program Requirements.
h. Any material misrepresentation or falsification of
any information submitted by The ENT Center of
Atlanta, Inc. to CIGNA.
i. Commission or omission of any act or any conduct or
allegation of conduct for which The ENT Center of
Atlanta, Inc.'s license or certification may be
subject to revocation or suspension, whether or not
actually revoked or suspended, or if The ENT Center
of Atlanta, Inc. is otherwise disciplined by any
licensing, regulatory, professional entity or any
professional organization with jurisdiction over The
ENT Center of Atlanta, Inc.
j. Failure of The ENT Center of Atlanta, Inc. to
maintain required liability coverage protection.
k. Commission or omission of any act or conduct by The
ENT Center of Atlanta, Inc. which is detrimental to
Participants' health or safety. CIGNA may terminate
this agreement if The ENT Center of Atlanta, Inc.
does not make appropriate arrangements with the
Represented Physician.
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<PAGE> 10
Any occurrence under paragraphs (g) through (k) above shall be grounds
for immediate termination. Termination for any other reason set forth
above shall be upon thirty (30) days prior written notice by the
terminating party.
2. Without Cause. This Agreement may be terminated at any time
without cause or prejudice upon ninety (90) days' prior
written notice by either party.
3. Termination of Individual Program Attachments. Program
Attachments may be terminated individually by amendment as
provided in Section III.H. of this Agreement. Termination of
any individual Program Attachment will not have the effect of
terminating the entire Agreement and all remaining Sections
and Program Attachments of the Agreement will remain in full
force.
D. RIGHTS AND OBLIGATIONS UPON TERMINATION
Upon termination of this Agreement for any reason, the rights of each
party hereunder shall terminate, except as provided in any Program
Attachment to this Agreement. Any such termination, however, shall not
release The ENT Center of Atlanta, Inc. or CIGNA from obligations under
this Agreement prior to the effective date of termination.
E. ASSIGNMENT AND DELEGATION OF DUTIES
Neither CIGNA nor The ENT Center of Atlanta, Inc. may assign duties,
rights or interests under this Agreement unless the other party shall
so approve by written consent, provided, however, that any reference to
CIGNA herein shall include any successor in interest and that CIGNA may
assign its duties, rights and interests under this Agreement in whole
or in part to a CIGNA Affiliate or may delegate any and all of its
duties in the ordinary course of business.
F. USE OF NAME
The ENT Center of Atlanta, Inc. agrees that The ENT Center of Atlanta,
Inc. and its Represented Physicians' names, office telephone numbers,
addresses, specialties, board certifications, hospital affiliations and
other relevant data may be included in literature distributed to
existing or potential Participants, Participating Providers and Payors.
The ENT Center of Atlanta, Inc.'s use of CIGNA's name or CIGNA
Affiliate's name, or any other use of The ENT Center of Atlanta, Inc.'s
or its Represented Physicians' names by CIGNA shall be upon prior
written approval or as the parties may agree.
G. INTERPRETATION
The validity, enforceability and interpretation of this Agreement shall
be governed by any applicable federal law and by the applicable laws of
the state in which The ENT
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<PAGE> 11
Center of Atlanta, Inc. and its Represented Physicians are licensed and
have rendered Covered Services.
H. AMENDMENT
1. CIGNA may amend this Agreement and Program Attachments by
providing prior written notice to The ENT Center of Atlanta,
Inc. Failure of The ENT Center of Atlanta, Inc. to object in
writing to any such proposed amendment within thirty (30) days
following receipt of notice shall constitute The ENT Center of
Atlanta, Inc.'s acceptance thereof. Notification to CIGNA of
rejection of any proposed amendment means that this Agreement
shall remain in force without the proposed amendment.
2. In the event that state or federal law or regulation should
change, alter or modify the present services, levels of
payments to CIGNA, standards of eligibility of Participants,
or any operations of CIGNA, such that the terms, benefits and
conditions of this Agreement must be changed accordingly, then
upon notice from CIGNA, The ENT Center of Atlanta, Inc. shall
continue to perform services under this Agreement as modified.
3. Except as provided above, amendments to this Agreement shall
be agreed to in advance in writing by CIGNA and The ENT Center
of Atlanta, Inc.
I. PROGRAM ATTACHMENTS
The Program Attachments hereto are a part of this Agreement and their
terms shall supersede those of other parts of this Agreement in the
event of a conflict.
J. ENTIRE CONTRACT
This Agreement together with all Program Attachments contains all the
terms and conditions agreed upon by the parties, and supersedes all
other agreements, express or implied, regarding the subject matter.
K. NOTICE
Any notice required hereunder shall be in writing and shall be sent by
United States mail, postage prepaid, to CIGNA and The ENT Center of
Atlanta, Inc. at the addresses set forth below.
L. ENFORCEABILITY AND WAIVER
The invalidity and nonenforceability of any term or provision of this
Agreement shall in no way affect the validity or enforceability of any
other term or provision. The
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<PAGE> 12
waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed as a waiver of any subsequent
breach thereof.
M. REGULATORY APPROVAL
In the event that CIGNA has not been licensed or has not received any
applicable regulatory approval for use of this Agreement prior to the
execution of this Agreement, this Agreement shall be deemed to be a
binding letter of intent. In such event, the Agreement shall become
effective on the date that such regulatory approval is obtained. If
CIGNA is unable to obtain such licensure or approval after due
diligence, CIGNA shall notify The ENT Center of Atlanta, Inc. and both
parties shall be released from any liability under this Agreement,
provided however, that if such licensure or approval is obtained upon
the condition of CIGNA's amendment of this Agreement, then this
Agreement shall continue and CIGNA shall amend pursuant to Section
III.H.
N. DISPUTE RESOLUTION
1. The parties agree to meet and confer in good faith to resolve
any problems or disputes that may arise under this Agreement.
2. If the dispute is not resolved through the aforementioned
process and to the extent permitted by law, the matter in
controversy shall be submitted either to dispute resolution
entity, or to a single arbitrator selected by the American
Arbitration Association, as the parties shall agree within 60
days of the last attempted resolution. If the matter is
submitted to arbitration, it shall be conducted in accordance
with the commercial arbitration rules of the American
Arbitration Association and shall be held in the jurisdiction
of The ENT Center of Atlanta, Inc. domicile. Both parties
expressly covenant and agree to be bound by the decision of
the dispute resolution entity or arbitrator as final
determination of the matter in dispute. Each party shall
assume its own costs, but shall share the cost of the
resolution entity equally. Judgment upon the award rendered by
the resolution entity may be entered in any court having
jurisdiction thereof.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the EFFECTIVE DATE.
CIGNA
EFFECTIVE DATE By:
----------------------------------------------
Name: J.C. Ranelli
9-1-92 Title: General Manager
- --------------------------- -------------------------------------------
1349 West Peachtree Street, N.E.
-------------------------------------------------
Midtown Plaza II, Suite 1300
-------------------------------------------------
Atlanta, GA 30309
-------------------------------------------------
Address
THE ENT CENTER OF ATLANTA, INC.
Date August 7, 1995 Ramie A. Tritt, M.D.
----------------- -------------------------------------------------
Please Print or Type Name
By:
----------------------------------------------
Name:
Title: President
-------------------------------------------
Specialty: Otolaryngology-Head & Neck Surgery
-------------------------------------------------
5555 Peachtree-Dunwoody Road, Suite 235
-------------------------------------------------
Atlanta, Georgia 30342
-------------------------------------------------
Address
58-2009302
-----------------------------------
Federal Tax Identification Number
PROGRAM ATTACHMENTS:
HMO Specialty Care Program Attachment
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<PAGE> 14
HMO SPECIALTY CARE PROGRAM ATTACHMENT
TO GROUP MANAGED CARE AGREEMENT
(CAPITATION)
PURPOSE
The terms and provisions of this HMO Specialty Care Program Attachment and the
Agreement are applicable to Covered Services rendered in accordance with a
Service Agreement which is consistent with the HMO Program.
I. DEFINITIONS
CAPITATION PAYMENT means a predetermined periodic payment for certain Covered
Services that is made to The ENT Center of Atlanta, Inc. by CIGNA for each
Participant who is a member of The ENT Center of Atlanta, Inc.'s Patient Panel.
MEDICAL DIRECTOR means a physician designated by CIGNA to manage Quality
Management and Utilization Management responsibilities, or that physician's
designee.
PATIENT PANEL means those Participants who have designated or have otherwise
been assigned to The ENT Center of Atlanta, Inc. or its Represented Physicians
as the primary source for certain Covered Services pursuant to a Service
Agreement or HMO Program Requirements.
POINT OF SERVICE BUSINESS means a type of business pursuant to a Service
Agreement which allows the Participant to choose a Participating Provider or a
non-Participating Provider for Covered Services at the time such services are
sought.
PRIMARY CARE PHYSICIAN means a physician duly licensed to practice medicine who
is a Participating Provider with CIGNA to provide Covered Services in the field
of general medicine, internal medicine, family practice or pediatrics, and who
has agreed to provide primary care physician services to a Patient Panel or
other Participants in accordance with HMO Program Requirements.
STANDARD BUSINESS means a type of business pursuant to a Service Agreement where
Covered Services are available to Participants only from Participating
Providers, except in cases of Emergency.
EXD-1
<PAGE> 15
II. PARTIES' OBLIGATIONS
A. COVERED SERVICES
1. The ENT Center of Atlanta, Inc. through its Represented
Physicians shall provide or arrange for the provision of all
specialty care Covered Services within the scope of its
Represented Physicians' practice that are required by
Participants in accordance with the terms of this Agreement,
this HMO Program Attachment and HMO Program Requirements. The
ENT Center of Atlanta, Inc. and its Represented Physicians
shall accept the compensation set forth in this HMO Program
Attachment as payment in full for such services.
2. Except in an Emergency, prior authorization by a Participant's
Primary Care Physician or CIGNA as prescribed by HMO Program
Requirements is required for payment of Covered Services
rendered to Participants. All referrals shall be to
Participating Providers, except where an Emergency requires
otherwise or in other cases where Medical Director
specifically authorizes the referral. CIGNA may withhold a
portion of The ENT Center of Atlanta, Inc.'s reimbursement if
Represented Physicians fail to comply with such requirements.
3. The ENT Center of Atlanta, Inc. through its Represented
Physicians shall provide necessary Covered Services to
Participants on a 24-hour per day, 7-day per week basis or
arrange with a physician to cover The ENT Center of Atlanta,
Inc.'s Patient Panel in its Represented Physicians' absence.
The ENT Center of Atlanta, Inc. will ensure that such covering
physician (a) will not seek compensation from CIGNA for
services for which The ENT Center of Atlanta, Inc. receives
Capitation Payments from CIGNA; (b) will not bill Participants
for Covered Services under any circumstances except for
Copayments, Deductibles or Coinsurance; and (c) will obtain
authorization from CIGNA prior to all hospitalizations or
referrals of Participants, except in Emergencies. The ENT
Center of Atlanta, Inc. will not be liable for services to
Participants in non-participating hospitals.
Emergency and urgent otolaryngology services to Participants
provided by any physicians not participating with The ENT
Center of Atlanta, Inc. will be paid by CIGNA Healthcare and
will not be deducted from capitation payment made to The ENT
Center of Atlanta, Inc.
4. The ENT Center of Atlanta, Inc. through its Represented
Physicians shall provide Covered Services to all Participants
unless The ENT Center of Atlanta, Inc. notifies CIGNA that The
ENT Center of Atlanta, Inc. cannot accommodate additional
patients pursuant to the HMO Program Requirements.
EXD-2
<PAGE> 16
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
5. The ENT Center of Atlanta, Inc. shall maintain a sufficient
number of Specialty Care Physicians as reasonably determined
by CIGNA.
6. CIGNA will pay for all otolaryngology services that are
provided to Participants that are referred to Emory Clinic
and/or Emory Clinic physicians.
Participants will be referred to Emory Clinic and/or Emory Clinic
physicians if it is deemed necessary by The ENT Center of Atlanta, Inc.
physician reviewer after approval from the Medical Director of CIGNA.
B. CAPITATION PAYMENTS
l. On or before the 15th of each month, CIGNA shall pay The ENT
Center of Atlanta, Inc. an amount equal to the applicable
monthly capitation rate adjusted for Copayments as shown below
for each Participant in The ENT Center of Atlanta, Inc.
Patient Panel. THE CAPITATION PAYMENT SHALL BE COMPENSATION
FOR ALL COVERED SERVICES PROVIDED TO PARTICIPANTS THAT ARE
DESIGNATED The ENT Center of Atlanta, Inc. The monthly
capitation rates are as follows:
ORIGINAL:
STANDARD BUSINESS [*] PMPM
POINT OF SERVICE BUSINESS: [*] PMPM
AMENDED EFF. 9-1-94
STANDARD BUSINESS: [*] PMPM
POINT OF SERVICE BUSINESS: [*] PMPM
2. If a Participant is added to The ENT Center of Atlanta, Inc.'s
Patient Panel on or before the 15th day of a month, a full
month's Capitation Payment will be due for that month. There
will be no Capitation Payment due for Participants added after
the 15th day of the month.
3. A full month's Capitation Payment will be due for the month of
termination of a Participant if the Participant terminates
after the 15th day of the month. If a Participant terminates
on or before the 15th day of a month, no Capitation Payment
will be due for the month of termination.
EXD-3
<PAGE> 17
4. Where CIGNA, due to information delays, must make a
retroactive addition or deletion to The ENT Center of Atlanta,
Inc.'s Patient Panel, CIGNA shall make a retroactive
capitation adjustment concurrent therewith. In those instances
where a Participant has been retroactively deleted and has
received Covered Services from The ENT Center of Atlanta, Inc.
after the effective date of a
deletion but prior to CIGNA informing The ENT Center of Atlanta, Inc. of such
deletion, The ENT Center of Atlanta, Inc. may bill participant for such services
rendered.
