<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
For the quarterly period ended: September 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- --------------
Commission file Number: 0-22197
Physicians' Specialty Corp.
----------------------------
(Exact Name of Registrant as
Specified in its charter)
<TABLE>
<S> <C>
Delaware 58-2251438 58-2251438
- ------------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
5555 Peachtree Dunwoody Road, Suite 235
Atlanta, Georgia 30342
----------------------------------------
(Address of principal executive offices)
(Zip Code)
404-256-7535
---------------------------------------------------
(Registrant's telephone number, including area code)
N/A
------------------------------------------------------------
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There are 6,326,584 shares of common stock, par value $.001 per share,
outstanding as of November 12, 1997.
<PAGE> 2
Physicians' Specialty Corp.
Index
<TABLE>
<CAPTION>
Part 1 - Financial Information
<S> <S>
Item 1. Financial Stateme
Condensed Consolidated Balance Sheets at December 31, 1996
and September 30, 1997 ................................................................. 3
Consolidated Statements of Operations
for the Three and Nine Months
Ended September 30, 1997 and For the
Period From Inception (July 31, 1996)
to September 30, 1996 .................................................................. 4
Consolidated Statement of Cash Flows
for the Nine Months
Ended September 30, 1997 and For the
Period From Inception (July 31, 1996) to
September 30, 1996 ..................................................................... 5
Notes to Consolidated Financial Statements.............................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..........................................14
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds...............................................18
Item 5. Other Information.......................................................................18
Item 6. Exhibits and Reports on Form 8-K .......................................................20
</TABLE>
2
<PAGE> 3
Part 1: Financial Information
Item 1: Financial Statements
PHYSICIANS' SPECIALTY CORP.
Condensed Consolidated Balance Sheets
Unaudited
<TABLE>
<CAPTION>
December 31 September 30
1996 1997
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 123,540 $ 10,941,558
Accounts receivable, net 26,976 5,551,495
Notes Receivable 0 66,385
Prepayments and other 0 86,520
--------------- ---------------
Total current assets 150,516 16,645,958
PROPERTY AND EQUIPMENT, net 19,897 2,139,551
INTANGIBLE ASSETS, net 0 4,093,654
OTHER ASSETS 442,567 241,784
--------------- ---------------
Total Assets $ 612,980 $ 23,120,947
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 505,000 $ 0
Accounts payable and accrued expenses 118,270 2,149,596
Deferred income taxes 0 1,152,695
--------------- ---------------
Total current liabilities 623,270 3,302,291
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized;
issued: 599,893 in 1996 and 6,326,704 in 1997 600 $ 6,327
Additional paid-in capital 343,711 18,970,556
Retained earnings (deficit) (354,601) 841,773
--------------- ---------------
Total shareholders' equity (10,290) 19,818,656
--------------- ---------------
Total liabilities and shareholders' equity $ 612,980 $ 23,120,947
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
PHYSICIANS' SPECIALTY CORP.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE PERIOD
THREE MONTHS FROM INCEPTION NINE MONTHS
ENDED (JULY 31, 1996) ENDED
SEPTEMBER 30, TO SEPTEMBER SEPTEMBER 30,
1997 30, 1996 1997
------------- --------------- --------------
<S> <C> <C> <C>
Patient service revenue $ 339,886 $ -- $ 660,061
Capitation revenue 1,135,825 -- 2,493,376
Management fees 3,462,249 14,617 6,287,909
---------- ---------- ----------
Net revenue 4,937,960 14,617 9,441,346
Expenses
Provider claims, wages, benefits 2,436,570 13,289 4,980,961
General and administrative 1,409,034 5,517 2,531,771
Depreciation and amortization 130,166 722 226,721
---------- ---------- ----------
Operating Expenses 3,975,770 19,528 7,739,453
Operating income (loss) 962,190 (4,911) 1,701,893
Other income, net 126,877 0 259,376
---------- ---------- ----------
Pretax income (loss) 1,089,067 (4,911) 1,961,269
Provision for income taxes 424,736 0 764,895
---------- ---------- ----------
Net income (loss) $ 664,331 $ (4,911) $1,196,374
========== ========== ==========
Earnings per share $ 0.11 $ (0.01) $ 0.27
========== ========== ==========
Weighted average common and common equivalent
shares outstanding 6,279,665 364,674 4,457,756
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
PHYSICIANS' SPECIALTY CORP.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Period From
Nine Months Ended Inception (July 31, 1996)
September 30, 1997 to September 30, 1996
------------------ -------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,196,374 $ (4,911)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 226,721 722
Compensation expense 48,000 --
Change in assets and liabilities:
Accounts receivable (877,972) (14,617)
Notes receivable (23,162) --
Other assets 89,482 (1,100)
Accounts payable (188,133) 184,758
Deferred taxes (1,190,000) --
------------ ---------
Total adjustments (1,915,064) 169,763
------------ ---------
Net cash provided by (used in) operating activities (718,690) 164,852
INVESTING ACTIVITIES:
Capital expenditures (284,824) (20,000)
Purchase Physician practices/asset acquisitions (1,498,000) --
------------ ---------
Net cash used in investing activities (1,782,824) (20,000)
FINANCING ACTIVITIES:
Borrowings under notes payable 170,000 --
Borrowing under short term debt -- 505,000
Repayment of notes payable (2,258,562) --
Net proceeds from issuance of common
stock, net of offering costs 15,408,094 1,000
Deferred offering costs -- (328,668)
------------ ---------
Net cash provided by financing activities 13,319,532 177,332
------------ ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,818,018 322,184
------------ ---------
CASH AND CASH EQUIVALENTS, beginning of period 123,540 0
------------ ---------
CASH AND CASH EQUIVALENTS, end of period $ 10,941,558 $ 322,184
============ =========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
Physicians' Specialty Corp.
Notes to the Consolidated Financial Statements (Unaudited)
September 30, 1997
NOTE 1. ORGANIZATION
Physicians' Specialty Corp. (the "Company") was organized in July 1996
to provide comprehensive physician practice management services to physician
practices and health care providers specializing in the treatment and management
of diseases and disorders of the ear, nose, throat, head and neck ("ENT"). The
Company commenced its business activities upon consummation of the
reorganization, as described in Note 3, and its initial public offering ("IPO")
on March 26, 1997. The Company provides financial and administrative management,
enhancement of clinical operations, network development and payor contracting
services, including the negotiation and administration of capitated
arrangements.
NOTE 2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial reporting
and in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of normal recurring items) necessary for a fair
presentation of the results for the interim periods presented. These financial
statements and footnote disclosures should be read in conjunction with the
audited financial statements and the notes thereto included in the Company's
prospectus dated March 20, 1997.
Comparisons with 1996 data presented are not meaningful since the
Company was incorporated in July, 1996 and did not commence business operations
until the closing of the reorganization and its IPO on March 26, 1997.
NOTE 3. REORGANIZATION
Concurrently with the closing of the Company's IPO, the Company
acquired substantially all of the assets of Atlanta Ear, Nose & Throat
Associates, P.C., three additional ENT practices in the metropolitan Atlanta
area (collectively, "Atlanta ENT"), and one ENT practice in Birmingham, Alabama
("Birmingham ENT"). In addition the Company purchased the common stock of three
corporations (the "ENT Networks") which held, managed and administered capitated
ENT managed care contracts for enrollees of health maintenance organizations
("HMOs") sponsored by United Healthcare of Georgia, Aetna Health Plans of
Georgia ("Aetna"), and Cigna HealthCare of Georgia ("Cigna").
6
<PAGE> 7
In connection with the acquisitions, the Company issued an aggregate of
3,104,755 shares of common stock and entered into management services agreements
with the physician practices providing for the comprehensive management of the
practices by the Company, while enabling the practices to retain authority over
the provision of medical care. The management services agreement with Atlanta
ENT provides for the assignment to the Company by Atlanta ENT of all or
substantially all of its non-governmental accounts receivable and all of its
rights and interest in the proceeds of its governmental accounts receivable and
grants to the Company the right to collect and retain the proceeds of the
accounts receivable for the Company's account to be applied in accordance with
the agreement. The Company is responsible for the payment of operating and
non-operating expenses of Atlanta ENT (excluding compensation to physicians and
physician assistants) and is responsible for the payment of all such expenses
directly out of the proceeds of the accounts receivable assigned to the Company
by Atlanta ENT. In addition, the Company retains a management fee equal to 12.5%
of all revenues (after adjustment for contractual allowances) generated by or on
behalf of physicians practicing at Atlanta ENT, subject to specified maximum
annual amounts, as payment for the Company's services and non-allocable costs
incurred by the Company attributable to the provision of management services
under the management services agreement. In addition, the Company is entitled to
incentive compensation under the management services agreement upon the receipt
by the Company of specified maximum annual management fees. The remaining
revenues are remitted to Atlanta ENT to pay physician and physician assistant
compensation and benefits.
Simultaneous with the acquisition of substantially all of the assets of
Birmingham ENT, the physicians at Birmingham ENT entered into employment
agreements with PSC Alabama, a wholly-owned subsidiary of the Company ("PSC
Alabama"). The assignment of accounts receivable, realization of revenues, and
allocation of costs and expenses are governed by a management services agreement
between PSC Alabama and the Company which is substantially similar to the
management services agreement between Atlanta ENT and the Company.
In April 1997, the Company announced that it received notification that
Aetna was modifying its delivery system of physician specialty services in the
Atlanta market. As part of this modification, Aetna terminated its capitated
managed care contracts with each physician specialty group including the Company
effective June 30, 1997. The Company's affiliated physicians at Atlanta ENT and
Allatoona ENT & Facial Plastic Surgery, P.C. ("Allatoona")continue to provide
services to Aetna enrollees under new physician provider agreements, pursuant to
which the affiliated physicians are reimbursed by Aetna on a modified
fee-for-service basis. For the quarter ended September 30, 1997, the Company's
capitation revenue decreased as a result of the termination of the Aetna
capitated managed care contract. However, this decrease was offset by an
increase in the Company's management fee revenue as a result of an increase in
modified fee-for-service revenue at Atlanta ENT and Allatoona. The Company does
not believe the Aetna contract termination will have a material adverse effect
on the Company's business, financial condition or results of operations in the
future.
7
<PAGE> 8
NOTE 4. INITIAL PUBLIC OFFERING
On March 26, 1997, the Company completed its IPO of 2,200,000 shares of
its common stock. The net proceeds of the IPO were approximately $15,408,000 and
were used for repayment of indebtedness of the acquired practices, repayment of
indebtedness of the Company, payment of a consulting fee, and for general
corporate purposes and working capital requirements.
NOTE 5. THIRD QUARTER ACQUISITIONS
During the quarter ended September 30, 1997, the Company acquired the
non-medical practice assets of Allatoona, Ear, Nose & Throat Specialists, P.C.
("ENT Specialists"), Ear, Nose & Throat Specialists, Head & Neck Surgery, P.C.
("ENT Head & Neck") and Northside Ear, Nose & Throat Associates, P.A.
("Northside"), comprising an aggregate of six ENT physicians and five allied
health care professionals operating nine clinical locations throughout select
Northern and Eastern counties in the Atlanta metropolitan area. The Company also
acquired the non-medical practice assets of Otolaryngology Medical & Surgical
Associates, Ltd. ("OMSA"), a four physician ENT practice with six allied health
care professionals based in the Northern Chicago suburbs of McHenry, Crystal
Lake and Barrington, Illinois.
In connection with the acquisition of the assets of Allatoona the
Company entered into a management services agreement with Allatoona which is
substantially similar to the management services agreement with Atlanta ENT and
provides for a management fee equal to 15% of all revenues (after adjustments
for contractual allowances) generated by or on behalf of physicians practicing
at Allatoona, subject to specified maximum annual amounts, as payment for the
Company's services and non-allocable costs incurred by the Company attributable
to the provision of management services under the management services agreement
with Allatoona. In connection with the acquisition of the assets of ENT
Specialists, ENT Head & Neck, and Northside, the physicians at such practices
entered into employment agreements with Atlanta ENT and the revenues generated
by such physicians are governed by and subject to the Company's management
services agreement with Atlanta ENT.
In connection with the acquisition of assets of OMSA, the Company
entered into a management services agreement with OMSA which is substantially
similar to the management services agreement with Atlanta ENT and provides for a
management fee equal to 12.5% of all revenues (after adjustment for contractual
allowances) generated by or on behalf of physicians practicing at OMSA, subject
to specified annual amounts, as payment for the Company's services and
non-allocable costs incurred by the Company attributable to the provision of
management services under the management services agreement.