5. Any amendment of Capitation Payment rates, whether on an
annual basis or upon changes in benefit designs such as
changes in Copayment levels, shall be in accordance with the
Amendment provisions of this Agreement.
6. There will be an annual review of capitation rates.
C. ENCOUNTER AND CLAIMS DATA
The ENT Center of Atlanta, Inc. or its Represented Physicians shall
provide CIGNA with encounter data on a monthly basis showing all
services provided to each Participant for whom The ENT Center of
Atlanta, Inc. receives Capitation Payments. The ENT Center of Atlanta,
Inc. or its Represented Physicians shall submit claims for all
non-capitated services rendered to Participants on standard HCFA-1500
or other acceptable billing forms and in accordance with the billing
requirements set forth in Section II.B. of this Agreement. Such
encounter and claims data shall be submitted in accordance with
applicable Program Requirements and in a format acceptable to CIGNA.
CIGNA can initiate termination of this Agreement if The ENT Center of
Atlanta, Inc. fails to provide such encounter and claims data in
accordance with this Agreement.
D. FEE-FOR-SERVICE PAYMENTS
In addition to Capitation Payments for Covered Services provided to
Participants in The ENT Center of Atlanta, Inc.'s Patient Panel, The
ENT Center of Atlanta, Inc. shall be reimbursed for the Covered
Services provided to Participants by Dr. Sanjay Bhansali as designated
in exhibit "C" at the lesser of Atlanta Ear, Nose and Throat
Associates, P.C.'s billed charges or CIGNA's maximum fee schedule in
effect at the time of service.
E. ASSIGNMENT AND IDENTIFICATION OF PARTICIPANTS
The ENT Center of Atlanta, Inc. shall comply with the requirements of,
and shall participate in, CIGNA's procedures with respect to assignment
and identification of Participants as outlined in the Program
Requirements.
EXD-4
<PAGE> 18
F. COORDINATION OF BENEFITS
1. CIGNA and The ENT Center of Atlanta, Inc. agree to cooperate
to exchange information relating to coordination of benefits
with regard to any Participant for whom The ENT Center of
Atlanta, Inc. is providing or arranging services.
2. With respect to capitated Covered Services:
a. Certain claims for services rendered to Participants
are claims for which another payor may be primarily
responsible under coordination of benefits rules. The
ENT Center of Atlanta, Inc. shall pursue and process
any coordination of benefits relating to services
provided by The ENT Center of Atlanta, Inc., provided
that the amount of such recoveries are reported
monthly to CIGNA.
b. When designated Payor is primary under applicable
coordination of benefit rules, The ENT Center of
Atlanta, Inc. shall consider the Capitation Payment
as payment in full for Covered Services rendered to
Participants and shall not seek additional
reimbursement from any secondary Payors.
3. With respect to non-capitated Covered Services:
a. Certain claims for services rendered to Participants
are claims for which another payor may be primarily
responsible under coordination of benefit rules. The
ENT Center of Atlanta, Inc. shall bill such claims to
the primary payor when information regarding such
primary payor is available, or upon designated
Payor's request.
b. When designated Payor is primary under applicable
coordination of benefit rules, Payor will pay
benefits as set forth in this Agreement without
regard for the obligations of any secondary payor.
c. When Payor is determined to be secondary to any other
payor including Medicare, Payor will pay no greater
than that amount which, when added to amounts payable
to The ENT Center of Atlanta, Inc. from other sources
under the applicable coordination of benefit rules,
equals one hundred percent of The ENT Center of
Atlanta, Inc.'s reimbursement for Covered Services
pursuant to this Agreement. Payor shall not be liable
for any amount unless Payor has received The ENT
Center of Atlanta, Inc.'s claim for such secondary
payment within ninety (90) days of the date when
Payor is determined to be secondary.
G. FINANCIAL REPORTING
EXD-5
<PAGE> 19
The ENT Center of Atlanta, Inc. shall provide CIGNA with copies of
financial reports, including income statements and balance sheets, upon
request by CIGNA.
H. REIMBURSEMENT OF CIGNA EXPENDITURES
CIGNA shall be entitled to recover from The ENT Center of Atlanta, Inc.
any expenditure made, or recover any cost incurred by CIGNA, in
providing for any Covered Services for which The ENT Center of Atlanta,
Inc. or its Represented Physicians were obligated hereunder but failed
to so provide. CIGNA may deduct an amount sufficient to reimburse CIGNA
for such expenditures and costs from any payments due to The ENT Center
of Atlanta, Inc. from CIGNA. CIGNA shall provide The ENT Center of
Atlanta, Inc. with written notice and full disclosure of costs incurred
prior to any such deduction.
I. OTHER PROCEDURES
1. Any procedure or service other than those set forth above and
as further defined in the HMO Program Requirements as being
covered either by Capitation Payments or by fee-for-service
payments shall be reimbursed only if CIGNA's authorization is
obtained prior to performance of the procedure or service.
2. The ENT Center of Atlanta, Inc. and its Represented Physicians
shall use reasonable efforts to prescribe or authorize the
substitution of generic pharmaceuticals when appropriate and
shall cooperate with CIGNA's formulary and HMO Program
Requirements regarding the substitution of generic
pharmaceuticals.
J. TRANSFERS
The ENT Center of Atlanta, Inc. shall assist CIGNA in facilitating the
transfer of Participants from a non-Participating Hospital to a
Participating Hospital if determined medically acceptable by
Represented Physician and the attending physician, subject to review by
CIGNA's Medical Director. The ENT Center of Atlanta, Inc. shall be
financially responsible for the professional and facility (inpatient)
expenses if The ENT Center of Atlanta, Inc. refuses to accept transfer
without reasonable cause after such transfer is determined medically
acceptable in the manner set forth above.
K. LIMITATIONS ON BILLING PARTICIPANTS
1. The ENT Center of Atlanta, Inc. for itself and on behalf of
each Represented Physician, hereby agrees that in no event,
including, but not limited to non-payment by CIGNA, CIGNA's
insolvency or breach of this Agreement, shall The ENT Center
of Atlanta, Inc. or any Represented Physician bill, charge,
EXD-6
<PAGE> 20
collect a deposit from, seek compensation, remuneration or
reimbursement from, or have any recourse against Participants
or persons other than CIGNA for Covered Services. This
provision shall not prohibit collection of any applicable
Copayments, Deductibles or Coinsurance billed in accordance
with the terms of a Service Agreement.
a. Any modification, additions, or deletion to the
provisions of this hold harmless clause shall become
effective on a date no earlier than fifteen (15) days
after the applicable state regulatory agency has
received written notice of such proposed changes.
2. The ENT Center of Atlanta, Inc. further agrees that this
provision shall survive the termination of this Agreement
regardless of the cause giving rise to such termination and
shall be construed to be for the benefit of Participants, and
that this provision supersedes any oral or written agreement
to the contrary now existing or hereafter entered into between
The ENT Center of Atlanta, Inc. or its Represented Physicians
and the Participant or persons acting on the Participant's
behalf.
L. COMPENSATION FOR COVERED SERVICES PROVIDED TO NON-PATIENT PANEL
PARTICIPANTS
In the event that an HMO Program Participant who is not included in The
ENT Center of Atlanta, Inc.'s Patient Panel is referred by that
Participant's Primary Care Physician to The ENT Center of Atlanta, Inc.
CIGNA shall compensate The ENT Center of Atlanta, Inc. for Covered
Services rendered at the lesser of Represented Physician's billed
charges or CIGNA's maximum allowable fee schedule in effect at the time
Covered Services are rendered.
III. RIGHTS AND OBLIGATIONS UPON TERMINATION
A. Upon termination of this Agreement, The ENT Center of Atlanta,
Inc. through its Represented Physicians shall continue to
provide Covered Services for specific conditions for which a
Participant was under Represented Physician's care at the time
of such termination so long as Participant retains eligibility
under a Service Agreement, until the earlier of completion of
such services, CIGNA's provision for the assumption of such
treatment by another physician, or the expiration of twelve
(12) months. CIGNA shall compensate The ENT Center of Atlanta,
Inc. for Covered Services provided to any such Participant in
accordance with CIGNA'S Maximum Allowable Rate but not greater
than billed charges, until sixty (60) days following
termination and thereafter compensation for continued services
authorized by CIGNA shall be as mutually agreed, but not at a
rate greater than The ENT Center of Atlanta, Inc.'s usual
billed charges.
EXD-7
<PAGE> 21
B. The ENT Center of Atlanta, Inc. and its Represented Physicians
have no obligation under this Agreement to provide services to
individuals who cease to be Participants.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
EXD-8
<PAGE> 22
EXHIBIT A
HMO PROGRAM ATTACHMENT - CAPITATION
CLAIMS PAYMENT RESPONSIBILITIES
(delegated claims payment)
The ENT Center of Atlanta, Inc. shall administer claims for Covered Services
rendered by Represented Physicians in accordance with this Exhibit and the terms
of the Agreement.
1. The ENT Center of Atlanta, Inc. agrees to reimburse
Represented Physicians for Covered Services within forty-five
(45) days of receipt of a properly completed bill for Covered
Services. CIGNA may withhold all or a portion of The ENT
Center of Atlanta, Inc.'s Capitation Payment if The ENT Center
of Atlanta, Inc. repeatedly fails to reimburse Represented
Physicians on a timely basis.
2. With reasonable notice, The ENT Center of Atlanta, Inc. agrees
to allow CIGNA representatives to conduct on-site reviews of
The ENT Center of Atlanta, Inc. claims administration
facilities. Such reviews shall be for the sole purpose of
evaluating The ENT Center of Atlanta, Inc. performance against
CIGNA's claims administration standards and to ascertain the
quality and timeliness of The ENT Center of Atlanta, Inc.
claims processing. The ENT Center of Atlanta, Inc. agrees to
correct any deficiencies detected during such reviews within
sixty (60) days of CIGNA's submission of a written report
detailing such deficiencies.
3. The ENT Center of Atlanta, Inc. shall be responsible for the
production of all applicable tax reporting documents (e.g.,
1099s) for Represented Physicians. Such documents shall be
produced in a format and within the time frames set forth in
applicable state and federal laws and/or regulations.
4. The ENT Center of Atlanta, Inc. shall ensure that Represented
Physicians submit claims for Covered Services rendered to
Participants in other Programs for which CIGNA has retained
claims payment responsibility directly to CIGNA in accordance
with the applicable Program Attachment and Program
Requirements.
5. The ENT Center of Atlanta, Inc. shall produce explanations of
benefits for Represented Physicians and Represented Physicians
shall produce explanations of benefits for Participants when
applicable. Such explanations of benefits shall be in a format
and contain data elements acceptable to CIGNA.
6. The ENT Center of Atlanta, Inc. shall develop and deliver
training programs for Represented Physicians which outline The
ENT Center of Atlanta, Inc.
-1-
<PAGE> 23
billing and reimbursement processes. The ENT Center of
Atlanta, Inc. shall make reasonable efforts to ensure that
Represented Physicians avoid submitting claims to CIGNA for
those Covered Services rendered to Participants for whom The
ENT Center of Atlanta, Inc. has been delegated claims payment
responsibility.
7. The ENT Center of Atlanta, Inc. or its Represented Physicians
shall provide CIGNA with encounter data on a monthly basis
showing all services provided to each Participant for whom The
ENT Center of Atlanta, Inc. receives Capitation Payments. Such
encounter data shall be submitted in accordance with
applicable HMO Program Requirements and in a format acceptable
to CIGNA. CIGNA may elect to terminate this Agreement if The
ENT Center of Atlanta, Inc. fails to submit encounter data in
accordance with this Agreement.
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<PAGE> 24
EXHIBIT B
HMO PROGRAM ATTACHMENT - CAPITATION
UTILIZATION MANAGEMENT
(partial delegation of utilization management)
1. The ENT Center of Atlanta, Inc. will assist CIGNA in the implementation
of its Utilization Management program. Any Utilization Management
program activities performed by The ENT Center of Atlanta, Inc. shall
be in accordance with NCQA standards and acceptable to CIGNA.
2. The ENT Center of Atlanta, Inc. shall prepare such periodic reports or
other data as reasonably requested by CIGNA relating to its Utilization
Management activities in a format acceptable to CIGNA.
3. The ENT Center of Atlanta, Inc. shall not materially modify its
Utilization Management activities without CIGNA's prior approval.
4. CIGNA shall have the right to audit The ENT Center of Atlanta, Inc.'s
Utilization Management activities upon reasonable prior notice. The ENT
Center of Atlanta, Inc. shall cooperate with any such audits.
5. If CIGNA determines that The ENT Center of Atlanta, Inc. cannot meet
its Utilization Management obligations set forth herein, CIGNA may
elect to assume responsibility for such activities. If CIGNA elects to
assume responsibility for such activities, the parties agree to
renegotiate the rates set forth in this Agreement to the extent
necessary, and The ENT Center of Atlanta, Inc. shall cooperate and
provide to CIGNA any information necessary to perform such activities.
6. All referrals shall be to Represented Providers, except where an
Emergency requires otherwise or in other cases where the referral is
specifically authorized by CIGNA's Medical Director or his/her designee
or The ENT Center of Atlanta, Inc.'s Medical Director, if permitted by
CIGNA to make such authorizations. Except in an Emergency, The ENT
Center of Atlanta, Inc. shall require all Represented Providers to
obtain authorization from CIGNA or, The ENT Center of Atlanta, Inc. if
permitted by CIGNA to make such authorizations, prior to hospital
admission of any Participant or outpatient surgical procedures.
7. The ENT Center of Atlanta, Inc. agrees to include CIGNA's Medical
Director or Medical Director designee on The ENT Center of Atlanta,
Inc. committees which are responsible for the review and continued
development of The ENT Center of Atlanta, Inc.'s Utilization Management
program and other related programs.