8
<PAGE> 9
In consideration for the assets of the five practices, the Company (i)
paid an aggregate of $1,498,000 in cash, (ii) issued an aggregate of 421,936
shares of common stock of the Company (valued at the time of issuances at an
aggregate of approximately $2,830,000 and (iii) issued three non-negotiable
contingent subordinated promissory notes in the aggregate principal amount of
$750,000. The notes are non-interest bearing and are payable in shares of common
stock of the Company (except one note which is payable in cash at the option of
the Company), valued at the average closing price of the common stock for the
ten trading days preceding the date of delivery of such shares, contingent upon
the selling physicians or the practice, as the case may be, reaching certain
revenue targets. In connection with the acquisition of assets of OMSA, the
Company is required to issue an additional 99,735 shares of common stock (valued
at the time of closing of the acquisition at approximately $860,000) prior to
September 21, 1998 as partial consideration for the acquisition. These
acquisitions were accounting for utilizing the purchase method of accounting,
and, therefore, will result in an annual amortization charge to earnings of
approximately $160,000. Each of the physicians receiving shares of common stock
in connection with the acquisitions received "piggyback" registration rights
which commence in March 1998. In connection with these acquisitions, the Company
paid advisory fees of $64,450 and $211,500 to (a) an entity unaffiliated with
the Company and (b) pursuant to an advisory agreement, Premier HealthCare, an
affiliate of the Company's Vice Chairman and Secretary, respectively. See
"Other Information."
As a result of these acquisitions, at September 30, 1997, the Company
was affiliated with 33 physicians, 1 dentist and 42 allied healthcare
professionals operating 32 clinical facilities in Georgia, Alabama and Illinois.
NOTE 6. CREDIT AGREEMENT
On April 30, 1997, the Company closed on a five year $20.0 million
senior acquisition credit facility with NationsBank, N.A. (South), with up to
$5.0 million of such $20.0 million available for working capital purposes.
Advances under the credit facility will bear interest at either a prime-based
rate or a LIBOR-based rate, at the Company's option, with interest only payments
required during the first three years of the credit agreement. Thereafter, in
years four and five of the agreement, the term loan commitment will be reduced
to $13,333,333 and $6,666,666 respectively. Borrowings under the credit facility
are secured by the capital stock of the Company's subsidiaries and the Company's
accounts receivable, and will be secured by acquisition documents in connection
with physician practice equity or assets acquired. At September 30, 1997 the
Company had no outstanding borrowings under the credit facility.
NOTE 7. MANAGEMENT FEE REVENUE
The Company records revenue on a management fee basis as derived from
physician practices managed by the Company in which a controlling equity
ownership interest does not exist. Management fees are composed of (i) a varying
percentage of affiliated practice patient service revenue (typically 12.5%) and
(ii) reimbursement of practice operating expenses (excluding compensation to
physicians and physician assistants). Management fee revenue earned by the
Company is detailed as follows:
9
<PAGE> 10
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1997 September 30, 1997
------------------ -------------------
(unaudited) (unaudited)
<S> <C> <C>
Percentage of affiliated
practice patient service revenue $ 955,953 $1,685,626
Reimbursement of practice
operating expenses 2,506,296 4,602,283
------------ ----------
Total management fee revenue $ 3,462,249 $6,287,909
============ ==========
</TABLE>
There currently exists wide disparity in the methods of recording
revenue in the physician practice management (PPM) industry. The Company
believes the following unaudited supplemental information, which includes
patient service revenue of both owned as well as managed practices ("system
wide" revenue) allows a reader of the Company's financial statements to evaluate
comparability with other PPM companies recording patient services revenue on a
consolidated basis for financial reporting purposes. The unaudited supplemental
"system wide" information is being presented for supplemental purposes only and
should be read in conjunction with the Company's financial statements.
10
<PAGE> 11
Supplemental System Wide Information
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Supplemental Patient Service Revenue:
Owned Practice $ 339,886 $ 660,061
Managed Practices 6,266,398 11,397,240
------------ -------------
Total Supplemental Patient
Service Revenue 6,606,284 12,057,301
Plus:
Capitation Revenue 1,135,825 2,493,376
Management Fees 42,486 130,804
Total Supplemental ------------ -------------
System wide Revenue 7,784,595 14,681,481
Less:
Amounts Retained by
Physicians Groups 2,846,635 5,240,135
------------ -------------
Total Revenue $ 4,937,960 $ 9,441,346
============ =============
</TABLE>
NOTE 8. FINANCIAL ACCOUNTING STANDARDS BOARD (FASB)
STATEMENT NO. 128 - EARNINGS PER SHARE
During the first quarter of 1997, the FASB issued statement No. 128 - Earnings
Per Share. This statement sets out new guidelines for the calculation and
presentation of earnings per share but cannot be adopted until December 31,
1997. The following table presents a reconciliation of basic and diluted
weighted average shares outstanding and a proforma calculation of earnings per
share using the guidelines of Statement No. 128.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,1997
------------------------
<S> <C>
Basic weighted average shares outstanding 6,211,738
ADD: Shares of common stock assumed issued
upon exercise of stock options using the
"treasury stock" method as it applies to the
computation of diluted earnings per share 67,927
----------
Diluted weighted average shares outstanding 6,279,665
==========
Net income used in the computation of basic
and diluted earnings per share $ 664,331
==========
Earnings per share
Basic
Diluted $ 0.11
==========
$ 0.11
</TABLE>
NOTE 9. INTANGIBLE ASSETS
The Company's physician practice acquisitions involve the purchase of
tangible and intangible assets and the assumption of certain liabilities of the
acquired practices. As part of the purchase price allocation, the Company
allocates the purchase price to the tangible and identifiable intangible assets
acquired and liabilities assumed based on estimated fair market values. Costs of
acquisitions in excess of the net estimated fair value of tangible and
identifiable intangible assets acquired and liabilities assumed are amortized
using the straight line method over a period of 25 years. At September 30, 1997,
the amount of such intangible assets was approximately $4,000,000, which will
result in an annual amortization charge to earnings of approximately $160,000.
11
<PAGE> 12
NOTE 10. 1997 CAPITATED MANANGED CARE AGREEMENT
On August 1, 1997 the Company entered into an exclusive capitated
managed care agreement with FPA Medical Management, Inc. ("FPA"). Under the
agreement, the Company's affiliated physicians at Atlanta ENT and Allatoona
provide otolaryngology medical and surgical services to enrollees of health care
plans which have contracted with FPA for the provision of medical and surgical
services. At September 30, 1997, there were approximately 10,000 enrollees under
the FPA agreement. Purusuant to the agreement with FPA, the Company will receive
a fixed amount per enrollee per month from FPA and will compensate each
participating physician on a discounted fee-for-service basis for providing ENT
medical and surgical services to enrollees under the agreement. The initial term
of the agreement is three years and expires in August 2000. Following the
initial term, the agreement will automatically be renewed for successive one
year periods. The agreement with FPA provides for a renegotiation of the
capitation fees 15 months into the initial term of the agreement. In the event
that the parties cannot renegotiate the capitation fees within 60 days, the
agreement may be terminated by either party. The agreement also provides for
annual renegotiation of the capitation fees following the initial term and may
be terminated by FPA at any time for cause.
NOTE 11. SUBSEQUENT EVENT
On October 31, 1997, South Florida Otolaryngology, Inc., a Delaware
corporation an indirect wholly-owned subsidiary of the company, acquired the
stock of seven Florida professional associations ("Sellers"), comprising an
aggregate of seven ENT physicians with six allied health care professionals
operating four clinical locations in the counties of Palm Beach and Broward,
Florida (the "Stock Transaction"). In addition, immediately prior to the Stock
Transaction the Company acquired from the Sellers all of their interest in HMFM
Partnership, a Florida partnership which managed and performed billing and
accounting functions for each of Sellers' medical practices (the "Partnership
Transaction") (the Partnership Transaction and the Stock Transaction will
hereinafter be collectively referred to as the "Transactions").
In connection with the Transactions, the Company entered into a
management services agreement with Ear, Nose & Throat Associates of South
Florida, P.A. ("ENTSF"), a Florida professional association formed in connection
with the Transactions, which employs the seven physicians. The management
services agreement is substantially similar to the management services agreement
with Atlanta ENT and provides for a management fee equal to 12.5% of all
revenues (after adjustment for contractual allowances) generated by or on behalf
of physicians practicing at ENTSF as payment for the Company's services and
non-allocable costs incurred by the Company attributable to the provision of
management services under the management services agreement with ENTSF. As a
result of the Transactions, on November 1, 1997, the Company was affiliated with
40 physicians, 1 dentist, and 48 allied healthcare professional operating 36
clinical facilities.
12
<PAGE> 13
In consideration for the stock of the Sellers, the Company (i) paid
cash, (ii) issued non-negotiable convertible subordinated notes, and (iii)
issued non-interest bearing non-negotiable contingent subordinated notes. This
acquisition will be accounted for utilizing the purchase method of accounting
and the Company anticipates that it will record an amount for goodwill beginning
in the quarter ending December 31, 1997. Each of the physicians who receives
shares of common stock of the Company pursuant to conversion of the promissory
notes will receive "piggyback" registration rights. In addition, the Company
paid advisory fees to (a) an entity unaffiliated with the Company, and (b)
pursuant to an advisory agreement, Premier HealthCare, an affiliate of the
Company's Vice Chairman and Secretary. See "Other Information."
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a physician practice management company organized in
July 1996 that provides management services to physician practices and health
care providers specializing in the treatment and management of diseases and
disorders of the ear, nose, throat, head and neck. The Company commenced
business activities upon consummation of the IPO on March 26, 1997, as described
in Note 3 of the Notes to Consolidated Financial Statements. Prior to this date,
the Company conducted only limited activities primarily consisting of acquiring
computer hardware and negotiating the agreements relating to the reorganization
and the IPO. The Company provides financial and administrative management,
enhancement of clinical operations, network development and payor contracting
services, including the negotiation and administration of capitated
arrangements.
The Company's relationships with its affiliated physicians are set
forth in various asset acquisition agreements, management services agreements,
and physician employment agreements. The management services agreements, which
have a term of 40 years, delineate the responsibilities and obligations of the
physician practices and the Company. These agreements provide for the affiliated
practices to assign to the Company all of its non-governmental accounts
receivable and all of its right and interest in the proceeds of its governmental
accounts receivable and grant to the Company the right to collect and retain the
proceeds of the accounts receivable for the Company's account to be applied in
accordance with the agreement.
The Company is responsible for the payment of operating expenses of the
affiliated physician practices, including salaries and benefits of non-medical
employees of the practices, lease obligations for office space and equipment,
medical and office supplies, and the non-operating expenses of the affiliated
physician practices, including depreciation, amortization and interest. The
Company pays for all such expenses directly out of the proceeds of the accounts
receivable assigned to the Company by the affiliated physician practices. In
addition, under the management services agreements, the Company retains as a
part of its management fee, a stipulated percentage (generally 12.5%) of all
revenues (after adjustment for contractual allowances) generated by or on behalf
of physicians practicing at such practice, as payment for the Company's
management services and non-allocable costs incurred by the Company attributable
to the provision of management services. Contractual allowances are the
difference between the amounts customarily charged by physicians practicing at
such practice and the amounts received pursuant to negotiated fee schedules from
payors under indemnity arrangements, managed care contracts and preferred
provider arrangements. The percentage components of the management fee to be
retained by the Company under future management services agreements will be
determined based upon negotiations between the Company and future affiliating
practices and may vary significantly in the future.
14
<PAGE> 15
In April 1997, the Company announced that it received notification that
Aetna was modifying its delivery system of physician specialty services in the
Atlanta market. As part of this modification, Aetna terminated its capitation
managed care contracts with each physician specialty group including the Company
effective June 30, 1997. The Company's affiliated physicians at Atlanta ENT and
Allatoona continue to provide services to Aetna enrollees under new physician
provider agreements, pursuant to which the affiliated physicians are reimbursed
by Aetna on a modified fee-for-service basis. For the quarter ended September
30, 1997, the Company's capitation revenue decreased as a result of the
termination of the Aetna capitated managed care contract. However, this decrease
was offset by an increase in the Company's management fee revenue as a result of
an increase in modified fee-for-service revenue at Atlanta ENT and Allatoona.
The Company does not believe the Aetna contract termination will have a material
adverse effect on the Company's business, financial condition or results of
operations in the future.
At September 30, 1997 the ENT Networks held capitated managed care
contracts with Cigna, FPA, and United Healthcare which require the ENT Networks
to contract for the provision of substantially all of the ENT medical and
surgical services required by the enrollees of these HMOs or managed care
companies in the Atlanta market. In exchange, the ENT Networks receive
pre-determined amounts per patient per month. The ENT Networks have contracted
with participating physicians, including those at Atlanta ENT and Allatoona to
provide substantially all of such medical services in exchange for compensation
on a discounted fee-for-service basis. Such contracts pass much of the financial
risk of providing care, such as over-utilization from the payor to the provider.
At September 30, 1997 the Company's three capitated managed care
contracts covered an aggregate of approximately 318,000 enrollees.