<PAGE> 25
EXHIBIT C
The following services for Sanjay Bhansalli, M.D. will be paid at CIGNA
Healthcare of Georgia's maximum fee schedule in effect at the time of service:
Procedure
Code Description
95920 Intraoperative neurophysiology testing, per hour
(Use code 95920 in addition to the evoked potential study
performed 92280, 92585, 95925)
95925 Somotosensory testing (eg, cerebral evoked potentials), one or
more nerves
(For visual evoked potentials, see 92585)
(For brainstem evoked response recording, see 92585)
(For auditory evoked potentials, see 92585)
95933 Orbicularis oculi (blink) reflex, by electrodiagnostic testing
95935 "H" or "F" reflex study, by electrodiagnostic testing
95937 Neuromuscular junction testing (repetitive stimulation, each
nerve, any one method)
69700 Closure postauricular fistula, mastoid (separate procedure)
69710 Implantation or replacement of electromagnetic bone conduction
hearing device in temporal bone (replacement procedure
includes removal old device)
69711 Removal of repair of electromagnetic bone conduction hearing
device in temporal bone
69720 Decompression facial nerve, intratemporal; lateral geniculate
ganglion
69725 including medial to geniculate ganglion
69740 Suture facial nerves, intratemporal, with or without graft or
decompression; lateral to geniculate ganglion
69745 including medial to geniculate ganglion (For extracranial
suture of facial nerve, see 64864)
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<PAGE> 26
69801 Labyrinthotomy, with or without cryosurgery or other
nonexcisional destructive procedures or tack procedure;
transcanal
69802 with mastoidectomy
69805 Endolymphatic sac operation; without shunt
69806 with shunt
69820 Fenestration semicircular canal
69840 Revision fenestration operation
69905 Labyrinthectomy; transcanal
69910 with mastoidectomy
69915 Vestibular nerve section, translabyrinthine approach
(For transcranial approach, see 69950)
69930 Cochlear device implantation, with or without mastoidectomy
69949 Unlisted procedure, inner ear
(For external approach, see 69535)
69950 Vestibular nerve section, transcranial approach
69955 Total facial nerve decompression and/or repair (may include
graft)
69960 Decompression internal auditory canal
69970 Removal of tumor, temporal bone
69979 Unlisted procedure, temporal bone, middle fossa approach
69530 Petrous apicectomy including radical mastoidectomy
69535 Resection temporal bone, external approach
(For middle fossa approach, see 69950-69970)
69300 Otoplasty, protruding ear, with or without size reduction
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<PAGE> 27
69310 Reconstruction of external auditory canal (meatoplasty) (eg.
for stenosis due to trauma, infection) (separate procedure)
69320 Reconstruction external auditory canal for congenital atresia,
single stage
63707 Repair of dural/CSF leak, not requiring laminectomy
62100 Cranectomecty for repair of dural/CSF leak, including surgery
for rhinorrhea/otorrhea
62120 Repair for encephalocele, skull vault, including crainoplasty
62121 Cranotomy for repair of encephalocele, skull base
62140 Cranioplasty for skull defect; up to 5 cm diameter
61595 Transtemporal approach to posterior cranial fossa, jugular
foramen or midline skull base, including mastoidectomy,
decompression of sigmoid sinus and/or facial nerve with or
without mobilization
61596 Transcochlear approach to posterior cranial fossa, jugular
foramen or midline skull base, including labyrinthectomy,
decompression, with or without mobilization of facial nerve
and/or petrous carotid artery
61597 Transcondylar (far lateral) approach to posterior cranial
fossa, jugular foramen or midline skull base, including
occipital condylectomy, mastoidectomy, resection of C l-C3
vertebral body(s), decompression of vertebral artery, with or
without mobilization
61598 Transpetrosal approach to posterior cranial fossa, clivus or
forman magnum, including ligation of superior petrosal sinus
and/or sigmoid sinus
61600 Resection of excision of neoplastic, vascular or infectious
lesion of base of anterior cranial fossa; extradural
61601 intradural, including dural repair, with or without graft
61605 Resection of excision of neoplastic, vascular or infectious
lesion of intratemporal fossa, parapharyngeal space,
petrousapex; extradural
61606 intradural including repair; with or without graft
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<PAGE> 28
61607 Resection or excision of neoplastic, vascular or infectious
lesion of parasellar area, carvernous sinus, clivus or midline
skull base; extradural
61608 intradural including dural repair, with or without graft
(Report procedures 61609-61612 as "add-on to primary
definitive procedures 61605, 61606, 61607 or 61608)
61609 Transection or ligation, carotid artery in cavernous sinus;
without repair
61610 with repair by anastomosis or graft
61611 Transection or ligation, carotid artery in petrous canal;
without repair
61612 with repair by anastomosis or graft
61613 Obliteration of carotid aneurysm, arteriovenous malformation,
or cartoid- cavernous fistula by dissection within cavernous
sinus
61615 Resection or excision of neoplastic, vascular or infectious
lesion base of posterior cranial fossa, jugular foramen,
foramen magnum, or Cl-C3 vertebral bodies; extradural
61616 intradural including dural repair; with or without graft
61618 Secondary repair of dura for CSF leak, anterior, middle or
posterier cranial fossa following surgery of the skull base;
by free tissue graft (eg, pericranium, fascia, tensor fascia
lata, adipose tissue, homologous or synthetic grafts)
61619 by local or regionalized vascularized pedicle flap or
myocutaneous flap (including galea, temporalis, frontalis or
occipitalis muscle)
61580 Craniofacial approach to anterior cranial fossa; extradural,
including lateral rhinotomy, ethmoidectomy, sphenoidectomy
without maxillectomy or orbital exenteration
61581 extradural, including lateral rhinotomy, orbital exenteration,
ethmoidectomy, sphenoidectomy and/or maxillectomy
61582 extradural, including unilateral or bitrontal craniotomy,
elevation or resection of frontal lobe(s), osteotomy of base
of anterior cranial fossa
61583 intradural, including unilateral or bifrontal craniotomy,
elevation or resection of frontal lobe, osteotomy of base of
anterior cranial fossa
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<PAGE> 29
61584 Orbitcranial approach to anterior cranial fossa, extradural,
including supreorbital ridge osteotomy and elevation of
frontal and/or temporal lobe(s); without orbital exenteration
61585 with orbital exenteration
61590 Infratemporal pre-auricular approach to middle cranial fossa
(parapharyngeal space, infratemporal and midline skull base,
nasopharynx), with or without disarticulation of the mandible,
including paroitidectomy, craniotomy, decompression and/or
mobilization of the facial nerve and/or petrous carotid artery
61591 Infratemporal post-auricular approach to middle cranial fossa
(internal auditory meatus, petrous apex, tentorium, cavernous
sinus, pasasellar area, infratemporal fossa) including
mastoidectomy, resection of sigmoid sinus, with or without
decompression and/or mobilization of contents of auditory
canal or petrous carotid artery
61592 Orbitocranial zygomatic approach to middle cranial fossa
(cavernous sinus and carotid artery, clivus, basilar artery or
petrous apex) including osteotomy of zygoma, craniotomy,
extra- or intradural elevation of temporal lobe
61526 Craniectomy, bone flap, craniotomy, transtemporal (mastoid)
for excision of cerebellopontine angle tumor;
61530 combined with midde/posterior fossa craniotomy/craniectomy
61518 Craniectomy for excision of brain tumor, infratentorial or
posterior fossa; except menningioma, cerebellopontine angle
tumor, or midline tumor at base skull
61519 menningioma
61520 cerebellopontine angle tumor
61521 midline tumor at base of skull
42425 total, en bloc removal with sacrifice of facial nerve
42426 total with unilaterial radical neck dissection
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<PAGE> 30
GROUP PRACTICE
MANAGED CARE AGREEMENT
CONTENTS
PARTIES..................................................................... 1
PURPOSE..................................................................... 1
I. DEFINITIONS........................................................ 1
II. PARTIES' OBLIGATIONS............................................... 3
A. Services.................................................. 3
B. Compensation and Billing.................................. 4
C. Records................................................... 5
D. Participant Grievance..................................... 6
E. Insurance and Liability................................... 6
F. Indemnification........................................... 7
G. Inspections............................................... 7
H. Representations........................................... 7
I. Confidentiality........................................... 8
III. MISCELLANEOUS OBLIGATIONS.......................................... 8
A. Independent Contractor Relationship....................... 8
B. Term of Agreement......................................... 8
C. Termination............................................... 8
D. Rights and Obligations Upon Termination...................10
E. Assignment and Delegation of Duties.......................10
F. Use of Name...............................................10
G. Interpretation............................................10
H. Amendment.................................................11
I. Program Attachments.......................................11
J. Entire Contract...........................................11
K. Notice....................................................11
L. Enforceability and Waiver.................................11
M. Regulatory Approval.......................................12
N. Dispute Resolution........................................12
<PAGE> 1
EXHIBIT 10.17
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by an * and [ ], have been
separately filed with the Commission.
HMO
Physician Network
Form Code: GRPXXY050892
PHYSICIAN NETWORK
PARTICIPATION AGREEMENT
This Agreement is effective as of July 1, 1994 and is entered into between
Atlanta-AHP, Inc. ("Physician Network") and Aetna Health Management, Inc.
("AHM"). Upon acceptance of sufficient application from Physician Network's
member physicians, Physician Network may participate in various Aetna health
benefits products in accordance with the terms and conditions stated below.
I. DEFINITIONS
1.1 MEMBER means a person eligible to receive benefits under a Plan.
1.2 COVERED SERVICES are those services for which benefits may be provided
under the terms of a Plan.
1.3 CAPITATED SERVICES means services listed in Attachment A-1 that are
also Covered Services.
1.4 Network PHYSICIAN means a member of Physician Network whose
application has been accepted by AHM.
1.5 NON-CAPITATED SERVICES means services in Attachment A-2 that are also
Covered Services.
1.6 PARTICIPATING PROVIDER means a facility, physician or other health
care provider under agreement to participate in a provider Network administered
by AHM or its affiliates. This term does not include members of Physician
Network whose applications have not been accepted by AHM.
1.7 PAYOR means an entity liable for funding of benefit payments under a
Plan which uses a provider Network administered by AHM or its affiliates. A
Payor may be a health maintenance organization ("HMO"), insurer, employer or
other entity, depending on the Plan. A Payor's liability for funding benefit
payments is governed by the terms of its Plan. AHM will inform Physician Network
of the Payor liable for benefit payments under a specific Plan on request. AHM
is not a Payor.
<PAGE> 2
1.8 PCP FEATURE means that in order to obtain maximum benefits under a
Plan, the Member chooses a personal physician, known as a "Primary Care
Physician," or "PCP," and is required to contact the PCP to arrange for
non-emergency services in order to receive maximum benefits.
1.9 PLAN means a health benefits plan which encourages or requires Members
to use a Participating Provider in order to receive maximum benefits.
II. PHYSICIAN NETWORK'S AGREEMENTS AND OBLIGATIONS
General
2.1 Physician Network agrees to provide those Covered Services to Members
without discriminating against Members on the basis of source of payment, race,
color, religion, national origin, health status or disability.
2.2 Physician Network consents to references to the status of Physician
Network and of Network Physicians as a Participating Provider in marketing and
other materials.
2.3 Physician Network will maintain medical, financial and administrative
records concerning services provided to Members and will keep these records for
at least five years from the date the service was rendered. Physician Network
agrees that AHM or Payors, their authorized representatives, and duly authorized
third parties such as government or regulatory agencies, will have the right to
inspect, review and receive copies of records directly related to services
rendered to Members, upon reasonable notice, during regular business hours.
Physician Network will provide, upon request, a copy of Member operative reports
free of charge and agrees to accept payment for copies of other records at the
rate of $1 per page. Physician Network further agrees to obtain any necessary
releases from Members with respect to their records and the information
contained therein.
2.4 Physician Network agrees not to delegate Physician Network's duties
under this Agreement without prior written consent of AHM. This paragraph does
not prohibit the expected performance of Physician Network obligations by
Network Physicians.
2.5 Physician Network agrees to make referrals to and arrange back-up
coverage, with Participating Providers unless medically inappropriate. Physician
Network agrees to obtain pre-certification from Member's Primary Care Physician
for any referrals to physicians outside the Physician Network.
2.6 Physician Network agrees to participate in the Utilization Management
program ("UM programs") and Quality Management program ("QM program") applicable
to each Plan, including initiating utilization review. For Plans with a PCP
Feature, Physician Network agrees to follow the referral management program.
Failure to comply with the applicable UM/QM programs may result in reductions in
payment or in termination of this Agreement.
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<PAGE> 3
2.7 Physician Network agrees to comply with and participate in any
applicable appeal/grievance procedure, including any applicable Member grievance
system.
2.8 For Plans with a PCP Feature, upon Network Physician's election and
AHM's approval, individual Network Physicians shall be designated either a
Primary Care Physician or a Specialist Physician. Specialist Physician agrees to
inform referring Primary Care Physician of findings and/or treatment plan orally
or in writing.
Billing and Compensation
2.9 Physician Network agrees to accept the amounts provided for in
Attachments A, A-1, A-2 and A-3 as payment in full for Covered Services.
Physician Network agrees that if Physician Network reduces the amount Physician
Network will accept as payment in full for Non-Capitated Services, e.g. through
forgiveness of coinsurance, copayments or deductibles, Physician Network will
bill Payor at the reduced amount and will accept payment from Payor based on the
reduced amount.
2.10 If Physician Network's failure to participate in the UM/QM programs,
or if Physician Network's failure to submit a timely claim, results in a denial
or reduction of payment from Payor, Physician Network agrees not to charge
Members for the resulting unpaid charges. Physician Network agrees not to charge
Members for services which UM review indicates may not be covered unless a) the
Member has been informed prior to receiving the services that the services may
not be covered under Payor's Plan and b) the Member has agreed in writing to pay
for the services. Except or the preceding two sentences, nothing in this
Agreement is intended to restrict Physician Network's right to charge Members
for non-covered services.