During the quarter ended September 30, 1997, the Company acquired the
non-medical practice assets of Allatoona, ENT Specialists, ENT Head & Neck and
Northside, comprising an aggregate of six ENT physicians and five allied health
care professionals operating nine clinical locations throughout select Northern
and Eastern counties in the Atlanta metropolitan area. In addition, the Company
acquired the non-medical practice assets of OMSA, a four physican ENT practice
with six allied health care professionals based in the Northern Chicago suburbs
of McHenry, Crystal Lake and Barrington, Illinois. In connection with these
acquisitions, the Company entered into management services agreements with
Allatoona and OMSA and the physicians at ENT Specialists, ENT Head & Neck and
Northside entered into employment agreements with Atlanta ENT and the revenues
derived by such physicians are subject to the Company's management services
agreement with Atlanta ENT.
As of September 30, 1997 the Company's revenues were derived (i) under
the management services agreement with Atlanta ENT, Allatoona and OMSA (ii) from
patient service revenues generated by the Company's wholly-owned subsidiary, PSC
Alabama, which directly employs the Birmingham ENT physicians, and (iii) under
capitated managed care contracts held by the ENT Networks, which are
wholly-owned subsidiaries of the Company.
Except for the descriptions of historical facts contained herein,
statements concerning future results, performance or expectations are
forward-looking statements. Actual results, performance or developments could
differ materially from those expressed or implied by such forward-looking
statements as a result of known and unknown risks, uncertainties and other
factors including those described from time to time in the Company's filings
with the Securities and Exchange Commission, under "Risk Factors" and elsewhere,
including the Company's limited operating history; risks associated with
combined operations; and risks relating to acquisitions and managing growth;
dependence on affiliated physicians; dependence on managed care organizations
and risks associated with capitated arrangements, including potential reductions
in
15
<PAGE> 16
reimbursement; competition; regulatory risks; risks relating to credit facility
and substantial leverage; and other risks.
RESULTS OF OPERATIONS
Comparisons with 1996 data presented are not meaningful since the
Company was incorporated in July, 1996 and did not commence business operations
until March 26, 1997 simultaneously with the closing of its IPO and the
reorganization. Accordingly, the Company's results of operations for the nine
months ended September 30, 1997 only reflect six months of actual operating
activities.
Total revenues were $4,937,960 for the quarter ended September 30,
1997, consisting of $3,462,249 of management fees, $339,886 of patient service
revenue, and $1,135,825 of capitation revenue.
Total revenues were $9,441,346 for the nine month period ended
September 30, 1997, consisting of $6,287,909 of management fees, $660,061 of
patient service revenue, and $2,493,376 of capitation revenue.
Total operating expenses were $3,975,770 for the quarter ended
September 30, 1997 consisting largely of provider claims, wages and benefits and
administrative expenses and an amortization expense of $21,600.
Total operating expenses were $7,739,453 for the nine month period
ended September 30, 1997 consisting largely of provider claims, wages and
benefits and administrative expenses.
Interest income of $170,727 was earned for the quarter ended September
30, 1997 and interest income was $317,393 for the nine months ended September
30, 1997, as a result of the investments in cash equivalents of the IPO
proceeds.
Income taxes for the quarter and for the nine months ended September
30, 1997 were provided for at a 39% effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $13,343,667
including cash and cash equivalents of $10,941,558.
Net cash used by operating activities for the nine month period ended
September 30, 1997 was $718,690, while cash used in investing activities was
$1,782,824 primarily related to physician practice acquisitions consummated
during the third quarter. Cash provided by financing activities was $13,319,532
for the nine month period primarily due to the net proceeds received from the
Company's IPO of 2.2 million shares of common stock in March 1997 partially
offset by the repayment of outstanding indebtedness in the aggregate amount of
$2,258,562 incurred in connection with the
16
<PAGE> 17
Reorganization and assumption of certain liabilities of the physician practices,
the assets of which were acquired in the reorganization.
During the third quarter, the Company acquired the non-medical assets
of five physician practices and paid an aggregate of $1,498,000 in cash using
a portion of the net proceeds received from the Company's IPO in March, 1997.
In addition, the Company issued an aggregate of 421,936 shares of common stock
of the Company (valued at the time of issuance at an aggregate of approximately
$2,830,000) and issued contingent promissory notes in the aggregate principal
amount of $750,000. The notes are non-interest bearing and are payable in
shares of common stock of the Company (except one note which is payable in cash
at the option of the Company), valued at the average closing price of the
common stock for the ten trading days preceding the date of delivery of such
shares, contingent upon the selling physicians or the practice, as the case may
be, reaching certain revenue targets. In connection with the acquisition of
assets of OMSA, the Company is required to issue an additional 99,735 shares of
common stock (valued at the time closing at approximately $860,000) prior to
September 21, 1998 as partial consolidation for this acquisition.
In connection with these acquisitions, the Company paid advisory fees
in the aggregate of $211,505 pursuant to an advisory agreement to Premier
HealthCare, an affiliate of the Company's Vice Chairman and Secretary.
On April 30, 1997 the Company closed on a five year $20.0 million
senior acquisition credit facility, within NationsBank, N.A. (South) with up to
$5.0 million of such $20.0 million available for working capital purposes.
Advances under the credit facility will be governed by a borrowing base formula
and will bear interest, at the Company's option, at either a prime-based rate or
a LIBOR-based rate with interest only payments required during the first three
years of the agreement. Thereafter, in years four and five of the agreement, the
term loan commitment is reduced to $13,333,333 and $6,666,666, respectively. The
bank credit facility contains affirmative and negative covenants, which among
other things require the Company to maintain certain financial ratios including
the ratio of funded debt, (as defined in the credit agreement) to earnings
before interest, taxes, depreciation and amortization (as defined in the credit
agreement); the ratio of funded debt to net worth; the ratio of current assets
to current liabilities; and debt service and interest coverage ratios, and sets
certain restrictions on investments, mergers and sale of assets. Borrowings
under the credit facility are secured by the capital stock of the Company's
subsidiaries and the Company's accounts receivable, and will be secured by
acquisition documents in connection with physician practice equity or assets
acquired. At September 30, 1997, the Company had no outstanding borrowings under
the credit facility.
The Company is currently in discussions related to the acquisition of
the assets or the equity of additional ENT and complimentary physician
practices, although it has not executed definitive agreements with respect to
any specific additional acquisitions. The Company intends to fund future
acquisitions with cash or cash equivalents, borrowings under the bank credit
facility, issuance of long-term or short-term indebtedness and/or the issuance
of additional equity securities. The Company is unable to predict whether or
when any of these negotiations will result in any definitive agreements or
whether or when any of the physicians responding to the Company's marketing
efforts will begin discussions relating to a potential acquisition by the
Company. In addition, there can be no assurance as to the terms of any such
acquisitions or as to the Company's ability to complete future acquisitions.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the acquisition of assets of Allatoona, ENT
Specialists, ENT Head and Neck and OSMA, the Company issued an aggregate of
421,936 shares of its common stock. These transactions were private transactions
not involving a public offering and were exempt from the registration provisions
of the Securities Act of 1933, as amended (the "Act"), 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
Act.
The shares of common stock issued in the IPO were registered under a
registration statement on Form S-1 (File No 333-17091) which was declared
effective by the Securities and Exchange Commission on March 20, 1997.
In connection with the acquisition of the assets of Allatoona, ENT
Specialists, ENT Head & Neck and OMSA, the Company paid an aggregate of
$1,498,000 in cash using a portion of the net proceeds received from the
Company's IPO in March, 1997.
ITEM 5. OTHER INFORMATION
On November 5, 1997, the Board of Directors of the Company adopted an
Employee Stock Purchase Plan subject to shareholder's approval which is expected
to be obtained in connection with the Company's Annual Meeting of Stockholders.
The Stock Purchase Plan is intended to qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code, in order to provide
employees of the Company and its subsidiaries meeting certain employment
criteria with an opportunity to purchase common stock of the Company through
payroll deductions. An aggregate of 250,000 shares of the Company's common stock
have been reserved for issuance under the stock purchase plan.
In July 1997, the Company entered into a lease for its executive
offices which expires in July 2002. The lease which started October 1, 1997 is
for approximately 5,000 square feet and provides for annual rent of
approximately $80,000, subject to specified annual increases.
In addition to the Allatoona, ENT Specialists, ENT Head & Neck,
Northside and OMSA acquisitions consummated during the third quarter of 1997, on
October 31, 1997, South Florida Otolaryngology, Inc., a Delaware corporation and
indirect wholly-owned subsidiary of the company, acquired the stock of seven
Florida professional associations ("Sellers"), comprising an aggregate of seven
ENT physicians and six allied health care professionals operating four clinical
locations in the counties of Palm Beach and Broward, Florida (the "Stock
Transaction"). In addition, immediately prior to the Stock Transaction, PSC
Management Corp., a wholly owned subsidiary of the Company, acquired from the
Sellers all of their interest in
18
<PAGE> 19
HMFM Partnership, a Florida partnership which managed each of Sellers' medical
practices and performed their billing and accounting functions (the "Partnership
Transaction") (the Partnership Transaction and the Stock Transaction will
hereinafter be collectively referred to as the "Transactions").
In connection with the Stock Transaction, the Company entered into a
management services agreement with ENTSF. The management services agreement is
substantially similar to the management services agreement with Atlanta ENT and
provides for a management fee equal to 12.5% of all revenues (after adjustment
for contractual allowances) generated by or on behalf of physicians practicing
at ENTSF as payment for the Company's services and non-allocable costs incurred
by the Company attributable to the provisions of management services for ENTSF.
As a result of the Transactions, on November 1, 1997, the Company was affiliated
with 40 physicians, 1 dentist, and 48 allied healthcare professional operating
36 clinical facilities.
In connection with the acquisition of the assets or equity of practices
acquired since the IPO and the reorganization, transaction consideration was
comprised of the following:
<TABLE>
<S> <C>
Cash $4,233,144
Common stock (421,936 shares) at fair value 2,830,000
Subordinated long-term convertible promissory notes 1,000,000
----------
Total non-contingent consideration $8,063,144
==========
</TABLE>
In addition to the above consideration, the Company issued non-interest
bearing contingent subordinated promissory notes in the aggregate principal
amount of $3,264,866. Additionally, the Company is required to issue as purchase
consideration 99,735 shares of common stock (valued at the time of the
acquisition at approximately $860,000) prior to September 21, 1998. In
connection with these acquisitions the Company paid advisory fees of $150,700
and $255,900 to (a) entities unaffiliated with the Company, and (b) pursuant to
an advisory agreement, Premier HealthCare, an affiliate of the Company's Vice
Chairman and Secretary, respectively.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.35 Management Services Agreement dated July 1, 1997 by and among New
Allatoona ENT & Facial Plastic Surgery, P.C., Thomas U. Muller, M.D.,
PSC Management Corp. and the Company.
10.36 Management Services Agreement dated September 22, 1997 by and among New
Otolaryngology Medical and Surgical Associates, Ltd., PSC Management
Corp. and the Company.
10.37 Specialist Group Physician Agreement dated August 1, 1997 by and
between AHI Medical Group Atlanta, P.C. and ENT Center of Atlanta,
Inc.*
10.38 Lease dated July 31, 1997 by and between Pavilion Partners, L.P. and
the Company.
27 Financial Data Schedule
* Confidential treatment has been requested with respect to portions of
this exhibit.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHYSICIANS' SPECIALTY CORP.
DATE November 14, 1997 /s/ Robert A. DiProva
--------------------- ------------------------------
Robert A. DiProva
Executive Vice President and
Chief Financial Officer
20
<PAGE> 1
EXHIBIT 10.35
MANAGEMENT SERVICES AGREEMENT
by and among
New Allatoona E.N.T. & Facial Plastic Surgery, P.C., Thomas U. Muller, M.D.