2.l1 Physician Network agrees to file claims on behalf of Members for
Non-capitated Services. Physician Network also agrees to obtain assignment of
benefits for such claims when appropriate.
2.12 Physician Network agrees to submit an itemized claim for
Non-capitated Services using the HCFA-1500 billing form (or a billing form
containing equivalent information) within 90 days from the date of service, or,
in those instances in which the Payor is secondary, 90 days from the date that
notice of payment decision is received from the primary payor. Payors will not
be obligated to pay claims which are submitted after that time.
2.13 Physician Network agrees to cooperate in claims payment
administration including, but not limited to, coordination of benefits,
subrogation, checking coverage, prior certification and record keeping
procedures. For Non-capitated Services, if Payor pays Physician Network more
than is provided for in Payor's Plan, or if Payor pays Physician Network on the
basis of an assignment of benefits which is successfully contested, Physician
Network agrees to return such amounts to Payor or to Payor's agent.
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<PAGE> 4
2.14 If Payor is a HMO, Physician Network agrees that in no event,
including but not limited to non-payment by the HMO, HMO insolvency or breach by
AHM of this Agreement, shall Physician Network bill, charge, collect a deposit
from, seek compensation, remuneration or reimbursement from, or have any
recourse against HMO's Members for Covered Services. This provision does not
prohibit collection of supplemental charges or copayments on HMO's behalf made
in accordance with HMO's Plan. Physician Network further agrees that this
paragraph shall be construed to be for the benefit of HMO's Members and that
this paragraph supersedes any oral or written contrary agreement now existing or
hereafter entered into between Physician Network and HMO's Members or persons
acting on such Members' behalf.
Credentialing
2.15 Physician Network agrees to provide the information required under
AHM's credentialing and quality management programs ("C/QM programs"); Physician
Network agrees that Physician Network's participation and the participation of
individual Network Physicians under this Agreement may be terminated or
suspended pursuant to these programs. Physician Network represents and warrants
that the information provided in accordance with the C/QM programs, including
but not limited to the information provided in each Network Physician's
application, continues to be true and complete. Physician Network agrees to
notify AHM immediately of changes in that information.
2.16 Physician Network and each Network Physician shall maintain
comprehensive general and professional liability insurance in adequate amounts
("adequate" as determined by AHM), shall provide documentary evidence of such
coverage to AHM upon request, and shall notify AHM immediately of any change in
coverage.
2.17 Physician Network represents and warrants that Physician Network has
and will maintain all licenses necessary to provide the services contemplated
under this Agreement. Physician Network shall notify AHM immediately of any
action to suspend, revoke or restrict its license(s) and/or any other
accreditation or certification that is necessary or useful for providing the
services contemplated by this Agreement.
Network Terms
2.18 Physician Network represents and warrants that it is in good standing
under applicable laws and regulations governing its existence and operation,
that this Agreement has been executed by its duly authorized representative, and
that Physician Network has the authority to bind Network Physicians to the terms
of this Agreement.
2.19 Physician Network agrees that an application will be submitted to AHM
for every physician who is presently a member of Physician Network or who
becomes a member of Physician Network during the term of this Agreement.
Physician Network agrees to notify AHM immediately if any Network Physicians
cease to be members of Physician Network.
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<PAGE> 5
III. AHM AGREEMENTS AND OBLIGATIONS
3.1 AHM agrees to provide descriptions of Aetna health benefits products
to Physician Network.
3.2 AHM shall arrange for the distribution of identification cards to
Members; each card will include a toll-free number that Physician Network may
use during normal business hours to check eligibility for coverage and to obtain
general coverage information.
3.3 AHM agrees to inform Physician Network of the UM/QM procedures and the
billing procedures for each Plan.
3.4 AHM shall implement a means for Physician Network to identify other
Participating Providers.
3.5 AHM will instruct Payor to pay its portion of Physician Network's
bills for Non- capitated Services, within 30 days of receipt, or such shorter
period as required by law, when such bills are accurate, complete, in the
agreed-upon form, when Payor is primary and when the bills do not require any
further investigation.
IV. TERM AND TERMINATION
4.1 Term. This Agreement shall continue in effect until terminated.
4.2 Termination. This Agreement may be terminated:
a) without cause by either party upon 90 days prior written notice
to the other.
b) for material breach if 30 days prior written notice specifying
the material breach has been given to the breaching party and if at the end of
the thirty days the dispute remains unresolved. This Agreement may then be
terminated immediately by written notice to the breaching party.
c) upon notice by AHM pursuant to AHM's C/QM programs.
d) upon notice by AHM if insufficient numbers of Physician Network's
members are Network Physicians.
4.3 Obligations Following Termination. Physician Network shall continue to
provide Covered Services to Members receiving active treatment at the time of
termination until the course of treatment is completed or until ARM makes
reasonable and medically appropriate arrangements to have another physician
provide the services. The terms of this Agreement continue to apply after
termination to such Covered Services and to Covered Services provided
-5-
<PAGE> 6
before termination. Physician Network agrees to inform Members seeking medical
care after the date of termination that Physician Network is no longer a
Participating Provider.
V. MUTUAL OBLIGATIONS
5.1 Amendments. This Agreement may be amended by AHM upon written notice
to Physician Network if necessary in order to comply with applicable law. It may
also be amended by AHM upon 30 days prior written notice to Physician Network,
unless Physician Network objects to the proposed amendment in writing within 15
days of the date the notice of amendment was sent.
5.2 Independent Contractors. Physician Network, AHM and Payors are
independent contractors and are not responsible for the acts or omissions of
each other. Physician Network and Network Physicians continue to be solely
responsible for treatment decisions; claim determinations and determinations
made in connection with utilization review in no way affect the responsibility
of Physician Network and Network Physicians to provide or arrange for
appropriate services for Members.
5.3 Dispute Resolution. If a dispute should arise with respect to the
terms of this Agreement, the parties agree to attempt to resolve the matter
through informal discussion, or, if informal discussion does not resolve the
matter, through mediation. Where pursuing mediation, the parties shall attempt
to take no longer than 30 days to agree upon a mediator.
5.4 Notice. Any written notice required by this Agreement shall be sent by
certified mail, return receipt requested, to the address given below or to such
later address as may be specified in writing. Any prior written notice periods
required by this Agreement shall be deemed to start on the day that written
notice was sent.
Attn: Ramie A. Tritt, M.D. Aetna Health Management. Inc.
Atlanta-AHP, Inc. Contracts Administration
5555 Peachtree-Dunwoody Road 1000 Middle Street MC2S
Suite 201 Middletown, CT 06457
Atlanta, GA 30342
and
Attn: Howard E. Fagin, Ph.D.
990 Hammond Drive, Suite 980
Atlanta, GA 30320
5.5 Trademarks. Neither party may use the other party's trademarks or
servicemarks without the express written consent of the other party. Neither
party may use any trademark or servicemark of any Payor without the express
written consent of that Payor.
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<PAGE> 7
5.6 Waiver of Breach. The waiver of any breach of this Agreement will not
be deemed to waive any other breach.
5.7 Entire Agreement. This Agreement, including its attachments,
constitutes the entire agreement between the parties with respect to the matters
addressed herein and supersedes all prior oral and written understandings
between the parties.
ATLANTA-AHP, INC. AETNA HEALTH MANAGEMENT, INC.
By:____________________________ By:__________________________________
Printed Name:__________________ Printed Name:________________________
Title: ________________________ Title:_______________________________
Date:__________________________ Date:________________________________
Tax I.D.: _____________________
-7-
<PAGE> 8
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A
Compensation Schedule
Full Capitation, Risk Share
I. Reimbursement Rate
A. For in-area HMO Members, Physician Network's reimbursement for
Capitated Services shall be based on [*] per Member per month for the initial
year of the contract. Total Physician Network's reimbursement is subject to the
risk share arrangement and implementation clause described in Section IV and V,
respectively.
The reimbursement rate is subject to renegotiation annually and shall be
negotiated on or about 30 days prior to, and effective on, the contract
anniversary date.
Physician Network shall be responsible for providing all Capitated
Services. Physician Network shall provide these services directly or arrange for
the provision of any necessary services required by Members. If physicians other
than Network Physicians are used to provide such services, Physician Network
shall be responsible for making payments directly to such providers.
B. For Non-capitated Services provided to Members Physician Network's
Reimbursement Rate shall be the lesser of:
1. The maximum fee for the particular Covered Service as determined
by HMO, or
2. Physician Network's usual and customary charge for such service.
Physician Network shall provide HMO with data on a quarterly basis
relating to payments made for Physician Network Covered Services. Physician
Network shall also provide HMO with summary data on magnetic tape, floppy disk,
or hard copy in a format acceptable to HMO within 45 days after the end of the
quarter. This format, at a minimum, shall include: (1) Member name, (2) Member
I.D. number, (3) date of service, (4) CPT Code/ICD-9 code, (5) billed
amount/paid amount, (6) Member's Primary Care Physician, (7) provider rendering
service if other than Primary Care Physician and (8) coordination of benefits
and third party recoveries information.
Physician Network shall provide HMO a quarterly balance sheet, income
statement and year-to-date income statement on a timely basis. Within 120 days
of the end of each Physician
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<PAGE> 9
Network fiscal year, Physician Network shall provide HMO a current financial
statement or audited financial statement if available. Physician Network shall
permit HMO to perform a financial audit of Physician Network's financial
records, at HMO's expense, upon 30 days written notice by HMO.
II. Compensation: Payor
A. For Capitated services, the compensation payable by Payor to Physician
Network shall be equal to the Capitation Rate described above, subject to the
terms of this Agreement and the applicable Plan.
B. For Non-capitated Services, the compensation per claim payable by Payor
to Physician Network, subject to the terms of this Agreement and the applicable
Plan, shall be equal to:
1. The Reimbursement Rate,
2. Minus any applicable copayments, coinsurance and/or deductibles.
C. Capitation payments will be paid to Physician Network by Payor on or
before the 10th day of each month.
D. For the purposes of calculating Capitation payments due under this
Attachment, the number of Members will be determined as of the first day of the
month. No payment adjustments will be made for Members entering or leaving the
applicable health benefits plan after the first day of the month. All Capitation
payments shall be subject, for a period not to exceed three months, to
subsequent adjustment as required to reflect delayed enrollment information
received by HMO from HMO's contractholders.
III. Compensation: Member
Physician Network agrees that Physician Network will not bill Members for
amounts in excess of the deductibles, copayments and/or co-insurance provided
for in Member's Plan.
IV. Risk Share Arrangement
Except for the first year arrangement described in V. below, the
Capitation payments made under this Agreement are subject to adjustment on an
annual basis, as determined by the following reconciliation process:
Within 60 days of the anniversary date of this contract, Physician Network
shall provide HMO a reconciliation showing the following amounts:
-9-
<PAGE> 10
1. Total capitation payments paid to Physician Network by HMO for
the preceding contract year plus applicable copayments, COB recoveries and other
third party recoveries related to HMO Members.
2. Total Capitated Services provided during the preceding contract
year multiplied by the HMO fee schedule in effect as of the first day of the
preceding contract year.
If the amount described in number one above is greater than the amount in
number two, Physician Network shall reimburse HMO 100 percent of the surplus. If
the amount in number one above is less than 60 percent of the amount in number
two, HMO shall pay Physician Network the difference.
Any risk share payments shall be paid within 30 days after the
reconciliation. The reconciliation shall be provided by Physician Network to HMO
on magnetic tape, floppy disk or hard copy in a format acceptable to HMO. All
supporting detail information shall be included in the reconciliation.
V. First Year Risk Share Arrangement
During the first year after the contract effective date, the Capitation
payments made under this Agreement are subject to adjustment, as determined by
the following reconciliation process:
A. Within 180 days of the contract effective date, Physician Network shall
provide HMO a reconciliation showing the following amounts:
1. Total capitation payments paid to Physician Network by HMO for
the first two months of this contract plus applicable copayments, COB recoveries
and other third party recoveries related to HMO Members.
2. Total Capitated Services provided during the first two months of
this contract multiplied by the HMO fee schedule in effect as of the first day
of this contract (Attachment A-3).
If the amount described in number one above is greater than 80 percent of the
amount in number two, Physician Network shall reimburse HMO 100 percent of the
surplus. If the amount in number one is less than 60 percent of the amount in
number two, HMO shall pay Physician Network the difference.
Any risk share payments shall be paid within 30 days after the
reconciliation. The reconciliation shall be provided by Physician Network to HMO
on magnetic tape, floppy disk or hard copy in a format acceptable to HMO. All
supporting detail information shall be included in the reconciliation.
-10-
<PAGE> 11
B. Within 60 days of the first anniversary date of this contract,
Physician Network shall provide HMO a reconciliation showing the following
amounts:
1. Total capitation payments paid to Physician Network by HMO for the last
ten months of the first year of this contract plus applicable copayments, COB
recoveries and other third party recoveries related to HMO Members.
2. Total Capitated Services provided during the last ten months of the
first year of this contract multiplied by the HMO fee schedule in effect as of
the first day of this contract.
If the amount described in number one above is greater than the amount in
number two, Physician Network shall reimburse HMO 100 percent of the surplus. If
the amount in number one above is less than 60 percent of the amount in number
two, HMO shall pay Physician Network the difference.
Any risk share payments shall be paid within 30 days after the
reconciliation. The reconciliation shall be provided by Physician Network to HMO
on magnetic tape, floppy disk or hard copy in a format acceptable to HMO. All
supporting detail information shall be included in the reconciliation.
-11-
<PAGE> 12
Attachment A-1
Capitated Services
I. Capitated Services shall include the following services unless specifically
excluded on Attachment A-2:
1. All professional services that are typically performed by
otolaryngologists in the Atlanta market. This includes services, procedures,
surgeries, etc. performed in hospitals, surgical centers, offices, or other
locations; and
2. Laboratory and radiology services normally rendered in the office of
Network Physicians.
-12-
<PAGE> 13
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A-2
Compensation Schedule
Non-Capitated Services
I.CPT PROCEDURE CODES
IMPLANTS
- --------
69710 IMPLANTATION/REPLACEMENT OF ELECTROMAGNETIC BONE
CONDUCTION HEARING DEVICE IN TEMPORAL BONE
69711 REMOVAL/REPAIR OF ELECTROMAGNETIC BONE CONDUCTING
HEARING DEVICE IN TEMPORAL BONE
69930 COCHLEAR DEVICE IMPLANTATION
GRAFTS
15570 DERMA FAT FASCIA
21235 EAR CARTILAGE GRAFT TO EAR
20926 TISSUE GRAFT
15100 SPLIT GRAFT
69320 RECONSTRUCTION EXTERNAL AUDITORY CANAL
61526 CRANIECTOMY
69725 DECOMPRESSION FACIAL NERVE/INCLUDING MEDIAL TO
GENICULATE GANGLION
69720 DECOMPRESSION FACIAL NERVE
95937 NEUROMUSCULAR JUNCTION TESTING
63707 REPAIR OF DURAL/CSF LEAK
69310 MEATOPLASTY
42425 EXCISION OF PAROTID TUMOR
60252-60254 THYROIDECTOMIES
60220-25-45-56 THYROIDECTOMIES
60260 THYROIDECTOMIES
60240-46-70 THYROIDECTOMIES
60254 THYROIDECTOMIES
31365 RADICAL NECK
31390 PHARYNGOLARYNGECTOMY, W/RADIAL NECK DISSECTION, W/
RECONSTR.
31395 PHARYNGOLARYNGECTOMY, W/RADIAL NECK DISSECTION, W/O
RECONSTR.
-13-
<PAGE> 14
92559 VORTEQ (UNLISTED PROCEDURE)
31360 LARYNGECTOMY/TOTAL WITHOUT NECK DISSECTION
31365 LARYNGECTOMY/TOTAL WITH RADICAL NECK
31367 SUBTOTAL SUPRAGLOTTIC WITH RADICAL NECK
31368 SUBTOTAL SUPRAGLOTTIC WITHOUT RADICAL NECK
SKULL BASE
- ----------
61518-61521 CRANIECTOMY
61526 CRANIECTOMY, BONE FLAP CRANIOTOMY
61530 COMBINED WITH MIDDLE/POSTERIOR FOSSA
61590
61591
61595-61598
61600-61613
61615-61619
62100
62120
62121
62140
II. OTHER PROCEDURES
LAB AND RADIOLOGY SERVICE THAT ARE NOT TYPICALLY PERFORMED IN
THE OFFICE OF NETWORK PHYSICIANS
HOME HEALTH SERVICES
III. OTHER
FACILITY FEES FOR SURGERY, EMERGENCY ROOM AND HOSPITAL STAYS
HEARING AIDS
DME ITEMS
EMERGENCY ROOM CLAIMS
ALL OUT-OF-AREA CLAIMS
-14-
<PAGE> 15
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A-3
HMO Fee Schedule
CODE CPT NAME FEE
- ---- -------- ---
11100 BIOPSY OF LESION [*]
11440 REMOVAL OF SKIN LESION
11441 REMOVAL OF SKIN LESION
11442 REMOVAL OF SKIN LESION
11443 REMOVAL OF SKIN LESION
11446 REMOVAL OF SKIN LESION
11620 REMOVAL OF SKIN LESION
11642 REMOVAL OF SKIN LESION
20000 * INCISION OF ABCESS
20670 * REMOVAL OF SUPPORT IMPLANT
21235 EAR CARTILAGE GRAFT
21255 RECONST. ZYGOMATIC ARCH & GLENOID
21320 TREATMENT OF NOSE FRACTURE
21330 REPAIR OF NOSE FRACTURE
21365 REPAIR CHEEK BONE FRACTURE
21557 RADICAL RESCONS. TUMOR NECK
21557A RADICAL RECONS. TUMOR NECK ASSI
26445A AST SURG/RELEASE HAND/FINGER
30100 INTRANASAL BIOPSY
30110 REMOVAL OF NOSE POLYP(S)
30115 REMOVAL OF NOSE POLYP(S)
30117 REMOVAL OF INTRANASAL LESION
30130 REMOVAL OF TURBINATE BONES
30140 REMOVAL OF TURBINATE BONES
30200 * INJECTION TREATMENT OF NOSE
30420 RECONSTRUCTION OF NOSE
30520 REPAIR OF NASAL SEPTUM
30620 RECONSTRUCTION INNER NOSE
30630 REPAIR NASAL SEPTUM DEFECT
30801 CAUTER/ABLAT MUCOSA OF TURBINA
30802 CAUTER/ABLAT MUCOSA OF TURBINA
30901 * CONTROL OF NOSE BLEED
30903 * CONTROL OF NOSE BLEED
-15-
<PAGE> 16
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A-3
HMO Fee Schedule
CODE CPT NAME FEE
- ---- -------- ---
30930 THERAPY FRACTURE OF NOSE [*]
31000 * IRRIGATION MAXILLARY SINUS
31020 EXPLORATION MAXILLARY SINUS
31070 EXPLORATION OF FRONTAL SINUS
31090 EXPLORATION OF SINUSES
31250 DIAGNOSTIC NASAL ENDOSCOPY
31252 NASAL ENDOSCOPY W/POLYPECTOMY
31254 NASAL ENDOSCOPY W/ETHMOIDECTOM
31255 NASAL ENDOSCOPY W/ETHMOIDECT
31256 NASAL ENDOSCOPY W/MAX. ANTROSTO
31267 MAXILLARY SINUS ENDOSCOPY, W/
31275 SPHENOID ENDOSCOPY-SURGICAL
31285 SINUS ENDOSCOPY; TWO OR MORE
31505 DIAGNOSTIC LARYNGOSCOPY
31525 DIAGNOSTIC LARYNGOSCOPY
31526 DIAGNOSTIC LARYNGOSCOPY
31535 OPERATIVE LARYNGOSCOPY
31536 OPERATIVE LARYNGOSCOPY
31541 OPERATIVE LARYNGOSCOPY
31570 LARYNGOSCOPY WITH INJECTION
31575 FIBERSCOPIC LARYNGOSCOPY
31579 LARYNGOSCOPY W/STROBOSCOPY
31600 INCISION OF WINDPIPE
31622 BRONSCHOSCOPY W/OUT CELL WASH
31625 BRONCHOSCOPY WITH BIOPSY
31750 REPAIR OF WINDPIPE
33511A ASST SURG/CORONARY ARTERIES BY
36415 * VENIPUNCTURE
38500 BIOPSY/REMOVAL OF LYMPH NODE
38720 REMOVAL OF LYMPH NODES,NECK
40490 BIOPSY OF LIP
-16-
<PAGE> 17
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A-3
HMO Fee Schedule
CODE CPT NAME FEE
- ---- -------- ---
40806 INCISION OF LIP FOND [*]
40808 BIOPSY OF MOUTH LESION
40810 EXCISION OF MOUTH LESION
40812 EXCISE/REPAIR MOUTH LESION
40819 EXCISE LIP OR CHEEK FOLD
41010 EXCISION OF TONGUE LESION
41105 BIOPSY OF TONGUE
41110 EXCISION OF TONGUE LESION
41113 EXCISION OF TONGUE LESION
41115 EXCISION OF TONGUE FOLD
41140 REMOVAL OF TONGUE
42145 PALATOPHAYNGOPLASTY
42310 * DRAINAGE OF SALIVARY GLAND
42326 CREATE SALIVARY CYST DRAIN
42400 * BIOPSY OF SALIVARY GLAND
42405 BIOPSY OF SALIVARY GLAND
42415 EXCISE PAROTID GLAND/LESION
42420 EXCISE PAROTID GLAND/LESION
42420A ASST SURG/EXCISE PAROTID GLAND
42440 EXCISION SUBMAXILLARY GLAND
42700 * DRAINAGE OF TONSIL ABSCESS
42800 BIOPSY OF THROAT
42804 BIOPSY OF UPPER NOSE/THROAT
42809 REMOVE PHARYNX FOREIGN BODY
42810 EXCISION OF NECK CYST
42820 REMOVE TONSILS AND ADENOIDS
42821 REMOVE TONSILS AND ADENOIDS
42825 REMOVAL OF TONSILS
42826 REMOVAL OF TONSILS
42830 REMOVAL OF ADENOIDS
42835 REMOVAL OF ADENOIDS
42950 RECONSTRUCTION OF THROAT
-17-
<PAGE> 18
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A-3
HMO Fee Schedule
CODE CPT NAME FEE
- ---- -------- ---
42960 CONTROL THROAT BLEEDING [*]
43200 ESOPHAGUS ENDOSCOPY
43202 ESOPHAGUS ENDOSCOPY, BIOPSY
60100 * BIOPSY OF THYROID
60220 PARTIAL REMOVAL OF THYROID
60220A ASST SURG PARTIAL REMOVAL OF T
60280 REMOVE THYROID DUCT LESION
67971A RECONSTRUCTION EYELID/ASST SUR
68200 * TREAT EYELID BY INJECTION
68770 CLOSE TEAR SYSTEM FISTULA
69200 CLEAR OUTER EAR CANAL
69205 CLEAR OUTER EAR CANAL
69210 REMOVE IMPACTED EAR WAX
69220 CLEAN OUT MASTOID CAVITY
69399 OUTER EAR SURGERY PROCEDURE
69401 INFLATE MIDDLE EAR CANAL
69420 * INCISION OF EARDRUM
69424 REMOVE VENTILATING TUBE
69433 * CREATE EARDRUM OPENING
69436 CREATE EARDRUM OPENING
69436A CREATE EARDRUM OPENING/ASST SU
69540 REMOVE EAR LESION
69610 REPAIR OF EARDRUM
69631 REPAIR EARDRUM STRUCTURES
69641 REVISE MIDDLE EAR & MASTOID
69660 REVISE MIDDLE EAR BONE
69661 REVISE MIDDLE EAR BONE
69799 MIDDLE EAR SURGERY PROCEDURE
70210 X-RAY EXAM OF SINUSES
70220 X-RAY EXAM OF SINUSES
70360 X-RAY EXAM OF NECK
70380 X-RAY EXAM OF SALIVARY GLAND
-18-
<PAGE> 19
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A-3
HMO Fee Schedule
CODE CPT NAME FEE
- ---- -------- ---
70480 CAT SCAN OF SKULL [*]
71020 X-RAY EXAM OF CHEST
74220 CONTRAST X-RAY EXAM, ESOPHAGUS
76499 RADIOGRAPHIC PROCEDURE
76536 ECHOGRAPHY HEAD NECK
76805 ECHO EXAM OF PELVIS
78990 PROVIDE RADIOISOTOPE(S)
80019 19 OR MORE BLOOD/URINE TESTS
81000 URINALYSIS WITH MICROSCOPY
81002 ROUTINE URINE ANALYSIS
82785 RIA ASSAY GAMMAGLOBULINE
84435 ASSAY THYROXINE (T-4)
84439 RIA ASSAY, FREE THYROXINE
84443 RIA ASSAY OF TS HORMONE
84703 GONADOTROPIN, CHORIONIC
85002 BLEEDING TIME TEST
85018 HEMOGLOBIN, COLORIMETRIC
85023 HEMOGRAM & PLATELET COUNT
85610 PROTHROMBIN TIME
85651 RBC SEDIMENTATION RATE
85730 THROMBOPLASTIN TIME, PARTIAL
86235 ENA ANTIBODY
86331 IMMUNODIFFUSION OUCHTERLONY
86430 RHEUMATOID FACTOR TEST
86580 TB INTRADERMAL TEST
86592 BLOOD SEROLOGY, QUALITATIVE
87060 NOSE/THROAT CULTURE, BACTERIA
87070 CULTURE SPECIMEN, BACTERIA
87081 BACTERIA CULTURE SCREEN
87186 ANTIBIOTIC SENSITIVITY, MIC
87210 SMEAR, STAIN & INTERPRET
88150 CYTOPATHOLOGY, PAP SMEAR
-19-
<PAGE> 20
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A-3
HMO Fee Schedule
CODE CPT NAME FEE
- ---- -------- ---
88304 SURGICAL PATHOLOGY, COMPLETE [*]
88305 SURGICAL PATHOLOGY, COMPLETE
90782 INJECTION OF MEDICATION
90784 INJECTION OF MEDICATION (IV)
90844 INDIVIDUAL PSYCHOTHERAPY
92504 EAR MICROSCOPY EXAMINATION
92506 SPEECH & HEARING EVALUATION
92507 SPEECH/HEARING THERAPY
92508 SPEECH/HEARING THERAPY
92511 NASOPHARYNGOSCOPY
92532 POSITIONAL NYSTAGMUS STUDY
92533 CALORIC VESTIBULAR TEST
92541 SPONTANEOUS NYSTAGMUS TEST
92542 POSITIONAL NYSTAGMUS TEST
92543 CALORIC VESTIBULAR TEST
92544 OPTOKINETIC NYSTAGMUS TEST
92545 OSCILLATING TRACKING TEST
92546 TORSION SWING RECORDING
92547 SUPPLEMENTAL ELECTRICAL TEST
92551 PURE TONE HEARING TEST, AIR
92552 PURE TONE AUDIOMETRY, AIR
92553 AUDIOMETRY, AIR & BONE
92555 SPEECH THRESHOLD AUDIOMETRY
92556 SPEECH AUDIOMETRY, COMPLETE
92557 COMPREHENSIVE AUDIOMETRY
92560 BEKESY AUDIOMETRY, SCREEN
92563 TONE DECAY HEARING TEST
92567 TYMPANOMETRY
92568 ACOUSTIC REFLEX TESTING
92569 ACOUSTIC REFLEX DECAY TEST
92572 STAGGERED SPONDAIC WORD TEST
92582 CONDITIONING PLAY AUDIOMETRY
-20-
<PAGE> 21
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A-3
HMO Fee Schedule
CODE CPT NAME FEE
- ---- -------- ---
92583 SELECT PICTURE AUDIOMETRY [*]
92584 ELECTROCOCHLEOGRAPHY
92585 BRAINSTEM EVOKED AUDIOMETRY
92589 AUDITORY FUNCTION TEST(S)
93000 ELECTROCARDIOGRAM, COMPLETE
93005 ELECTROCARDIOGRAM, TRACING
93875 NON-INVASIVE PHYSIOLOGIC STUDI
97010 HOT OR COLD PACKS THERAPY
97110 THERAPEUTIC EXERCISES
97112 NEUROMUSCULAR REEDUCATION
97116 GAIT TRAINING THERAPY
97530 KINETIC ACTIVITIES
97752 MUSCLE TESTING WITH EXERCISE
99025 INITIAL SURGICAL EVALUATION
99201 OFFICE/OUTPATIENT VISIT, NEW
99202 OFFICE/OUTPATIENT VISIT, NEW
99203 OFFICE/OUTPATIENT VISIT, NEW
99204 OFFICE/OUTPATIENT VISIT, NEW
99205 OFFICE/OUTPATIENT VISIT, NEW
99211 OFFICE/OUTPATIENT VISIT, ESTAB
99212 OFFICE/OUTPATIENT VISIT, ESTAB
99213 OFFICE/OUTPATIENT VISIT, ESTAB
99214 OFFICE/OUTPATIENT VISIT, ESTAB
99215 OFFICE/OUTPATIENT VISIT, ESTAB
99221 INITIAL HOSPITAL CARE
99222 INITIAL HOSPITAL CARE
99223 INITIAL HOSPITAL CARE
99231 SUBSEQ HOSPITAL CARE
99241 OFFICE CONSULTATION
99242 OFFICE CONSULTATION
99243 OFFICE CONSULTATION
99244 OFFICE CONSULTATION
-21-
<PAGE> 22
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PHYSICIAN NETWORK PARTICIPATION AGREEMENT
Attachment A-3
HMO Fee Schedule
CODE CPT NAME FEE
- ---- -------- ---
99251 INITIAL INPAT CONSULTATION [*]
99252 INITIAL INPAT CONSULTATION
99253 INITIAL INPAT CONSULTATION
99272 CONFIRMATORY CONSULT
99274 CONFIRMATORY CONSULT
99283 EMERGENCY DEPT. VISIT
99284 EMERGENCY DEPT. VISIT
99395 PERIODIC REEVAL ESTAB ADULT
-22-
<PAGE> 23
Physician Group
JGPXXN050892
PHYSICIAN NETWORK
HMO ACCESS AGREEMENT
This Access Agreement is effective as of July 1, 1994 and is entered into
by and between Atlanta-AHP, Inc. ("Physician Network"), Aetna Health Plans of
Georgia, Inc. ("HMO") and Aetna Health Management, Inc. ("AHM").