PSC Management Corp.
and
Physicians' Specialty Corp.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. KEY DEFINITIONS 1
1.1 GAAP 2
1.2 NET PRACTICE REVENUES 2
1.3 PHYSICIAN EXPENSES 2
1.4 PHYSICIAN SHAREHOLDERS 2
1.5 PRACTICE EMPLOYEES 2
1.6 PRACTICE EXPENSES 3
1.7 STATE 4
SECTION 2. ADVISORY BOARD 4
2.1 FORMATION AND OPERATION OF THE ADVISORY BOARD 4
2.2 FUNCTIONS OF THE ADVISORY BOARD 4
SECTION 3. OBLIGATIONS OF MANAGER 5
3.1 PROVISION OF SERVICES 5
3.2 MEDICAL OFFICES 6
3.3 FURNITURE, FIXTURES AND EQUIPMENT 6
3.4 FINANCIAL PLANNING AND GOALS 6
3.5 BUSINESS OFFICE SERVICES 6
3.6 DEPOSIT OF NET PRACTICE REVENUES 8
3.7 REVENUE REPORTS 8
3.8 SUPPORT SERVICES 8
3.9 ADMINISTRATOR 9
3.10 PERSONNEL 9
3.11 PROFESSIONAL SERVICES 10
3.12 PATIENT AND FINANCIAL RECORDS 10
3.13 MARKETING SERVICES 10
3.14 PHYSICIAN RECRUITMENT 11
3.15 EXPANSION OF PRACTICE 11
3.16 PERFORMANCE OF BUSINESS OFFICE SERVICES 11
3.17 FORCE MAJEURE 11
3.18 PAYMENT OF PRACTICE EXPENSES 11
3.19 BUDGETS 12
SECTION 4. OBLIGATIONS OF PRACTICE 13
4.1 PHYSICIAN EXPENSES 13
4.2 PROFESSIONAL STANDARDS 13
4.3 PROVIDER AND PAYOR RELATIONSHIPS 15
4.4 PHYSICIAN CONTRACTS AND POWERS OF ATTORNEY 15
4.5 RESTRICTIVE COVENANTS 15
4.6 PROFESSIONAL DUES AND EDUCATION EXPENSES 18
4.7 PROVISION OF SERVICES BY PRACTICE 18
4.8 PHYSICIAN SHAREHOLDER AGREEMENT 18
SECTION 5. INCENTIVE COMPENSATION; FINANCING MATTERS 19
5.1 INCENTIVE AMOUNTS 19
5.2 MECHANICS OF DRAWS 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.3 RECONCILIATION 19
5.4 ASSIGNMENT OF SECURITY INTEREST 20
SECTION 6. TERM AND TERMINATION 22
6.1 TERM 22
6.2 TERMINATION 22
6.3 REMEDIES UPON TERMINATION 23
6.4 REPURCHASE OF EQUIPMENT AND SUPPLIES 24
SECTION 7. REPRESENTATIONS AND WARRANTIES 24
7.1 REPRESENTATIONS AND WARRANTIES OF PRACTICE 24
7.2 REPRESENTATIONS AND WARRANTIES OF MANAGER 25
SECTION 8. INSURANCE AND INDEMNITY 25
8.1 INSURANCE TO BE MAINTAINED BY PRACTICE 25
8.2 INDEMNIFICATION BY MANAGER 26
8.3 INDEMNIFICATION BY PRACTICE 26
8.4 INDEMNIFICATION PROCEDURE 26
8.5 KEY MAN INSURANCE 27
SECTION 9. ASSIGNMENT 27
SECTION 10. COMPLIANCE WITH REGULATIONS 27
10.1 PRACTICE OF MEDICINE 27
10.2 SUBCONTRACTS 28
SECTION 11. INDEPENDENT RELATIONSHIP 28
11.1 INDEPENDENT CONTRACTOR STATUS 28
11.2 REFERRAL ARRANGEMENTS 29
SECTION 12. GUARANTEES 29
SECTION 13. NAME; LICENSE 29
SECTION 14. MISCELLANEOUS 30
14.1 NOTICES 30
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
14.2 ADDITIONAL ACTS 30
14.3 GOVERNING LAW 30
14.4 CAPTIONS, ETC 30
14.5 SEVERABILITY 31
14.6 CHANGES IN REIMBURSEMENT 31
14.7 MODIFICATIONS 31
14.8 NO RULE OF CONSTRUCTION 31
14.9 COUNTERPARTS 31
14.10 BINDING EFFECT 31
14.11 ENFORCEMENT RIGHTS 32
14.12 COSTS OF ENFORCEMENT 32
</TABLE>
iii
<PAGE> 5
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT, effective as of July 1, 1997 (the
"Effective Date"), by and among NEW ALLATOONA E.N.T. & FACIAL PLASTIC SURGERY,
P.C., a Georgia professional corporation (the "Practice"); THOMAS U. MULLER,
M.D., a Georgia resident ("Dr. Muller"); 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 Acquisition Agreement dated as of July 1,
1997 among Allatoona ENT & Facial Plastic Surgery, P.C., Dr. Muller, Manager and
Parent (the "Asset Acquisition Agreement"), Manager has acquired substantially
all the assets utilized by Practice in connection with the medical practice
conducted by Allatoona ENT & Facial Plastic Surgery, 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; and
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 Dr. Muller and delivered
to Manager prior to the formation and agreement of such financial
considerations.
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, Dr. Muller, Manager and Parent hereby agree
as follows:
SECTION 1. KEY DEFINITIONS.
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.
<PAGE> 6
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, but shall not
include remuneration received by Dr. Muller from performing flight aviation
physical examinations and similar aviation-related medical duties on his own
time.
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) depreciation, amortization,
salaries, benefits and other direct costs of
2
<PAGE> 7
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, fifteen percent (15%) 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 the Advisory Board 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; (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.
3
<PAGE> 8
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.
4
<PAGE> 9
(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 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.
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 office located at
the 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
5
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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 the 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 and maintenance of the FFE, except for
repairs and maintenance necessitated by the negligence of Practice, its
employees and agents. Replacements of FFE shall be provided or paid for by
Manager and all depreciation charges and interest costs with respect to
replacement FFE shall be included within the definition of Practice Expenses. If
a particular repair and maintenance expense is greater than $500, then the
repair and maintenance item shall be treated as a replacement item for purposes
of the immediately preceding sentence.
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 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.
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(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 payors,
intermediaries and 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. For the term of this Agreement, Practice hereby appoints
Manager power of attorney and as its true and lawful attorney-in-fact for the
following purposes:
(i) To bill payors, fiscal intermediaries or
patients in Practice's name, under its provider number(s) when obtained and on
its behalf, and until such time as Practice has obtained its provider number(s),
bill, in the Physician Shareholders' and Practice Employees' names under their
respective provider numbers and on their behalf;
(ii) To collect accounts receivable and claims
for reimbursement 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) To place such accounts for collection,
settle and compromise claims, and institute legal action for the recovery of
accounts, consistent with the policy approved by the Advisory Board from time to
time regarding institution of legal action for collection;
(iv) 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;
(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 Practice Revenues;
(vi) To pledge the accounts receivable as
collateral or otherwise encumber the accounts receivable without the approval of
the Advisory Board or Practice (all actions with respect to any discounting,
selling or encumbering accounts receivable involving Medicare or Medicaid shall
not be inconsistent with applicable laws and regulations relating thereto); and
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(vii) To sign checks on behalf of Practice and
make withdrawals from Practice bank accounts for payments specified in this
Agreement and as requested from time to time by Practice.
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 or Parent shall be the owner and from which Manager
or Parent shall have the sole right to make withdrawals to pay Practice Expenses
and Incentive 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 identify 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
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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., 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
Practice, 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
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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 in all material respects 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 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, with the prior consent of Practice and
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, and similar organizations, to assist in the continued growth and
development of the medical practice of Practice. Practice will cooperate with
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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 which are beyond the reasonable control of Manager 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
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 $405,000 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 $405,000 in
the preceding sentence shall be increased by an amount equal to the product of
(x) 150%, (y) the trailing twelve (12) months of net practice revenues of said
acquisition target and (z) 15%. 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 $1.0 million will result in an increase in the
$405,000 amount described above by $225,000 ($1.0 million x 150% x 15%), which
would result in an aggregate retained amount on an annual basis of $630,000
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.
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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 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 healthcare professionals duly licensed
to practice medicine or to render such services 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 pen-dency 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 within a
twenty (20) mile radius of the Practice's office at 958 Joe Frank Harris
Parkway, Suite 102, Cartersville, Georgia (or successor office) 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, Allatoona E.N.T. &
Facial Plastic Surgery, P.C. In the event that Manager and Practice agree to
open any other Medical Offices for Practice, the parties shall amend this
Agreement to provide that Practice shall not, without the prior consent of
Manager, provide physician services at any medical office, clinic or healthcare
facility within a twenty (20) mile radius of such additional
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Medical Office other than services at healthcare facilities in a manner
consistent with past practices of Practice or at another Medical Office managed
by Manager.
(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 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 (other than intellectual and other property rights developed or
acquired by a Physician Shareholder and specifically excluded in such
individual's employment agreement with Practice) 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,
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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 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.
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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 Allatoona E.N.T. & Facial Plastic Surgery, 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 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 (or, should one be executed) will deliver 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
any such 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; FINANCING MATTERS
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
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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 ninety (90) 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 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.
(c) Any disputes between the parties under Sections 2.2
(k), 3.3(b), 3.18, 3.19, 5.1, 5.2 or 5.3 hereof shall be settled by binding
arbitration between the parties in accordance with Section 14.13 hereof.
5.4 TRANSFER AND ASSIGNMENT.
(a) Practice hereby exclusively and irrevocably assigns
and sets over to Manager all of Practice's rights to all revenue and accounts
receivable and proceeds thereof generated by the Physician Shareholders and
Practice Employees with respect to any services rendered prior to the effective
date of expiration or termination of this Agreement, except as
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otherwise provided in 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; provided, that in the case of revenue and accounts
receivable generated as a result of billing for services under Medicare or
Medicaid such assignment shall only be an assignment of proceeds of accounts
receivable consistent with the provisions of applicable law. 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 and claims for reimbursement 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.
In addition and as a supplement to Practice's obligations as otherwise
set forth herein, Practice shall, with all deliberate speed, apply for and
maintain in effect any and all provider and/or supplier numbers, including but
not limited to Medicare and Medicaid numbers, in Practice's name. If Practice is
unable to obtain such provider and/or supplier numbers, Practice shall cause
Physician Shareholders to maintain each of their provider numbers, including but
not limited to Medicare and Medicaid numbers, necessary or appropriate to obtain
payment or reimbursement for all medical services provided by such Physician
Shareholders and shall further cause each Physician-Shareholder who provides
services to the Practice to execute any and all documentation necessary to
effectuate the assignments of revenues to Manager as contemplated by 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) who
provide senior debt financing to Manager or Parent for their general corporate
needs or for working capital (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 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.
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(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 July 1, 1997 and ending on June 30, 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 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 shall be in breach of Section
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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) If in any calendar year the license of Dr.
Muller to practice medicine in the State of Georgia is suspended or revoked, or
is 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 Dr. Muller dies or becomes mentally or physically disabled and, by
reason of such disability, is 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 Dr. Muller retires or sells his
interest in Practice and ceases 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 Dr. Muller with an other physician
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.
(v) Manager gives Practice written notice of
termination pursuant to Section 11.1(b) hereof.
(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 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
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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.
(iii) Manager is in material breach or default
under any other written Agreement with Practice, which material breach or
default is not cured within thirty (30) days after receipt of written notice
from Practice specifying same and providing Manager the opportunity to cure such
material breach or default.
(c) In the event Manager and Practice shall mutually
agree in writing, this Agreement may be terminated on the date specified in such
written agreement.
6.3 REMEDIES UPON TERMINATION.
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), 6.2(b)(i), or 6.2(b)(iii) of this
Agreement, the non-breaching party may pursue such other legal or equitable
relief as may be available in addition to such proration. In addition, in the
event this Agreement is terminated pursuant to Section 6.2(b)(i) or 6.2(b)(iii),
the restrictive covenant provisions of Sections 4.5(a), 4.5(c) and 4.5(f) shall
cease to apply.
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.
(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.
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(C) 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 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
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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 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
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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 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 a
substantially part of the assets of Manager or Parent. Notwithstanding the
foregoing, the Practice agrees and consents to the Manager granting to the
Credit Facility Lender a security interest in all of the Manager's right, title
and interest in and under this Agreement as security for the Manager's
obligations under a guaranty of all of the Parent's indebtedness and other
obligations owing to the Credit Facility Lender. 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 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
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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. 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 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
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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.
Irrevocable Guaranty by Parent. To induce Practice to execute
and deliver this Agreement, Parent hereby unconditionally and irrevocably
guarantees to 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 and performance, 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 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.
Irrevocable Guaranty by Dr. Muller. To induce Manager and
Parent to execute and deliver this Agreement, Dr. Muller hereby unconditionally
and irrevocably guarantees to Manager and Parent the full, prompt and faithful
performance by Practice of all covenants and obligations to be performed by
Practice under Sections 3.6, 4.2, 4.4, 4.5, 4.7, 5.4, 6.4, 7.1, 8.1, 8.3, 12(b),
14.6, 14.11, and 14.12 of this Agreement during the term of Dr. Muller's
employment with Practice and, unless such employment is renewed and continues on
a full-time basis in accordance with Dr. Muller's Physician Employment Agreement
for at least nine (9) consecutive years from the date of this Agreement, for a
period of eighteen (18) months after termination of employment.. 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 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, Dr. Muller
shall be required.
28
<PAGE> 33
SECTION 13. NAME; LICENSE. Practice agrees that it shall conduct its
medical practice under the name of, and only under the name of "New Allatoona
E.N.T., & Facial Plastic Surgery, P.C." or "Allatoona E.N.T. & Facial Plastic
Surgery," 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, or by facsimile,
to the respective party to whom such notice relates at the following addresses:
If to Practice or Dr. Muller:
New Allatoona E.N.T. & Facial Plastic Surgery, P.C.
958 Joe Frank Harris Parkway, Suite 102
Cartersville, Georgia 30120
Attention: Thomas U. Muller, M.D.
Facsimile:
If to Manager or Parent:
PSC MANAGEMENT CORP.
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 250-0162
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.
29
<PAGE> 34
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. Whenever the context so requires, the singular number includes the
plural and the plural includes the singular, and the gender of any pronoun
includes the other gender. All Addenda and Exhibits to this Agreement are hereby
incorporated into this Agreement by this reference.
14.5 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, the same shall
be severable and this Agreement shall not terminate or be deemed void or
voidable, but shall continue in full force and effect without such stricken
provision.
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 use commercially
reasonable efforts to 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.
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
30
<PAGE> 35
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 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.
14.13 ARBITRATION OF CERTAIN DISPUTES. Any dispute, controversy or
claim (including without limitation tort claims, requests for provisional
remedies or other interim relief, and issues as to arbitrability of any matter)
arising out of (1) Sections 2.2(k), 3.3(b), 3.18, 3.19, 5.1, 5.2 or 5.3 of this
Agreement, or (2) the adoption of, or any modifications or amendments to, the
then current capital and operating budgets for the medical practice of Practice,
that cannot be settled through agreement or negotiation shall be settled (a)
first, by the parties trying in good faith to settle the dispute by mediation
under the Commercial Mediation Rules of the American Arbitration Association
("AAA") (such mediation session to be held in Atlanta, Georgia, and to commence
within fifteen (15) days of the appointment of the mediator by the AAA), and (b)
if the controversy, claim or dispute cannot be settled by mediation, then by
arbitration administered by the AAA under its Commercial Arbitration Rules (such
arbitration to be held in (15) days of the appointment of the arbitrator by the
AAA), and judgment on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
IN WITNESS WHEREOF, Practice, Manager and Parent have duly executed
this Agreement on the day and year first above written.
31
<PAGE> 36
NEW ALLATOONA E.N.T. &
PSC MANAGEMENT CORP. FACIAL PLASTIC SURGERY, P.C.
By: /s/ Richard D. Ballard By: /s/ Thomas U. Muller
-------------------------- --------------------------
Title: Vice President Title: President
----------------------- ------------------------
/s/ Thomas U. Muller
PHYSICIANS' SPECIALTY CORP. ------------------------------
Thomas U. Muller, M.D.
By: /s/ Gerald R. Benjamin
-------------------------
Title: Vice Chairman
----------------------
32
<PAGE> 37
EXHIBIT A
FORM OF PHYSICIAN EMPLOYMENT AGREEMENT
33
<PAGE> 38
EXHIBIT 3.1
OFFICE LOCATION
958 Joe Frank Harris Parkway, Suite 102, Cartersville, Georgia
34
<PAGE> 39
EXHIBIT B
INCENTIVE COMPENSATION TO MANAGER
On an annual basis, after Manager has received the annual retained amount of
$405,000 (or such increased amount as provided in Section 3.18) pursuant to
Section 1.6(g) (the "Retained Amount"), Manager shall receive as incentive
compensation an amount equal to the product of (A) the excess of Net Practice
Revenues over Practice Expenses with respect to the period after the Retained
Amount was reached in such year, determined in accordance with generally
accepted accounting principles, multiplied by (B) 80%, multiplied by (C) a
fraction, the numerator of which is the Retained Amount and the denominator of
which is the excess of Net Practice Revenues over Practice Expenses (without
regard to the Retained Amount) with respect to the period ending when the
Retained Amount was reached, determined in accordance with generally accepted
accounting principles. An example of the calculation of incentive compensation
follows:
<TABLE>
<CAPTION>
(000's) 11 Months 1 Month Total Year
----------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$ % $ % $ %
Net Practice Revenues 2,700,000 100.0% 300,000 100.0% 3,000,000 100.0%
Practice Expenses 1,080,000 40.0% 120,000 40.0% 1,200,000 40.0%
1,620,000 60.0% 180,000 60.0% 1,800,000 60.0%
Base Fee 405,000 15% N/A --- 405,000 13.5%
Incentive Fee 36,000 12.0%(B) 36,000 1.2%
Available for M.D.
Compensation & Benefits $1,215,000 45% $144,000 48% $1,359,000 45.3%
========== ===== ======== ===== ========== =====
Base Fee as % of Excess 25%(A)
</TABLE>
(A) 15% divided by 60% = 25%
(B) 25% (per above) x 80% = 20% of Available Amounts
In applying the formula stated above, Manager will fairly allocate
expenses in accordance with generally accepted accounting principles to the
periods before and after the Retained Amount is achieved and account on a proper
basis for partial months. In the event of a dispute over such calculations, the
parties agree to refer the matter to an independent public accountant at a
nationally recognized accounting firm with an office in Atlanta, Georgia for an
independent determination of the calculation, which determination shall be final
and binding on all parties. In the event the parties are unable to agree upon
the selection of the independent accountant within a period of 30 days after
notice of dispute is given by Practice, such accountant shall be selected, and
the determination made, pursuant to the rules applicable to arbitration between
the parties under Section 14.13.
<PAGE> 40
APPENDIX A
DEFINITIONS
<TABLE>
<CAPTION>
Defined Term Section
<S> <C>
Asset Acquisition Agreement Background
Confidential Information 4.5(e)
Credit Facility Lender 5.4(b)
Effective Date Preamble
Estimated Collection Percentage 5.1
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 1.2
Parent Preamble
Physician Employment Agreements 3.14
Physician Expenses 4.1
Physician Shareholders 1.4
Practice Preamble
Practice IP 4.5(d)
Practice Employees 1.5
Practice Expenses 1.6
</TABLE>
<PAGE> 1
EXHIBIT 10.36
MANAGEMENT SERVICES AGREEMENT
by and among
New Otolaryngology Medical and Surgical Associates, Ltd.
PSC Management Corp.
and
Physicians' Specialty Corp.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. KEY DEFINITIONS...............................................................................1
1.1 GAAP..............................................................................................1
1.2 NET PRACTICE REVENUES.............................................................................2
1.3 PHYSICIAN EXPENSES................................................................................2
1.4 PHYSICIAN SHAREHOLDERS............................................................................2
1.5 PRACTICE EMPLOYEES................................................................................2
1.6 PRACTICE EXPENSES.................................................................................2
SECTION 2. ADVISORY BOARD................................................................................4
2.1 FORMATION AND OPERATION OF THE ADVISORY BOARD.....................................................4
2.2 FUNCTIONS OF THE ADVISORY BOARD...................................................................4
SECTION 3. OBLIGATIONS OF MANAGER........................................................................6
3.1 PROVISION OF SERVICES.............................................................................6
3.2 MEDICAL OFFICES...................................................................................6
3.3 FURNITURE, FIXTURES AND EQUIPMENT.................................................................6
3.4 FINANCIAL PLANNING AND GOALS......................................................................6
3.5 BUSINESS OFFICE SERVICES..........................................................................7
3.6 DEPOSIT OF NET PRACTICE REVENUES..................................................................8
3.7 REVENUE REPORTS...................................................................................8
3.8 SUPPORT SERVICES..................................................................................9
3.9 ADMINISTRATOR.....................................................................................9
3.10 PERSONNEL........................................................................................9
3.11 PROFESSIONAL SERVICES...........................................................................10
3.12 PATIENT AND FINANCIAL RECORDS...................................................................10
3.13 N/A.............................................................................................10
3.14 PHYSICIAN RECRUITMENT...........................................................................11
3.15 EXPANSION OF PRACTICE...........................................................................11
3.16 PERFORMANCE OF BUSINESS OFFICE SERVICES.........................................................11
3.17 FORCE MAJEURE...................................................................................11
3.18 PAYMENT OF PRACTICE EXPENSES AND MANAGEMENT FEE.................................................11
3.19 BUDGETS.........................................................................................12
3.20 STRATEGIC FOCUS OF MANAGER......................................................................13
SECTION 4. OBLIGATIONS OF PRACTICE......................................................................13
4.1 PHYSICIAN EXPENSES...............................................................................13
4.2 PROFESSIONAL STANDARDS...........................................................................13
4.3 PROVIDER AND PAYOR RELATIONSHIPS.................................................................15
4.4 PHYSICIAN CONTRACTS AND POWERS OF ATTORNEY.......................................................15
4.5 RESTRICTIVE COVENANTS............................................................................16
4.6 PROFESSIONAL DUES AND EDUCATION EXPENSES.........................................................18
4.7 PROVISION OF SERVICES BY PRACTICE................................................................18
4.8 PHYSICIAN SHAREHOLDER AGREEMENT.................................................................18
SECTION 5. FINANCING MATTERS............................................................................19
5.1 MECHANICS OF DRAWS...............................................................................19
5.2 ASSIGNMENT OF SECURITY INTEREST..................................................................19
SECTION 6. TERM AND TERMINATION.........................................................................21
6.1 TERM.............................................................................................21
6.2 TERMINATION......................................................................................21
6.3 REMEDIES UPON TERMINATION........................................................................22
6.4 REPURCHASE OF EQUIPMENT AND SUPPLIES.............................................................23
SECTION 7. REPRESENTATIONS AND WARRANTIES...............................................................23
7.1 REPRESENTATIONS AND WARRANTIES OF PRACTICE.......................................................23
7.2 REPRESENTATIONS AND WARRANTIES OF MANAGER........................................................24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 8. INSURANCE AND INDEMNITY......................................................................24
8.1 INSURANCE TO BE MAINTAINED BY PRACTICE...........................................................25
8.2 INDEMNIFICATION BY MANAGER.......................................................................25
8.3 INDEMNIFICATION BY PRACTICE......................................................................25
8.4 INDEMNIFICATION PROCEDURE........................................................................25
8.5 KEY MAN INSURANCE................................................................................26
SECTION 9. ASSIGNMENT...................................................................................26
SECTION 10. COMPLIANCE WITH REGULATIONS.................................................................27
10.1 PRACTICE OF MEDICINE............................................................................27
10.2 SUBCONTRACTS....................................................................................27
SECTION 11. INDEPENDENT RELATIONSHIP....................................................................27
11.1 INDEPENDENT CONTRACTOR STATUS...................................................................27
11.2 REFERRAL ARRANGEMENTS...........................................................................28
SECTION 12. GUARANTEES..................................................................................28
SECTION 13. NAME; LICENSE...............................................................................29
SECTION 14. MISCELLANEOUS...............................................................................29
14.1 NOTICES.........................................................................................30
14.2 ADDITIONAL ACTS.................................................................................31
14.3 GOVERNING LAW...................................................................................31
14.4 CAPTIONS, ETC...................................................................................31
14.5 SEVERABILITY....................................................................................31
14.6 CHANGES IN REIMBURSEMENT........................................................................31
14.7 MODIFICATIONS...................................................................................31
14.8 NO RULE OF CONSTRUCTION.........................................................................32
14.9 COUNTERPARTS....................................................................................32
14.10 BINDING EFFECT.................................................................................32
14.11 ENFORCEMENT RIGHTS.............................................................................32
14.12 COSTS OF ENFORCEMENT...........................................................................32
</TABLE>
ii
<PAGE> 4
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT, effective as of September 22, 1997 (the
"Effective Date"), by and among NEW OTOLARYNCOLOGY MEDICAL AND SURGICAL
ASSOCIATES, LTD., an Illinois medical 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, 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, 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.
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.
<PAGE> 5
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, CHAMPUS, 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), and 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, audiologists and similar speech, hearing and
language professionals, 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) depreciation (including without
limitation depreciation on the assets acquired under the Asset Acquisition
Agreement of even date herewith), 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, use 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
2
<PAGE> 6
the medical practice of Practice, including, without limitation, capital
expenditures, provided if funded by Manager such interest charge will be at the
same rate as Manager's senior borrowing rate, and no interest will be charged
with respect to the assets acquired under the Asset Acquisition Agreement of
even date herewith; (f) utility expenses relating to the Medical Offices; (g)
twelve and one-half percent (12 1/2%) of Net Practice Revenues to Manager as its
management fee in 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) costs of medical
malpractice insurance for Practice, its Physician Shareholders and Practice
Employees, and any 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 Illinois,
which is where the medical practice of Practice is located.
3
<PAGE> 7
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 forthe efficient operation of the medical practice of Practice and the
content of all physician employment and recruitment contracts to be utilized by
Practice. Before any offer of employment is extended by Practice, Practice shall
provide Manager at least fifteen (15) days prior notice.
(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
4
<PAGE> 8
based upon the pricing, access to and quality of such services.
(h) Patient Fees, Collection Policies. At least annually,
the Advisory Board shall, based upon recommendations by Manager and Practice,
review and adopt the fee schedule for all physicians 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.
All such advertising and marketing shall be in accordance with the Illinois
Medical Practice Act, as amended and the rules of the Department of Professional
Regulation established thereunder.
(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.
(l) Quality Assurance and Utilization Review. The
Advisory Board shall advise Manager and Practice regarding all quality assurance
and utilization review programs undertaken by Practice either independently or
in connection with any managed care contracts maintained by Practice, and
Manager shall assist the Practice in performing the quality assurance and
utilization review functions of the Practice in consultation with 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 Practice under the
terms of this Agreement, Practice shall have ultimate responsibility for the
exercise of such discretion, notwithstanding any recommendation of the Advisory
Board. 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.