WHEREAS, Physician Network and AHM have entered into a Participation
Agreement so that Physician Network may participate in various Aetna health
benefits products ("Participation Agreement"), and
WHEREAS, HMO offers one or more of said products, and
WHEREAS, it is the intention of all the parties for Physician Network and
its Network Physicians to be Participating Providers in HMO's provider Network,
NOW, THEREFORE, in consideration for the mutual promises made herein and
for other good and valuable consideration, the parties agree as follows:
1. All terms shall have the meanings given to them in the Participation
Agreement, unless defined below.
2. HMO agrees that to the extent it is a Payor, it will comply with the
Payor terms of Participation Agreement, including paying for Covered Services in
accordance with HMO's Plans.
3. AHM agrees to HMO's participation as a Payor and user of Physician
Network's services under the Participation Agreement.
4. Physician Network agrees that its Network Physicians will serve as
Participating Providers in HMO's provider Network in accordance with the terms
and conditions of the Participation Agreement and this Access Agreement. The
parties agree that if any of the terms of the Access Agreement conflict with any
of the terms in the Participation Agreement, the terms of this Access Agreement
shall prevail with respect to services provided to HMO's Members.
5. This Access Agreement shall terminate:
a. Upon 90 days prior written notice by HMO or by Physician Network
to the other parties. The parties agree that the "Obligations Following
Termination" provision of
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<PAGE> 24
the Participation Agreement shall continue to bind the parties following
termination of this Access agreement.
b. Immediately upon the termination of the Participation Agreement.
The parties agree that the "Obligations Following Termination" provision of the
Participation Agreement shall continue to bind the parties following termination
of this Access Agreement. AHM agrees to notify HMO immediately of any
termination of the Participation Agreement.
c. Immediately upon the termination of the Management Agreement
between AHM and HMO. Should said Management Agreement terminate, HMO and
Physician Network agree that:
I. They shall continue to abide by the terms of the
Participation Agreement and the additional terms of this Access Agreement for
those Plans underwritten or administered by HMO.
II. HMO shall abide by the duties of AHM under the
Participation Agreement for those Plans underwritten or administered by HMO.
6. The parties recognize that neither termination of this Access Agreement
nor termination of the Management Agreement between AHM and HMO will terminate
the Participation Agreement between AHM and Physician Network.
7. This Agreement and the Participation Agreement constitute the entire
agreement among the parties with respect to the participation of Physician
Network in HMO's provider Network and supersedes all prior oral and written
understandings between HMO and Physician Network.
IN WITNESS WHEREOF, the parties have executed this Access Agreement below:
ATLANTA-AHP, INC.
By:___________________________
Printed Name:___________________
Title:___________________________
Date:___________________________
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<PAGE> 25
AETNA HEALTH PLANS OF GEORGIA, INC.
By:_______________________________
Printed Name:___________________
Title:___________________________
Date:___________________________
AETNA HEALTH MANAGEMENT, INC.
By:_______________________________
Printed Name:___________________
Title:___________________________
Date:___________________________
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<PAGE> 26
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission
Aetna Health Plans of GA, Inc.
Hospital Risk Share Agreement
Base Period Analysis
# @ RISK $ PAID/
PATIENTS $ PAID PATIENT PMPM
-------- ------ ------- ----
INPATIENT
(ALL CAPITATED PHYSICIANS):
[*] [*]
TOTAL INPATIENT, ALL PAR. CAP.
OUTPATIENTS:
PAR. CAP.:
[*] [*]
SUBTOTAL, OUTPATIENT, PAR. CAP.
NON-PAR CAP. ([*])
TOTAL, OUTPATIENT
TOTAL FACILITY CHARGES
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<PAGE> 1
Exhibit 10.18
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by an * and [ ], have been
separately filed with the Commission.
AGREEMENT BETWEEN
UNITED HEALTHCARE OF GEORGIA, INC.
AND
ATLANTA ENT CENTER, INC.
THIS AGREEMENT, effective June 1, 1995, ("Effective Date"), is made
between United HealthCare of Georgia, Inc. ("Plan") and Atlanta ENT Center,
Inc., ("Corporation") for the purpose of setting forth the terms and conditions
under which Corporation shall arrange for Providers to render otolaryngology
health care services to Members. Provider and Member are defined in this
Agreement. For Health Services provided on or after the Effective Date, this
Agreement supersedes and replaces any existing agreements between the parties
relating to the provision of health care services to Members.
Corporation represents and warrants that (1) it has been and will
continue to be properly formed pursuant to the laws of the jurisdiction in which
the services in the Agreement are rendered; (2) it has the unqualified authority
to and shall bind itself and Providers to all of the terms and conditions of
this Agreement, including any Appendices, Attachments and Exhibits, as
applicable; and (3) all documents reviewed by Plan prior to execution of this
Agreement, including any agreements Corporation has in place with Providers,
shall remain substantially similar to those reviewed by Plan, and if Corporation
intends to make any substantial changes which would materially affect this
Agreement, Corporation shall submit to Plan any proposed changes for Plan's
prior review and/or approval. Corporation agrees that any such changes
implemented without Plan's prior review and/or approval shall not take effect
with respect to this Agreement at Plan's sole discretion. Corporation also
agrees that if any terms in any Corporation document conflict or appear to
conflict with this Agreement, including any Appendices, Attachments and
Exhibits, as applicable, the terms of this Agreement shall prevail.
SECTION 1
DEFINITIONS
BENEFIT CONTRACT: A benefit plan which includes health care coverage, is
sponsored or issued by a Payor, and contains the terms and conditions of a
Member's coverage
COPAYMENT: The amount a Member is required to pay for certain Health Services in
accordance with the Member's Benefit Contract.
CUSTOMARY CHARGE: The reasonable and customary fees charged by Provider which do
not exceed the fees Provider would charge any other person regardless of whether
the person is a Member.
<PAGE> 2
DEDUCTIBLE: The annual amount of charges for Health Services, as provided in the
Member's Benefit Contract, which the Member is required to pay before any
payment is due from Payor.
HEALTH SERVICES: The health care services and supplies covered by the Member's
Benefit Contract, and generally described in Appendix A.
MEMBER: An individual who is properly enrolled for coverage under a Benefit
Contract.
PARTICIPATING PROVIDER: A health care professional or facility, including
Provider, that has or is governed by a participation agreement which is in
effect with Plan to provide Health Services to Members
PAYOR: The entity or person authorized by Plan to access one or more of Plan's
network of Participating Providers and has the financial responsibility for
payment of Health Services covered by that Payor's Benefit Contracts.
PROVIDER: An otolaryngologist who (1) is duly licensed and qualified under the
laws or the jurisdiction in which services are rendered; (2) has an agreement in
effect with Corporation; (3) has a health care services participation agreement
in effect with Plan, the form of which is attached as Appendix D (the
"Participation Agreement"); and (4) is subject to credentialing and ongoing
recredentialing by Plan.
SECTION 2
OBLIGATIONS OF CORPORATION
SECTION 2.1 PROVISION OF HEALTH SERVICES. Corporation shall arrange for
Providers to provide Health Services to all Members in accordance with the terms
set forth in Participation Agreement.
SECTION 2.2 UTILIZATION MANAGEMENT AND QUALITY ASSESSMENT. Corporation shall
cooperate with all utilization management, quality assessment, peer review,
Member grievance, on-site concurrent review, or other similar programs
established by Plan.
SECTION 2.3 SERVICE AREA. Corporation shall assure that Provider's offices are
distributed throughout Plan's service area as described in Appendix C, in a
manner acceptable to Plan and in locations which are reasonably accessible to
all Members. Plan shall provide written notification to Corporation of any
changes to Plan's current service area. Corporation shall provide 30 days prior
written notification to Plan of any changes in its office locations.
SECTION 2.4 PROVIDER PARTICIPATION. Corporation shall cause any otolaryngologist
located within Plan's service area who is or becomes associated with Corporation
to submit to Plan two originally executed Participation Agreements and a
participation application. All otolaryngologists who are associated with
Corporation as of the date this Agreement is executed
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<PAGE> 3
by Corporation shall submit these documents within 30 days of that date. All
otolaryngologists who become associated with Corporation after the date this
Agreement is executed by Corporation shall submit the documents within 15 days
of the date such otolaryngologist become associated with Corporation. Plan shall
have the right to review and apply its credentialing criteria to determine
acceptance of the applications of all otolaryngologists, and shall notify
Corporation upon acceptance or rejection by Plan of any application.
SECTION 3
OBLIGATIONS OF PLAN
SECTION 3.1 PAYMENT FOR HEALTH SERVICES. During the term of this Agreement,
Payor shall pay Corporation for Health Services rendered to Members by Providers
pursuant to the Appendices. The obligation for payment under this Agreement for
Health Services rendered to a Member is solely that of Payor, although Plan may
provide or arrange for claims processing services. During the term of this
Agreement, Corporation shall be solely responsible for compensating Providers
for all Health Services rendered to Members, and Corporation and Providers shall
hold harmless and indemnify Plan and Payor against any claims for compensation
by a Provider.
SECTION 3.2 PARTICIPATION AGREEMENTS. Plan shall enter into Participation
Agreements with all Providers who are also under contract with Corporation and
who meet Plan's credentialing and contracting standards. Corporation shall be
notified of any amendments to the Participation Agreement. To the extent any
Providers are currently under contract with Plan through another agreement, the
Participation Agreement shall supersede and replace that other agreement. If
this Agreement terminates, all Participation Agreements shall remain in effect,
unless all or any of the Participation Agreements are also terminated, and the
providers will be paid pursuant to Appendix A of the Participation Agreement. If
any Provider's contractual relationship with Corporation terminates, that
Provider's Participation Agreement shall also terminate on the date that
Provider's agreement with Corporation terminates, or later if applicable
statutes and regulations require that the termination be effective only after a
specific notice period has been given. Corporation shall notify Plan immediately
upon giving notice of termination to a Provider, or upon receiving notice of
termination from a Provider
SECTION 3.3 PAYMENT IN FULL. Corporation shall accept as payment in full for
Health Services rendered to Members such amounts as are paid by Payor pursuant
to this Agreement. In no event shall Corporation or Provider bill a Member for
the difference between Provider's Customary Charges and the amount Corporation
has agreed to accept as full reimbursement under this Agreement. Provider may
collect from the Member Copayments, Deductibles, or charges for services not
covered under the Member's Benefit Contract.
SECTION 3.4 FINANCIAL RESPONSIBILITY. Plan shall notify Corporation in writing
in the event Plan determines that a Payor has failed to maintain its
responsibility to pay for services rendered. Any services which have been
rendered by Provider prior to and after such notification, and which
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<PAGE> 4
have not been paid for by Payor, shall be considered ineligible for
reimbursement under this Agreement, and Provider may bill the Member directly
for such services.