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 services, personnel, equipment and supplies
provided for in this
5
<PAGE> 9
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. The Medical Office shall be used by the Practice
and by the Manager in providing its services under this Agreement.
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
and/or Manager 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.
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 contracts on behalf of Practice and shall consult with Practice on
matters relating thereto.
(b) Manager shall provide ongoing assessment of business
activity including product line analysis, outcomes monitoring and patient
satisfaction.
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(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 payors,
intermediaries and 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. For the term of this Agreement, Practice hereby grants
Manager power of attorney and appoints Manager as its true and lawful
attorney-in-fact for the following purposes:
(i) To bill payors, fiscal intermediaries or
patients in Practice's name, under its provider number(s) when obtained and on
its behalf, and until such time as Practice has obtained its provider number(s),
bill, in the Physician Shareholders' and Practice Employees' names under their
respective provider numbers and on their behalf, and in connection with such
billing services Manager covenants and agrees that it will use its best efforts
to perform the billing correctly and in accordance with applicable laws and
regulations based on information that Practice and the Physician Shareholders
and Practice Employees provide to Manager for such purpose;
(ii) To collect accounts receivable and claims
for reimbursement 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) To place such accounts for collection,
settle and compromise claims, and institute legal action for the recovery of
accounts;
(iv) Following receipt by Practice, to take
possession of payments from patients, 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;
(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 Practice Revenues;
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(vi) To pledge the accounts receivable as
collateral or otherwise encumber the accounts receivable without the approval of
the Advisory Board or Practice (all actions with respect to any discounting,
selling or encumbering accounts receivable involving Medicare or Medicaid shall
not be inconsistent with applicable laws and regulations relating thereto); and
(vii) To sign checks on behalf of Practice and
make withdrawals from Practice bank accounts for payments specified in this
Agreement and as requested from time to time by Practice.
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 on a monthly
basis and, at the direction of Practice, to transfer pursuant to Section 5.1
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 5.2(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
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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., 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 as provided in
subsection (a) above, Manager hereby retains the sole and exclusive
decision-making authority regarding all such personnel assignments.
(e) If Practice or Physician Shareholders request
personal secretarial, clerical, bookkeeping, or other non-physician medical
support personnel in addition to personnel determined to be necessary and/or
appropriate by Manager, and such additional 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
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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 provision is made for appropriate care for patients of Practice.
3.13 N/A.
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 prior notice to Manager.
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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 AND MANAGEMENT FEE. 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 monthly basis, to pay itself from Net Practice Revenues the
amount specified in Section 1.6(g) as its management fee for providing its
services under this Agreement. Practice acknowledges and agrees that the amount
to be retained by Manager as its management fee in accordance with this
Agreement 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 Manager's services under 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
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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 contracted, (ii) as to any line items
which are not in dispute, the revised budgets submitted by the Manager shall
control, and (E) those items reasonably deemed medically necessary by Practice
shall be acquired
(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.
(c) Manager agrees that expenses of the Practice which
are shared by other practices being managed by Manager shall be allocated as
"Practice Expenses" to Practice and such other practices based on actual
expenses incurred where such expenses are directly identifiable by Manager or on
a pro rata basis in accordance with the respective "Net Practice Revenues" of
Practice and such other practices, or such other fair and reasonable basis as
Manager may determine.
3.20 STRATEGIC FOCUS OF MANAGER. Manager covenants and agrees with
Practice that the strategic focus of the business of Manager for a period of at
least three (3) years commencing as of the date of this Agreement shall not
materially change from the management of or affiliation with physician practices
and health case providers that specialize in the treatment and management of
diseases and disorders of the ear, nose and throat, head and neck, including
specialists practicing in the fields of allergy, audiology, oral surgery,
plastic surgery and sleep medicine, and including ancillary or additional
revenue sources such as ambulatory surgery centers, sleep laboratories and CT
scanners.
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
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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. The parties will cooperate with each other 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 and surgery in all its branches 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;
(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 in accordance with any Employment Agreement between Practice
and Physician and with practice protocols and policies as adopted from time to
time by Practice;
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(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 to be 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 Illinois
Medicaid programs;
(ix) abide by the Principles of Medical Ethics of
the American Medical Association, any principles or statements or ethics adopted
by the state medical society in any state in which Physician maintains a
professional license, and the ethical principles or statements as adopted and
amended from time to time by the American Board of Otolaryngology;
(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 pen-dency 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
(xiv) satisfy such other reasonable requirements
as are established from time to time by Practice.
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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. Practice shall not be
required by Manager to sign up or contract with any particular provider.
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. 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, Otolaryngology Medical
and Surgical Associates, Ltd.
(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 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
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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) Subject to Illinois law, 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 (other than intellectual and other
property rights developed or acquired by a Physician Shareholder and
specifically excluded in such individual's employment agreement with Practice)
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 or Parent'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 limitation, computer software and
management information systems provided by Manager, practice acquisition
targets,
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strategic expansion plans, contracting and payor negotiations, managed care
contracting strategies and fees, rates, exclusions and other payor contract
features.
(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 and Practice 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
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same quality and scope of medical practice and other health care services
provided by Otolaryngology Medical and Surgical Associates, Ltd. 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 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. FINANCING MATTERS
5.1 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. 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. A final accounting will be
due from Manager on or before April 30 of each year of this Agreement with
respect to the immediately preceding calendar year.
5.2 ASSIGNMENT OF SECURITY INTEREST.
(a) Practice hereby exclusively and irrevocably assigns and sets
over to Manager all of Practice's rights to all revenue and accounts receivable
generated by the Physician Shareholders and Practice Employees with respect to
any services rendered prior to the effective date of expiration or termination
of this Agreement, except as otherwise provided in 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; provided, that in the case of
revenue and accounts receivable generated as a result of billing for services
under Medicare or Medicaid such assignment shall only be an assignment of
proceeds of accounts receivable consistent with the provisions of applicable
law. 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 5.2(a).
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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 5.2(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 and claims for reimbursement 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.
In addition and as a supplement to Practice's obligations as otherwise
set forth herein, Practice shall, with all deliberate speed, apply for and
maintain in effect any and all provider and/or supplier numbers, including but
not limited to Medicare and Medicaid numbers, in Practice's name. If Practice is
unable to obtain such provider and/or supplier numbers, Practice shall cause
Physician Shareholders to maintain each of their provider numbers, including but
not limited to Medicare and Medicaid numbers, necessary or appropriate to obtain
payment or reimbursement for all medical services provided by such Physician
Shareholders and shall further cause each Physician-Shareholder who provides
services to the Practice to execute any and all documentation necessary to
effectuate the assignments of revenues to Manager as contemplated by 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 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 5.2 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
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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 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 September 22, 1997 and ending on September 22,
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 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
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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 in any
material respect.
(v) If in any calendar year the licenses of more
than 25% in number of the Physician Shareholders or physician Practice Employees
to practice medicine in the State of Illinois 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 more than 25% 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 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.
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(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.
If this Agreement is terminated pursuant to Section 6.2,
Manager's management fees under this Agreement shall be deemed earned through
the date of termination. Any management fees 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), 6.2(a)(iv), or 6.2(b)(i)
of this Agreement, the non-breaching party may pursue such other legal or
equitable relief and remedies 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), Manager shall have the
additional right to require Practice to repurchase all or any portion of the FFE
and all then unused supplies located at the Medical Offices and other items of
personal property purchased by Manager for specific use at the Medical Offices,
from Manager at a repurchase price equal to $2,150,000 minus the product of (x)
$53,750 times (y) the number of years of the initial term which have been
completed at the time of any such termination. 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 Illinois, 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, or rights to shares of PSC Common Stock under
the Asset Acquisition Agreement which have not yet been delivered or shares
delivered under the Asset Acquisition Agreement for which Rule 144 is not yet
available (valued at the closing price of the trading day immediately preceding
the day of tender), against delivery of a bill of sale from Manager transferring
all its right, title or interest in or to same. The repurchase requirements
contained in this paragraph are in addition to, and not in lieu of, any other
rights and remedies that Manager may have under any other agreements.
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 medical practice
corporation duly organized, validly existing and in good standing under the laws
of the
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State of Illinois. Practice 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. 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) 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 legal, valid and
binding obligation of Manager, enforceable in accordance with its terms.
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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 and Otolaryngology Medical and Surgical Associates, Ltd. 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 is being 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
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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 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 Manager or Practice 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 or Parent.
Notwithstanding the foregoing, the Practice agrees and consents to the Manager
granting to the Credit Facility Lender a security interest in all of the
Manager's right, title and interest in and under this Agreement as security for
the Manager's obligations under a guaranty of all of the Parent's indebtedness
and other obligations owing to the Credit Facility Lender. Any such assignment
shall not affect the guaranty by Parent of the obligations of Manager hereunder.
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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 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
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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 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
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execute and deliver this Agreement, the undersigned Physician Shareholders,
during the term of such Physician Shareholder's employment with Practice and for
a period of five (5) years thereafter, (i) jointly and severally 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(a) through 4.5(e), 5.2, 6.4, and 7.1(a) and 7.1(b) of
this Agreement, and (ii) severally unconditionally and irrevocably guarantee to
Manager the full, prompt and faithful performance by Practice of all covenants
and obligations to be performed by Practice of all covenants and obligations to
be performed by Practice under Sections 4.5(f), 8.1 and 8.3. The several
liabilities of the Physician Shareholders under Section (ii) shall be
twenty-five percent (25%) each 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 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 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) 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.
SECTION 13. NAME; LICENSE. Practice agrees that it shall conduct its
medical practice under the name of, and only under the name of "Otolaryngology
Medical and Surgical Associates, Ltd.", 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:
28
<PAGE> 32
Otolaryngology Medical and Surgical Associates, Ltd.
730 S. Terra Cotta Ave., Suite 8
Crystal Lake, Illinois 60014
Attention: Ted L. Rolander, M.D.
Facsimile: (815) 455-1067
with a copy of each notice directed to:
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.
5555 Peachtree Dunwoody Road
Suite 235
Atlanta, Georgia 30342
Attention: Chief Executive Officer
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.
29
<PAGE> 33
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. 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, the same shall
be severable and this Agreement shall not terminate or be deemed void or
voidable, but shall continue in full force and effect without such stricken
provision.
14.6 CHANGES IN REIMBURSEMENT. If Medicare, Medicaid, Blue
Cross/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 in good faith
consider any amendment of this Agreement proposed by the other 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, 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,
30
<PAGE> 34
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 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 contractual and other legal 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.
31
<PAGE> 35
IN WITNESS WHEREOF, Practice, Manager and Parent have duly executed
this Agreement on the day and year first above written.
PSC MANAGEMENT CORP. NEW OTOLARYNGOLOGY MEDICAL
AND SURGICAL ASSOCIATES, LTD.
By: /s/ Richard D. Ballard By: /s/ Ted L. Rolander
----------------------------- -----------------------------
Title: Vice President Title: President
-------------------------- --------------------------
PHYSICIANS' SPECIALTY CORP.
By: /s/ Gerald R. Benjamin
-----------------------------
Title: Vice Chairmen
--------------------------
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, Section 12(b) hereof.
/s/ Ted L. Rolander
----------------------------
Ted L. Rolander, M.D.
/s/ Gary L. Livingston
----------------------------
Gary L. Livingston, M.D.
/s/ David A. Goodman
----------------------------
David A. Goodman, M.D.
/s/ Richard J. Rinehart
----------------------------
Richard J. Rinehart, M.D.
32
<PAGE> 36
APPENDIX A
DEFINITIONS
<TABLE>
<CAPTION>
Defined Term Section
<S> <C>
Confidential Information 4.6(e)
Credit Facility Lender 5.2(b)
Effective Date Preamble
Extended term 6.1
FFE 3.3
GAAP 1.2
Indemnified Person 8.4
key man 8.5
Laws 3.12
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
State 1.7
</TABLE>
<PAGE> 1
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.
EXHIBIT 10.37
SPECIALIST GROUP PHYSICIAN AGREEMENT
This SPECIALIST GROUP PHYSICIAN AGREEMENT ("Agreement") is
made and entered into the first day of August, 1997 by and between AHI MEDICAL
GROUP, ATLANTA, P.C., a Georgia professional corporation ("IPA") located at 1000
Parkwood Circle, Suite 375, Atlanta, Georgia 30339 and ENT Center of Atlanta,
Inc. ("Medical Group"), having its principal place of business at The Medical
Quarters, 5555 Peachtree Dunwoody Road, Suite 235, Atlanta, Georgia 30342.