SECTION 3.5 MEMBER PROTECTION PROVISION. This provision supersedes and replaces
Sections 3.3 and 3.4 in all instances where (1) Plan is the Payor, or (2) a
specific Payor requires, or any applicable statutes and regulations require that
the Member be held harmless from any and all costs which are the legal
obligation of the Payor.
Corporation shall accept as payment in full for Health Services rendered to
Members such amounts as are paid by Payor pursuant to this Agreement. In no
event, including, but not limited to, non-payment by Payor for Health Services
rendered to Members by Provider, insolvency of Payor, or breach by Plan of any
term or condition of this Agreement, shall Corporation or Provider bill, charge,
collect a deposit from, seek compensation, remuneration or reimbursement from,
or have any recourse against any Member or persons acting on behalf of the
Member for Health Services eligible for reimbursement under this Agreement;
provided, however, that Provider may collect from Member Copayments, Deductibles
or charges for services not covered under the Member's Benefit Contract.
The provisions of this Section shall (1) apply to all Health Services rendered
while this Agreement is in force; (2) with respect to Health Services rendered
while this Agreement is in force, survive the termination of this Agreement
regardless of the cause of termination; (3) be construed to be for the benefit
of the Members; and (4) supersede any oral or written agreement, existing or
subsequently entered into, between Corporation or Provider and a Member or
person acting on a Member's behalf, that requires the Member to pay for such
Health Services.
SECTION 4
HOLD HARMLESS, INDEMNIFICATION, AND LIABILITY INSURANCE
SECTION 4.1 HOLD HARMLESS AND INDEMNIFICATION. Each party shall be responsible
for any and all claims, liabilities, damages or judgments which may arise as a
result of its own negligence or intentional wrongdoing. Each party shall hold
harmless and indemnify the other party against any claims, liabilities, damages
or judgments which may be asserted against, imposed upon or incurred by the
other party as a result of the first party's negligence or intentional
wrongdoing.
SECTION 4.2 CORPORATION LIABILITY INSURANCE. Corporation shall procure and
maintain, at Corporation's sole expense (1) medical malpractice insurance in the
amounts of One Million Dollars ($1,000,000.00) per occurrence and Three Million
Dollars ($3,000,000.00) aggregate, and (2) comprehensive general and/or umbrella
liability insurance in the amounts of One Million Dollars ($1,000,000.00) per
occurrence and aggregate. Corporation shall also assure that all health care
professionals employed by or under contract with Corporation to render Health
Services to Members procure and maintain medical malpractice insurance, unless
they are covered under Corporation's insurance policies. Corporation's and other
health care professionals' medical malpractice insurance shall be either
occurrence or claims made with an extended period reporting
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<PAGE> 5
option under such terms and conditions as may be reasonably required by Plan.
Prior to or within 30 days following execution of this Agreement by Corporation
and at each policy renewal thereafter, Corporation shall submit to Plan in
writing evidence of insurance coverage. Corporation shall notify Plan in writing
within 10 days of any changes in carriers, termination of, renewal of or any
material changes in Corporation's liability insurance, including reduction of
limits, erosion of aggregate, changes in retention or non-payment of premium.
SECTION 5
LAWS, REGULATIONS AND LICENSES
SECTION 5.1 LAWS, REGULATIONS AND LICENSES. Corporation shall maintain all
federal, state and local licenses, certifications, and permits, without
restriction, which are required to arrange for the provision of health care
services according to the laws of the jurisdiction in which Health Services are
provided, and shall comply with all applicable statutes and regulations.
Corporation shall notify Plan in writing within 10 days of any knowledge of a
suspension, revocation, condition, limitation, qualification or other
restriction on Corporation's licenses, certifications and permits by any state
in which is authorized to arrange for the provision of health care services.
SECTION 6
BOOKS AND RECORDS
SECTION 6.1 PLAN ACCESS TO AND RELEASE OF BOOKS AND RECORDS. Corporation shall
maintain, in accordance with standard and accepted practices, such financial,
accounting and claims records as shall be necessary, appropriate or convenient
for Plan to monitor Corporation's services under this Agreement. During the term
of this Agreement, and for 3 years following its termination, Plan and its duly
authorized agents, during regular business hours and upon reasonable advance
notice, shall have access to and the right to audit all records or copies of
records related to the services provided under this Agreement. Provider shall,
at the time of the audit, give Plan access to all records or copies of records
related to such Health Services being audited. Corporation shall provide records
or copies of records requested by Plan within 14 days from the date such request
is made, except in the case of an audit by Plan where records or copies of
records shall be provided at the time of the audit.
SECTION 6.2 COMPLIANCE WITH STATUTES AND REGULATIONS. The federal, state and
local government and any of their authorized representatives shall have access
to, and Plan, Corporation and Providers are authorized to release, in accordance
with all applicable statutes and regulations, all information and records or
copies of such, within their possession, which are pertinent to and invoice
transactions related to this Agreement, and access which is necessary to comply
with statutes and regulations applicable to Plan, Corporation or Providers.
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<PAGE> 6
SECTION 6.3 PRIVACY OF RECORDS. Plan and Corporation shall maintain the
confidentiality of all information regarding Members in accordance with any
applicable statutes and regulations.
SECTION 7
RESOLUTION OF DISPUTES
SECTION 7.1 RESOLUTION OF DISPUTES. In the event a dispute between Plan or Payor
and Corporation arises out of or is related to this Agreement, the parties to
the dispute shall meet and negotiate in good faith to attempt to resolve the
dispute. In the event the dispute is not resolved within 30 days of the date one
party sent written notice of the dispute to the other party, and if any party
wishes to pursue the dispute, it shall be submitted to binding arbitration in
accordance with the rules of the American Arbitration Association. In no event
may arbitration be initiated more than one year following the sending of written
notice of the dispute. Any arbitration proceeding under this Agreement shall be
conducted in DeKalb County, Georgia. The arbitrators shall have no authority to
award any punitive or exemplary damages, or to vary or ignore the terms of this
Agreement, and shall be bound by controlling law. If the dispute pertains to a
matter which is generally administered by certain Plan procedures, such as a
credentialing or quality assessment plan, the procedures set forth in that plan
must be fully exhausted by Corporation before Corporation may invoke its right
to arbitration under this section.
SECTION 8
TERM AND TERMINATION
SECTION 8.1 TERM. The term of this Agreement shall commence on the Effective
Date and it shall remain in effect until May 31, 1998.
SECTION 8.2 TERMINATION. This Agreement may be terminated as follows:
(1) by either party upon 120 days prior written notice to the other party.
(2) by either party, in the event of a material breach of this Agreement by
the other party, upon 60 days prior written notice to the other party.
(3) by Plan immediately due to Corporation's loss or suspension of
licensure or loss of liability insurance required under this Agreement.
(4) by Corporation upon written notice to Plan 60 days prior to the
effective date of any amendment made to this Agreement pursuant to
Section 9.1.
SECTION 8.3 CONSEQUENCES OF TERMINATION. The following shall apply in the event
this Agreement terminates:
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<PAGE> 7
(1) Continued Provision of Health Services. During the period after notice
of termination and before the effective date of termination,
Corporation's status with Plan shall remain in full force and effect,
except to the extent Plan determines that such status shall be
restricted or otherwise controlled by Plan (a) to assure that Health
Services are available and provided to Members in a manner consistent
with (i) the obligations of Plan under its Benefit Contracts or under
any state or federal law or regulation; or (ii) other standards for
provision and availability of Health Services as are established by
Plan from time to time; or (b) actions by Corporation which Plan
determines negatively affect Plan's relationship with its Members. Plan
shall notify Corporation upon imposition of any such restriction.
(2) Information to Members. Corporation acknowledges the right of Plan to
inform Members of Corporation's termination and agrees to cooperate
with Plan in deciding on the form of such notification.
SECTION 9
MISCELLANEOUS
SECTION 9.1 AMENDMENT. Plan may amend this Agreement by sending a copy of the
proposed amendment to Corporation at least 60 days prior to the effective date
of the amendment. In the event of such an amendment, Corporation may elect to
terminate this Agreement pursuant to Section 8.2.4.
SECTION 9.2 REGULATORY AMENDMENT. Plan may also amend this Agreement to comply
with applicable statutes and regulations, and shall give notice to Corporation
of such amendment and its effective date. The amendment will not require
agreement by Corporation.
SECTION 9.3 ASSIGNMENT. Plan may assign all or any of its rights and
responsibilities under this Agreement to any entity controlling, controlled by,
or under common control with Plan. Corporation acknowledges that persons and
entities under contract with Plan may perform certain administrative services
under this Agreement. Corporation may not assign any of its rights and
responsibilities under this Agreement to any person or entity without the prior
written consent of Plan, which consent shall not be unreasonably withheld.
SECTION 9.4 RELATIONSHIP BETWEEN PLAN AND CORPORATION. The relationship between
Plan and Corporation is solely that of independent contractors and nothing in
this Agreement or otherwise shall be construed or deemed to create any other
relationship, including one of employment, agency or joint venture.
SECTION 9.5 NAME, SYMBOL AND SERVICE MARK. During the term of this Agreement,
Corporation, Plan and Payor shall have the right to use each other's name and
make public reference to Corporation as a Participating Provider. Corporation,
Plan and Payor shall not otherwise use each other's name, symbol or service mark
without prior written approval.
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<PAGE> 8
SECTION 9.6 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties in regard to its subject matter.
SECTION 9.7 MEDICARE. Corporation agrees to provide Health Services to members
who are enrolled in a Benefit Contract for Medicare recipients. The Health Care
Financing Administration shall be notified by Plan if there is any change to
this Agreement with respect to the continuation provision of the Continued
Provision of Health Services section.
SECTION 9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY
THE PARTIES.
UNITED HEALTHCARE OF GEORGIA, INC. ATLANTA ENT CENTER. INC.
2970 Clairmont Road 5555 Peachtree Dunwoody Road
Suite 300 Suite 201
Atlanta, Georgia 30329-1634 Atlanta, Georgia 30342
By: ____________________________ By: __________________________
Its: ____________________________ Its: __________________________
Date: ____________________________ Date: __________________________
-8-
<PAGE> 9
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
APPENDIX A
CAPITATION PAYMENT
APPLICABILITY
The provisions of this Appendix A apply to Health Services which Corporation
arranges for Providers to render to Members covered by Benefit Contracts
sponsored or issued by all Payors to the extent such Benefit Contracts cover the
services Corporation is obligated to provide or arrange for the provision of,
pursuant the Agreement and this Appendix A.
SECTION 1
DEFINITIONS
CPI. The U.S. City Average Consumer Price index, All Items, as published by the
Department of Labor, Bureau of Labor and Statistics.
GATEKEEPER BENEFIT CONTRACT. A Benefit Contract requiring the Member to receive
all or any Health Services from or upon referral by a primary care physician.
SECTION 2
PAYMENT
SECTION 2.1 CAPITATION PAYMENT. On or before the 15th day of each month, Payor
shall pay Corporation for Health Services rendered to Members by Providers, a
payment of [*] per Member per month ("Capitation Payment"), beginning July 15,
1995. Services which are included in the Capitation Payment are identified in
Appendix B. The Capitation Payment shall be calculated based on the total number
of Members enrolled in the Plan for the previous month. Adjustments to the
Capitation Payment shall be reflected in subsequent calculations as deemed
necessary by Plan, and as provided for in Section 2.2 below.
In the second year of the contract term, and each year thereafter, Plan shall
increase the Capitation Payment by an amount equal to the percentage change CPI
for the previous year.
SECTION 2.2 ADJUSTMENT OF CAPITATION PAYMENTS. Approximately 270 days after
Members who are covered by a Gatekeeper Benefit Contract are initially eligible
to receive such Health Services, the capitation payments made to Corporation by
Payor shall be adjusted. Such adjustment shall be made based upon the
utilization of the Members who are covered under a
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<PAGE> 10
Gatekeeper Benefit Contract compared to the utilization of the Members who are
not covered under a Gatekeeper Benefit Contract.
Such adjustment shall be made based upon the experience of the initial 180 days
of the above period. Plan will determine the adjustment by comparing the two
Member groups based on the number of Medicare Relative Value Units per Member
per month utilized by each Member group. (Relative Value Units will be
determined by multiplying each CPT code used by the number of times such code is
recorded from the Checkwrite or encounter data system.) The ratio of Relative
Value Units per Member per month for the two Member groups will be applied to
the capitation payment for Members covered by a Gatekeeper Benefit Contract in
order to establish a capitation payment for this Member group. This adjusted
payment will be applied retroactively to all payments made to this point and
shall determine per Member per month payment for all payments going forward.
However, at 90 day intervals, after the initial adjustment outlined in the
paragraph directly above, the procedure described in the paragraph above shall
be applied again to all the data accumulated to that time and adjustments made
to the per Member per month payment of that group of Members covered by a
Gatekeeper Benefit Contract. When adjustments have been made in the per Member
per month payment in this manner for a period of one year, no further
retroactive adjustments will be made. Adjustments made in future calculations
will be continue to be based on accumulated data even though no retroactive
adjustments in payments will be made after a year has ended.
Such adjustment described above shall continue until the later of (1) 18 months
of data have been accumulated for calculating the adjustment in the per Member
per month payment, or (2) the number of Members covered by a Gatekeeper Benefit
Contract used to determine the adjusted rate reaches 10,000 Members. At such
time, the per Member per month payment shall be permanently established.
SECTION 2.3 REDUCTION IN CAPITATION PAYMENTS. Adjustments to the Capitation
Payment shall be reflected in subsequent calculations as deemed necessary by
Plan, and shall occur under the following circumstances:
1. Eligible claims submitted to Plan for services rendered by
non-Participating Providers for services (including laboratory and
radiology services) referred by Provider shall reduce the Capitation
Payment by the amount paid by Plan for services rendered by
nonParticipating Providers.
2. Eligible claims submitted to Plan for services rendered by
non-participating hospitals for non-emergency services referred by
Provider shall reduce the Capitation Payment by the amount paid by Plan
for those non-emergency services.
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<PAGE> 11
3. In the event that fines and/or sanctions are imposed upon Corporation
or any Provider, the amount of such fines and/or sanctions shall be
deducted from the Capitation Payment paid to Corporation.
4. Emergency and urgent Health Services rendered by non-Participating
Physicians in and out-of-service area for Members covered by Plan.
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<PAGE> 12
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
APPENDIX B
MEDICARE PAYMENT
The provisions of this Appendix apply to Health Services rendered by Provider to
Members covered by Plan pursuant to its TEFRA risk contract on a capitation
basis with the Health Care Financing Administration to the extent such Benefit
Contracts cover the services Corporation is obligated to provide or arrears for
the provision of, pursuant the Agreement and this Appendix B.
SECTION 1
DEFINITIONS
CPI. The U.S. City Average Consumer Price Index, All Items, as published by the
Department of Labor, Bureau of Labor and Statistics.
SECTION 2
PAYMENT
SECTION 2.1 CAPITATION PAYMENT. On or before the 15th day of each month, Plan,
on behalf of Payor, shall pay Corporation for Health Services rendered to
Members covered by Plan pursuant to its TEFRA risk contract on a capitation
basis with the Health Care Financing Administration by Providers, a payment of
[*] per Member per month ("Capitation Payment"), beginning July 15, 1995.
Services which are included in the Capitation Payment are identified in Appendix
C. The Capitation Payment shall be calculated based on the total number of
Members enrolled in the Plan for the previous month Adjustments to the
Capitation Payment shall be reflected in subsequent calculations as deemed
necessary by Plan, and as provided for in this Appendix.
In the second year of the contract term, and each year thereafter, Plan shall
increase the Capitation Payment by an amount equal to the percentage change in
the CPI for the previous year.
SECTION 2.2 REDUCTION IN CAPITATION PAYMENTS. Adjustments to the Capitation
Payment shall be reflected in subsequent calculations as deemed necessary by
Plan, and shall occur under the following circumstances:
1. Eligible claims submitted to Plan for services rendered by
non-Participating Providers for services (including laboratory and
radiology services) referred by Corporation
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<PAGE> 13
Provider shall reduce the Capitation Payment by the amount paid by Plan
for services rendered by non-Participating Providers.
2. Eligible claims submitted to Plan for services rendered by
non-participating hospitals for non-emergency services referred by
Corporation Provider shall reduce the Capitation Payment by the amount
paid by Plan for those non-emergency services.
3. In the event that fines and/or sanctions are imposed upon Corporation
or any Corporation Provider, the amount of such fines and/or sanctions
shall be deducted from the Capitation Payment paid to Corporation.
4. Emergency and urgent Health Services rendered by non-Participating
Physicians in and out-of-service area for Members covered by Plan.
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<PAGE> 14
APPENDIX C
HEALTH SERVICES COVERED UNDER THE CAPITATION PAYMENT
SERVICES WHICH ARE COVERED UNDER THE CAPITATION PAYMENT INCLUDE THE FOLLOWING:
(1) Provider services, including inpatient and outpatient health care
services;
(2) laboratory and radiology services rendered in Provider's facility, and
laboratory and radiology services referred by Provider to a
non-Participating Provider;
(3) medical supplies used or dispensed in Provider's office, including, but
not limited to routinely used office supplies, outpatient surgical
supplies, casts and sterile material;
(4) emergency and urgent services rendered by Provider and
non-Participating Physicians in and out-of-service area for Members
covered by Plan;
(5) Durable Medical Equipment (DME) items dispensed by Provider.
(6) all other ancillary Health Services rendered by Provider or Provider's
staff, including in-office audiology.
SERVICES WHICH ARE NOT COVERED UNDER THE CAPITATION PAYMENT ARE AS FOLLOWS:
(1) Non-emergency or non-urgent services of non-Participating Providers if
Provider did not make referral;
(2) facility charges for authorized Admissions to participating facilities;
(3) charges for pharmaceutical dispensed by non-Corporation providers;
(4) Outside consultation, related therapies and audiology and vestibular
testing services when the services are rendered by non-otolaryngology
providers who contract independently with Plan. Corporation will assist
Plan in negotiating favorable rates with registered speech and hearing
therapists and other providers of related testing.
(5) Durable Medical Equipment (DME) dispensed by Plan's contracted vendors.
(6) Services of speech therapists, physiotherapists and occupational
therapists in provider's office. However, such services must be
contracted for separately by Plan to receive payment.
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<PAGE> 15
APPENDIX D
SERVICE AREA
Baker Haralson
Banks Harris
Bartow Heard
Bleckley Henry
Butts Lee
Calhoun Marion
Carroll Meriwether
Chattahoochee Mitchell
Chattooga Muscogee
Cherokee Newton
Clay Paulding
Clayton Pickens
Cobb Pike
Columbia Polk
Coweta Pulaski
Crawford Quitman
Dawson Randolph
DeKalb Richmond
Dooly Rockdale
Dougherty Spalding
Douglas Stewart
Fayette Talbot
Floyd Terrell
Forsyth Twiggs
Fulton Walton
Gordon Webster
Gwinnett Wilcox
Hall Worth
-15-
<PAGE> 1
EXHIBIT 10.19
NON-NEGOTIABLE PROMISSORY NOTE
July 22, 1996
$33,500.00 Atlanta, Georgia
FOR VALUE RECEIVED, the undersign, PHYSICIANS' SPECIALTY CORP., a
Georgia professional corporation (hereinafter referred to as "Maker"), promises
to pay to the order of GERALD R. BENJAMIN, an individual and resident of the
State of Georgia (hereinafter referred to as "Holder"), the principal sum of
Thirty-three Thousand Five Hundred and No/100 Dollars ($33,500.00) plus simple
interest thereon at the then-current Prime Rate as adjusted daily. The "Prime
Rate" is defined as the Prime Rate publicly announced as being charged by
NationsBank of Georgia, N.A., or its successors, from time to time (which may
not necessarily be the lowest rate charged).
Principal and accrued interest shall be payable on the EARLIER OF: (i)
the closing of Maker's Initial Public Offering ("IPO") or (ii) June 30, 1997.
Maker shall have the right to prepay all or any part of the principal
of this Note remaining unpaid at any time and from time to time without premium
or penalty.
If Maker should fail to pay any amount due hereunder within ten (10)
days from the date of receipt of written notice thereof from Holder, or should
Maker fail to comply with any of the terms or requirements of this Note, then
Maker shall be in default and Holder may, at its option, declare the
indebtedness evidenced by this Note immediately due and payable. It is hereby
expressly agreed that in the event of any default in the payment of this Note as
provided herein, or in the event of any default of any of the terms or
requirements of this Note, and after the above notice is given and the Maker
fails to cure within said period, then, and without further notice to Maker, the
principal indebtedness evidenced hereby shall, at the option of the Holder, at
once become due and payable and may be collected forthwith. Interest shall
accrue on any outstanding principal balance of this Note from the date of any
default hereunder, and for so long as such default continues, at the rate of
fifteen percent (15%) per annum. All such interest shall be paid at the time of
and as a condition precedent to the curing of any such default. Time is of the
essence of this Note. In the event this Note, or any part thereof, is collected
by or through an attorney at law, Maker agrees to pay all costs of collection,
including, but not limited to, reasonable attorney's fees.
Except for Maker's right to cure as provided hereinabove, presentment
for payment, demand, protest and notice of demand, protest and non-payment and
all other notices are hereby waived by Maker. No failure to accelerate the debt
evidenced hereby by reason of default hereunder, or indulgences granted from
time to time, shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia. Maker hereby expressly waives the benefit of any statute or
rule of law or equity now provided, or which may hereafter be provided, which
would produce a result contrary
<PAGE> 2
to or in conflict with the foregoing. No extension of the time for the payment
of this Note, made by agreement with any person now or hereafter liable for the
payment of this Note, shall operate to release, discharge, modify, change or
affect the original liability of Maker under this Note, either in whole or in
part, unless Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
All payments made hereunder shall be payable to the Holder at the
address set forth below:
Gerald R. Benjamin
Bock Benjamin & Co.
3414 Peachtree Road
Suite 238
Atlanta, Georgia 30326
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Georgia
Maker and Holder submit to the jurisdiction of any state or federal
court sitting in Atlanta, Georgia, in any action or proceeding arising out of or
related to this Agreement; agree that all claims in respect of the action or
proceeding may be heard and determined in any such court; and agree not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Maker and Holder each waive any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waive any bond,
surety or other security that might be required the other with respect thereto.
Maker and Holder each agree that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective heirs, successors, legal representatives and assigns,
whether by voluntary action of the parties or by operation of law. In the event
that more than one person, firm or entity is a Maker hereunder, then all
references to "Maker" shall be deemed to refer equally to each of said persons,
firms or entities, each of whom shall be jointly and severally liable for all
obligations of Maker hereunder.
IN WITNESS WHEREOF, Maker has caused this Note to be duly signed,
sealed and delivered in Atlanta, Georgia, on the date first above written.
[SIGNATURE ON FOLLOWING PAGE]
-2-
<PAGE> 3
MAKER:
Attest: PHYSICIANS' SPECIALTY CORP.
_______________________________ By: ___________________________
Secretary Its:___________________________
[CORPORATE SEAL]
-3-
<PAGE> 1
EXHIBIT 10.20
NON-NEGOTIABLE PROMISSORY NOTE
July 22, 1996
$33,500.00 Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, PHYSICIANS' SPECIALTY CORP., a
Georgia professional corporation (hereinafter referred to as "Maker"), promises
to pay to the order of RAMIE A. TRITT, M.D., an individual and resident of the
State of Georgia (hereinafter referred to as "Holder"), the principal sum of
Thirty-three Thousand Five Hundred and No/100 Dollars ($33,500.00) plus simple
interest thereon at the then-current Prime Rate as adjusted daily. The "Prime
Rate" is defined as the Prime Rate publicly announced as being charged by
NationsBank of Georgia, N.A., or its successors, from time to time (which may
not necessarily be the lowest rate charged).
Principal and accrued interest shall be payable on the EARLIER OF: (i)
the closing of Maker's Initial Public Offering ("IPO") or (ii) June 30, 1997.
Maker shall have the right to prepay all or any part of the principal
of this Note remaining unpaid at any time and from time to time without premium
or penalty.
If Maker should fail to pay any amount due hereunder within ten (10)
days from the date of receipt of written notice thereof from Holder, or should
Maker fail to comply with any of the terms or requirements of this Note, then
Maker shall be in default and Holder may, at its option, declare the
indebtedness evidenced by this Note immediately due and payable. It is hereby
expressly agreed that in the event of any default in the payment of this Note as
provided herein, or in the event of any default of any of the terms or
requirements of this Note, and after the above notice is given and the Maker
fails to cure within said period, then, and without further notice to Maker, the
principal indebtedness evidenced hereby shall, at the option of the Holder, at
once become due and payable and may be collected forthwith. Interest shall
accrue on any outstanding principal balance of this Note from the date of any
default hereunder, and for so long as such default continues, at the rate of
fifteen percent (15%) per annum. All such interest shall be paid at the time of
and as a condition precedent to the curing of any such default. Time is of the
essence of this Note. In the event this Note, or any part thereof, is collected
by or through an attorney at law, Maker agrees to pay all costs of collection,
including, but not limited to, reasonable attorney s fees.
Except for Maker's right to cure as provided hereinabove, presentment
for payment, demand, protest and notice of demand, protest and non-payment and
all other notices are hereby waived by Maker. No failure to accelerate the debt
evidenced hereby by reason of default hereunder, or indulgences granted from
time to time, shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia. Maker hereby expressly waives the benefit of any statute or
rule of law or equity now provided, or which may hereafter be provided, which
would produce a result contrary
<PAGE> 2
to or in conflict with the foregoing. No extension of the time for the payment
of this Note, made by agreement with any person now or hereafter liable for the
payment of this Note, shall operate to release, discharge, modify, change or
affect the original liability of Maker under this Note, either in whole or in
part, unless Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
All payments made hereunder shall be payable to the Holder at the
address set forth below:
Ramie A. Tritt, M.D.
c/o The Medical Quarters
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Georgia
Maker and Holder submit to the jurisdiction of any state or federal
court sitting in Atlanta, Georgia, in any action or proceeding arising out of or
related to this Agreement; agree that all claims in respect of the action or
proceeding may be heard and determined in any such court; and agree not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Maker and Holder each waive any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waive any bond,
surety or other security that might be required the other with respect thereto.
Maker and Holder each agree that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective heirs, successors, legal representatives and assigns,
whether by voluntary action of the parties or by operation of law. In the event
that more than one person, firm or entity is a Maker hereunder, then all
references to "Maker" shall be deemed to refer equally to each of said persons,
firms or entities, each of whom shall be jointly and severally liable for all
obligations of Maker hereunder.
IN WITNESS WHEREOF, Maker has caused this Note to be duly signed,
sealed and delivered in Atlanta, Georgia, on the date first above written.
[SIGNATURE ON FOLLOWING PAGE]
-2-
<PAGE> 3
MAKER:
Attest: PHYSICIANS' SPECIALTY CORP.
_______________________________ By: ___________________________
Secretary Its:___________________________
[CORPORATE SEAL]
-3-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF PHYSICIANS' SPECIALTY CORP.
Subsidiary State of Incorporation
PSC Management Corp. Delaware
PSC Acquisition Corp. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 322,184
<SECURITIES> 0
<RECEIVABLES> 14,617
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 336,801
<PP&E> 20,000
<DEPRECIATION> 667
<TOTAL-ASSETS> 685,847
<CURRENT-LIABILITIES> 184,758
<BONDS> 0
0
0
<COMMON> 550
<OTHER-SE> 450
<TOTAL-LIABILITY-AND-EQUITY> 685,847
<SALES> 14,617
<TOTAL-REVENUES> 14,617
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,528
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,911)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,911)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