RECITALS
WHEREAS, IPA intends to enter into agreements with Health
Insurance Plans, Self Insured Employer Health Plans, Health Care Service Plans,
Non-Profit Hospital Service Plans, Health Maintenance Organizations and any
other entity which under contract or law has an obligation to provide or arrange
for the provision of medical services to its enrollees ("Plan(s)"), for the
provision of medical services to persons enrolled as Enrollees of Plans; and
WHEREAS, IPA and Medical Group desire to enter into a contract
whereby Medical Group agrees to provide Specialty Care Services in
Otolaryngology on behalf of IPA to Enrollees of Plans which contract with IPA;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Capitated Services" means Covered Services for which compensation is
provided on a per member, per month ("PMPM") basis (referred to as "Capitation")
as described in Exhibit B of this Agreement. Unless specifically excluded from
this Agreement, all Plans contracted with IPA are considered to be eligible for
Capitated Services under this Agreement. IPA shall determine which services are
Capitated Services.
1.2 "Commercial Plan" means a plan of group health care expense coverage
that is provided to one or more employers (or to other groups or individuals)
through a Plan. Commercial Plans covered under this Agreement shall be
determined solely by IPA.
1.3 "Copayment or Deductible" means any additional fee charged to an
Enrollee for professional services provided for in the Plans' contract with its
Enrollees and disclosed in the Evidence of Coverage.
1.4 "Covered Services" means those health care services and supplies which
an Enrollee is entitled to receive under a Plan's benefit program and which are
described and defined in the Plan's Evidence of Coverage and disclosure forms,
Subscriber and group contracts.
1.5 "Credentialing Criteria" means the criteria established by the IPA for
the credentialing and recredentialing of Participating Providers, which may be
amended from time to time by IPA in its sole discretion. (The Credentialing
Criteria pertaining to Professional are set forth in Exhibit "B" hereto).
1.6 "Emergency" means the sudden, unexpected onset of a medical condition
manifesting itself by acute symptoms of sufficient severity such that the
absence of immediate medical attention could reasonably be expected to cause
serious impairment of bodily functions, serious injury to bodily organs or
parts, or death to the Enrollee.
1.7 "Enrollee" means a person who is enrolled in a Plan, including enrolled
dependents, and entitled to receive Covered Services. In the event IPA has a
contract with a Medicare or Medicaid Plan to service Medicare
<PAGE> 2
or Medicaid beneficiaries, the definition of "Enrollee" shall include enrolled
individuals from Medicare or Medicaid populations. Enrollees covered under this
Agreement shall be determined solely by IPA.
1.8 "Evidence of Coverage" means the document issued by a Plan to an
Enrollee that describes the Enrollee's Covered Services in the Plan.
1.9 "Incident" means any occurrence that is not routine in a health care
facility. These occurrences may include, but are not limited to, the following:
(a) Any unusual occurrence;
(b) A happening which could have or did result in an injury to an
Enrollee; or
(c) A condition, situation, procedure, etc. which could or did
result in an injury to an Enrollee including any happening of an untoward
(unusual) nature to an Enrollee.
Incidents are not limited to quality of care issues.
1.10 "Medicaid Plan" means a plan of group health expense coverage that is
provided to Medicaid members through the State of Georgia or any other health
care service arrangements agreed to by IPA to provide Covered Services to
Medicaid Enrollees. Medicaid Plans covered under this Agreement shall be
determined solely by IPA. "Medicaid" means the program of the State of Georgia
to provide health and welfare benefits.
1.11 "Medical Director" means a Participating Physician who is authorized by
IPA to be responsible for administering IPA medical affairs and for serving as
IPA's medical liaison to Plans.
1.12 "Medically Necessary" means medical, surgical or other diagnosis and/or
treatment which an Enrollee requires as determined by a Participating Physician
in accordance with generally accepted medical and surgical practices and
standards prevailing at the time of treatment and which is also in conformity
with the professional and technical standards adopted by the IPA.
Notwithstanding the foregoing, a Plan may provide a different definition of
"Medically Necessary."
1.13 "Medicare Plan" means a plan of group health care expense coverage
provided to Medicare members whereby the Medicare Plan receives a Capitation
payment from the Health Care Financing Administration ("HCFA") under a risk
arrangement pursuant to Section 1876(g) of the Social Security Act and with
which IPA is contracted to provide Covered Services to Medicare Plan Enrollees.
Medicare Plans covered under this Agreement shall be determined solely by IPA.
"Medicare" means the program administered by HCFA whereby eligibility is
achieved by reason of attainment of age 65 or by the presence of a
Medicare-eligible disabling condition.
1.14 "Non-Covered Services" means those health care services which are not
benefits under the Evidence of Coverage and are the financial responsibility of
the Enrollee.
1.15 "Participating Hospital" means a duly licensed hospital which has
entered into an agreement with a Plan and/or IPA to provide Covered Services to
Enrollees.
1.16 "Participating Physician" means a physician duly licensed to practice
medicine or osteopathy who has entered into an agreement with IPA to provide
Covered Services to Enrollees and is listed in Exhibit "D" attached hereto and
hereby incorporated by reference.
1.17 "Participating Provider" means a Participating Physician, Participating
Hospital, or other licensed health facility or licensed health professional
which has entered into an agreement with a Plan and/or IPA to provide Covered
Services to Enrollees and is listed in Exhibit "D" attached hereto and hereby
incorporated by reference.
2
<PAGE> 3
1.18 "Plan" means an industry, corporation, company, partnership, union,
enterprise, health care service plan, prepaid health plan, preferred provider
organization, accountable health partnership, health maintenance organization,
insurer, or other defined or otherwise legally constituted group or organization
which enters into agreements with IPA to allow such Plan's Enrollees the
opportunity of selecting health services arranged for by IPA. Any reference to
Plan(s) in this Agreement is limited to the particular Plan whose Enrollee is
being treated by Medical Group. Plans covered under this Agreement shall be
determined solely by IPA. Unless indicated otherwise by context or
specification, "Plan(s)" shall refer collectively to Commercial Plans, Medicaid
Plans, and Medicare Plans.
1.19 "Primary Hospital" means that hospital or hospitals designated on
Exhibit "A" or other facility as designated by IPA.
1.20 "RBRVS" means the Resource Based Relative Value Scale published by the
Health Care Financing Administration of the United States Department of Health
and Human Services.
1.21 "Referral" means the process by which the Participating Physician
directs an Enrollee to seek and obtain Covered Services from a health
professional, a hospital or any other provider of Covered Services in accordance
with the IPA's referral procedures.
1.22 "Service Area" means the geographic area for which IPA has contracted
to provide Covered Services to Enrollees.
1.23 "Specialist Care Services" means those Covered Services provided by a
Specialist Physician.
1.24 "Specialist Physician" means a Participating Physician who is
professionally qualified to practice medicine in his/her designated Specialty
and whose agreement with IPA includes responsibility for providing Covered
Services in his/her designated specialty.
1.25 "Subscriber" means a person who is responsible for payment to a Plan
whose employment or other status, except for family dependency, is the basis for
eligibility for enrollment in a Plan.
1.26 "Surcharge" means any additional fee not provided for in the Enrollee
Plan contract and Evidence of Coverage.
1.27 "Urgent Services" means Covered Services which are needed to treat an
unforeseen illness or injury while temporarily outside of Plan's service area
but within the United States or its territories, which are needed in order to
prevent a serious deterioration of the Enrollee's health which such Enrollee
would sustain if the Enrollee were to wait to obtain such services from a
Participating Provider upon return to Plan's service area.
ARTICLE II
SERVICES TO BE PERFORMED BY THE MEDICAL GROUP
2.1 Services to be Performed by the Medical Group: Medical Group shall
provide, or cause to be provided, prior authorized Covered Services to Enrollees
within the scope of its Specialist Physicians' licensing, training, experience
and qualifications and consistent with accepted standards of medical practice,
IPA policies and procedures and the applicable Plan Agreement and health benefit
program. Medical Group shall accept all authorized referrals of Enrollees to its
Specialist Physicians by the IPA or the Plan; provided, however, Medical Group
or its Specialist Physicians may refuse to accept additional referrals of
Enrollees upon giving at least ninety (90) days prior written notice to the IPA.
Medical Group shall be reimbursed pursuant to the terms of Article IV of this
Agreement. Medical Group shall accept such payments as payment in full for
providing Covered Services to Enrollees hereunder. Medical Group shall and shall
cause its Specialist Physicians to devote the time, attention and energy
necessary for the competent and effective performance of Medical Group or its
Specialist Physicians' duties
3
<PAGE> 4
hereunder and shall to be available to provide Specialist Care Services or to
provide coverage for said services twenty-four (24) hours per day, seven (7)
days per week, three hundred sixty-five (365) days per year.
2.2 Covered Services: Physician shall provide necessary Covered Services to
Medicare Contract Participants on a twenty-four (24) hour per day, seven (7) day
per week basis or arrange with a physician to cover Physician's Medicare Patient
Panel in Physician's absence. Physician will ensure that such covering physician
(a) satisfied IPA's credentialing criteria; (b) will not seek compensation from
IPA for services for which Physician received reimbursement from IPA; (c) will
not bill Medicare Contract Participants for Covered Services under any
circumstances except for Copayments, Deductibles, or Coinsurance; and (d) will
obtain authorization from IPA prior to all hospitalizations or referrals of
Medicare Contract Participants except for Emergency Services or Urgently Needed
Care.
2.3 Covering Physician: If Medical Group or its Specialist Physicians are,
for any reason, from time to time unable to provide Specialist Care Services
when and as needed, Medical Group or its Specialist Physicians may secure the
services of a qualified professional who shall render such Specialist Care
Services otherwise required of Medical Group's Specialist Physicians ("Covering
Professional"); provided that the Covering Physician is a professional approved
by IPA to provide Specialist Care Services to Enrollees and the Covering
Physician agrees in writing to be bound by all applicable requirements imposed
upon Medical Group and its Specialist Physicians under the terms of this
Agreement. Medical Group or its Specialist Physicians shall be solely
responsible for securing the services of such Covering Physician. Medical Group
and its Specialist Physicians shall ensure that the Covering Physician looks
solely to IPA for payment for services rendered and will not directly bill
Enrollees for Covered Services, except for applicable Copayments or Deductibles,
under any circumstances.
2.4 Personnel, Equipment and Supplies: Medical Group shall, at Medical
Group's sole cost and expense, furnish all personnel, equipment and supplies as
Medical Group deems necessary to perform Covered Services. IPA shall not
control, direct, or supervise Medical Group's personnel nor shall IPA be
responsible for such personnel. Any property furnished to Medical Group by IPA
(other than payments by IPA to Medical Group) shall remain the property of IPA,
and Medical Group shall not acquire any rights therein by reason of his or her
performance under this Agreement.
2.5 Referral Procedure: If a Medical Group Specialist Physician determines
that an Enrollee requires Covered Services not customarily provided by such
Specialist Physician, the Specialist Physician shall, consistent with the best
medical interests of the Enrollee and solely pursuant to IPA's referral
procedures and approval processes and in compliance with the terms of the
Enrollee's Plan agreement with IPA, direct the Enrollee to the Enrollee's
Primary Care Physician to refer the Enrollee to another health care provider.
Failure of Medical Group's Specialist Physicians to follow said referral
procedures may result in IPA deducting the full amount of all monies due and
owing to the treating health care provider from the amounts owed to Medical
Group in accordance with Paragraph 4.1 hereof.
2.6 Hospital Admission Authorization: Medical Group's Specialist Physicians
shall admit, or refer for admission, Enrollees only to the Primary Hospital
unless an appropriate bed or service is unavailable or the Enrollee suffers from
an Emergency condition. Medical Group's Specialist Physicians may not admit an
Enrollee to a hospital on a non-Emergency basis without first receiving the
prior written consent or approval of IPA or its designated agent for said
admission. Medical Group or its Specialist Physicians shall inform IPA of all
Emergency admissions at the time of admission.
2.6.1 Hospital Transfer: Medical Group shall assist Plan and IPA in
facilitating the transfer of Enrollees from a non-Participating Hospital to a
Participating Hospital if determined medically acceptable by Medical Group and
the attending Physician subject to review by Medical Director.
4
<PAGE> 5
ARTICLE III
REPRESENTATIONS
3.1 Representations by IPA: IPA hereby warrants and represents that it is
an entity organized and in good standing under the laws of the state of its
incorporation.
3.2 Representations by Medical Group: Medical Group hereby warrants and
represents that Medical Group is a group of Specialist Physicians, with the
lawful power to practice medicine, duly licensed to practice medicine in the
state first above written, and is in good standing with all licensing and
regulatory agencies in such state. Medical Group warrants and represents that
Medical Group's Specialist Physicians are qualified by training, experience,
credentialing and licensing to practice the specialty of Otolaryngology. Medical
Group warrants and represents that Medical Group's Specialist Physicians are
currently and for the duration of this Agreement shall remain members in good
standing of the medical staff of the Primary Hospital, with unrestricted
admitting privileges and appropriate clinical privileges to provide Covered
Services in Medical Group's Specialty as set forth in Exhibit "A".
ARTICLE IV
COMPENSATION
4.1 Compensation: In exchange for Medical Group assuming full
responsibility for Specialty Care Services as defined in Exhibit A of this
Agreement, IPA will pay Capitation to Medical Group as defined in Exhibit A of
this Agreement for each enrollee who has been assigned to the Medical Group on
or about the twenty-fifth day of the month for which the Capitation amount is
determined. Medical Group shall accept such compensation as payment in full for
all services rendered to Enrollees except for Copayments, Deductibles, or as
otherwise provided by this Agreement for Plans determined by IPA to be HMO
Plans.
4.2 Encounter Data: Medical Group will submit encounter data for each
calendar month to IPA by the tenth day of the next consecutive calendar month.
The following encounter data must be submitted to IPA, in a medium acceptable to
IPA, in order for Medical Group to receive Capitation for that month:
(a) Enrollee social security number
(b) Enrollee name
(c) Patient name, if different
(d) Date of service
(e) Professional's name
(f) CPT-4 with modifiers
(g) Diagnostic coding (ICD-9)
(h) Gross charge
(i) Copayment amount
(j) Plan name
Failure of Medical Group to supply accurate and timely encounter data to IPA
shall be deemed a breach of this Agreement.
4.3 Patient Billing: Medical Group and its Specialist Physicians shall look
only to IPA for compensation for Covered Services and shall at no time seek
compensation from Enrollees for Covered Services (including in the event of any
insolvency, dissolution or bankruptcy on the part of IPA) subject to Section 4.6
hereof. No Surcharge to any Enrollee shall be permitted. Unauthorized Enrollee
billing may, at IPA's sole discretion, be deducted from future payments to
Medical Group and refunded to the Enrollee. Unauthorized Enrollee billing is a
material breach of this Agreement and, at IPA's sole discretion, IPA may seek
any or all remedies for breach contained herein.
4.4 Billing Procedures: For all authorized Covered Services rendered by
Medical Group to an Enrollee during the Term (as defined in Paragraph 8.1) and
which are explicitly excluded from Capitated Services as defined in Exhibit A of
this Agreement respectively (hereinafter "Non-Capitated Services"), Medical
Group shall bill IPA for all such Non-Capitated Services. Medical Group shall
submit to IPA a Clean Claim (defined as a claim submitted on a redline HCFA 1500
or UB92 form with all required information which is uncontested by IPA) for all
5
<PAGE> 6
such Non-Capitated Services rendered by Medical Group to an Enrollee hereunder
within thirty (30) days of the date of service. Failure of Medical Group to
submit such Clean Claim within sixty (60) days of the date of service may, at
IPA's sole option, result in IPA non-payment of Medical Group for Non-Capitated
Services, and Medical Group is expressly prohibited from billing or initiating
collections actions against Enrollees, Plans, or IPA in the event payment is
denied by IPA for this or any other reason. IPA shall reimburse Medical Group
for Non-Capitated Services, in accordance with the requirements described above,
within forty five (45) working days of the date of receipt of a Clean Claim.
4.4.1 Medical Group hereby agrees that in no event, including but not limited
to non-payment by IPA or Plan, or IPA's or Plan's insolvency or breach of this
Agreement, shall Medical Group bill, charge, collect a deposit from, seek
compensation, remuneration, or reimbursement from, or have any recourse against
Enrollees or persons other than IPA for Covered Services. This provision shall
not prohibit collection of any applicable Copayments, Deductibles, or
Coinsurance.
4.4.2 Medical Group 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 Enrollees and that
this provision supersedes any oral or written agreement to the contrary now
existing or hereafter entered into between Medical Group and an Enrollee or
persons acting on an Enrollee's behalf.
4.4.3 Any modification, addition, or deletion to the provisions of this
Section 4.4 and subsections shall become effective on a date no earlier than
thirty (30) days after (a) the applicable state or federal regulatory agency has
received written notice of such proposed changes and (b) the applicable state or
federal regulatory agency has approved, in writing, such proposed change.
4.4.4 Medical Group shall not charge an Enrollee for a service which is not
Medically Necessary unless in advance of the provision of such service the
Enrollee is notified that the service is not covered, and the Enrollee
acknowledges in writing that he or she shall be responsible for payment of
charges for such service.
4.5 Capitation Adjustments: IPA reserves the right to make adjustments to
the Capitation of Medical Group in order to account for the retroactive addition
and termination of Enrollees. Capitation adjustments shall include instances
where HCFA or the applicable Medicaid agency retroactively adjusts payment to
Plan for Enrollees eligible under a Medicare Plan or Medicaid Plan respectively,
which adjustment shall in turn affect Plan's payment to IPA and IPA's payment to
Medical Group.
4.6 Patient Responsibility for Copayments, Deductibles and Non-Covered
Services: Medical Group shall directly bill and collect from Enrollee all
Copayment or Deductible amounts specifically permitted in the Plan's contract.
Medical Group shall collect any applicable Copayment amounts indicated on
Enrollee's Plan identification card (or as otherwise notified by Plan or IPA) at
the time of services. Deductibles and coinsurance amounts, if any, shall be
billed to Enrollee following Medical Group's receipt of an explanation of
benefits from Plan or IPA. Medical Group shall, subject to any legal or
contractual restrictions on either IPA or Participating Medical Groups, directly
bill and collect all charges from an Enrollee for any Non-Covered Services
provided to an Enrollee.
4.7 Payment Dependent Upon Collection: IPA shall make payment to Medical
Group based on the mechanism specified in Exhibit A. Notwithstanding the above
or anything else in this Agreement to the contrary, IPA shall only be
responsible to make the payments due Medical Group to the extent that IPA has
collected the charges for health care services provided by Medical Group for
which payment is sought from the Plan.
4.8 No Obligation Upon Termination: IPA shall not be bound by any financial
obligation to Medical Group upon termination of this Agreement except for the
following: Outstanding Capitation or payments for authorized non-Capitated
Services with dates of service prior to the termination date.
6
<PAGE> 7
4.9 Reimbursement of Expenditures: IPA or Plan is entitled to recover from
Medical Group any expenditure made, or recover any cost incurred, including but
not limited to any reasonable administrative cost, in providing or arranging for
any Covered Services for which Medical Group is Capitated hereunder but did not
so provide. An amount sufficient to compensate for such expenditures and/or
costs may be deducted from any payments due to Medical Group under this
Agreement. This provision shall survive the termination of this Agreement.
4.10 Provider Incentive Arrangements: Medical Group shall submit to Plan and
IPA and secure Plan's and IPA's approval of any provider incentive arrangements
relating to Medicare Plans and the Covered Services rendered hereunder. IPA and
Plan shall have the right to disclose such arrangements if required to do so by
applicable laws and regulations. Medical Group, IPA, or Plan shall maintain at
Medical Group's, IPA's, or Plan's sole expense any stop loss coverage required
to be maintained by applicable law in connection with any such provider
incentive arrangements and shall provide evidence of coverage upon request.
4.10.1 Referral Services: Medical Group shall secure approval from Medicare
Plan or Medicaid Plan with regard to the percentage of the total Covered
Services under this agreement which may be "Referral Services" as that term is
defined under applicable laws and regulations. Medical Group shall not change
the percentage of Referral Services hereunder without Plan's prior written
approval.
4.11 Other Compensation: In the event that Medical Group renders Covered
Services to Plan members for whom Medical Group does not receive Capitation or
services covered under an Enrollee's opt out benefits under a Point-of-Service
(POS) product, Medical Group agrees to accept such Plan's prevailing
reimbursement rates less any applicable Deductibles and Copayments and to bill
such Plan for all such services.
ARTICLE V
COORDINATION OF BENEFITS
5.1 Definition: Coordination of Benefits ("COB") means the determination
whether Covered Services provided to Enrollee will be paid for, either in whole
or in part, by more than one payor or under more than one Plan. COB is intended
to preclude the Medical Group from receiving an aggregate of more than one
hundred percent (100%) of covered charges from all coverage.
5.2 COB Obligations of Medical Group: IPA shall retain all monies collected
as a result of COB and third party claims regarding any Enrollee. Medical Group
and its Specialist Physicians agree to cooperate with IPA in the COB and the
recovery of claims from Plans. Medical Group hereby authorizes IPA to bill Plans
on Medical Group's behalf relative to Covered Services that Medical Group's
Specialist Physicians provide to Enrollees pursuant to this Agreement, and
hereby assigns to IPA all payments that may be owed by or received from such
payors for COB.
ARTICLE VI
OBLIGATIONS OF MEDICAL GROUP
6.1 Nonexclusivity: IPA and Medical Group agree that:
(a) Medical Group and its Specialist Physicians may continue to
provide professional medical services to Medical Group's own patients, or to
patients of other professionals or medical groups. Medical Group shall accept
Enrollees from Plans contracting with IPA.
(b) In rendering medical services to Medical Group and its
Specialist Physicians' own patients or to the patients of such other
professionals or medical groups, Medical Group and its Specialist Physicians
shall neither represent nor imply in any way that such medical services are
being rendered by or on behalf of IPA.
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(c) Any professional medical services rendered by Medical Group or
its Specialist Physicians to persons who are not Enrollees shall not be billed
by or through IPA, unless Medical Group and IPA otherwise agree in writing.
6.2 Insurance: IPA and Medical Group agree that:
(a) Workers Compensation Insurance: To the extent required by
applicable laws or as reasonably required by IPA, Medical Group and its
Specialist Physicians shall agree to provide, at Medical Group's sole cost and
expense, workers compensation insurance for Medical Group and its Specialist
Physicians' agents, servants, and employees throughout the entire term of this
Agreement. Medical Group shall use best efforts to add IPA as an additional
named insured to such policy or policies.
(b) Malpractice Insurance: Medical Group shall and shall cause
each of its Specialist Physicians to provide, unless otherwise agreed to by
Medical Group and IPA, at Medical Group and its Specialist Physicians' sole cost
and expense, throughout the Term of this Agreement, a policy of professional
malpractice liability insurance, with a licensed insurance company admitted to
do business in the state where Medical Group's Specialist Physicians are
practicing medicine, in a minimum amount of One Million Dollars ($1,000,000) per
claim and Three Million Dollars ($3,000,000) in the annual aggregate, or in such
other amounts as IPA may reasonably require from time to time, to cover any
loss, liability or damage alleged to have been committed by Medical Group or its
Specialist Physicians or Medical Group's agents, servants or employees. Medical
Group shall and shall cause its Specialist Physicians to purchase a "tail"
policy for a period of not less than five (5) years following the effective
termination date of the foregoing policy in the event said policy is a "claims
made" policy. Said "tail" policy shall have the same policy limits as the
Medical Group and its Specialist Physicians' prior professional malpractice
liability policy.
(c) Comprehensive and Property Insurance: Medical Group shall and
shall cause each of its Specialist Physicians to provide, at Medical Group's
sole cost and expense, throughout the Term of this Agreement, a policy or
policies of insurance covering Medical Group and its Specialist Physicians'
principal place of business insuring Medical Group and its Specialist Physicians
against any claim of loss, liability or damage committed or arising out of the
alleged condition of said premises, or the furniture, fixtures, appliances or
equipment located therein, together with standard liability protection against
any loss, liability or damage as a result of Medical Group's, Medical Group's
agent's, servant's or employee's operation of a motor vehicle for business
purposes, which policy limits shall be in a minimum amount of One Hundred
Thousand Dollars ($100,000) per claim and Three Hundred Thousand Dollars
($300,000) in the annual aggregate, or in such other amounts as IPA may
reasonably require from time to time. Medical Group shall use best efforts to
add IPA as an additional named insured to such policy or policies.
(d) Proof of Insurance: Medical Group shall and shall cause each
of its Specialist Physicians to provide IPA with a minimum of thirty (30) days
prior written notice in the event any of the policies set forth in this Article
VI are canceled, changed or amended. Medical Group shall and shall cause each of
its Specialist Physicians from time to time, on the reasonable request of IPA,
to furnish to IPA, as the case may be, written evidence that the policies of
insurance required hereunder are in full force and effect, and valid and
existing in accordance with the provisions of said paragraphs.
6.3 Performance: Medical Group shall cause each of its Specialist
Physicians to devote the time, attention and energy necessary for the competent
performance of Medical Group or its Specialist Physicians' duties hereunder.
Medical Group shall and shall cause each of its Specialist Physicians to
endeavor to furnish such Covered Services in accordance with all applicable
federal, state and local laws, statutes, ordinances and regulations and in
accordance with the applicable generally accepted medical standards prevailing
in the community at the time Covered Service is rendered.
6.4 Licensure / Credentialing Criteria: If at any time during the Term of
this Agreement, there shall be any voluntary or involuntary restriction,
suspension, revocation, withdrawal or nonrenewal of a Medical Group's
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Specialist Physician(s)'s license to practice medicine, that Specialist
Physician(s) shall terminate immediately, without regard to whether or not such
suspension, condition or revocation has been finally adjudicated for such
Specialist Physician(s). During the entire Term of this Agreement, Medical Group
shall and shall cause each of its Specialist Physicians to be and remain in
compliance with the Credentialing Criteria. IPA may review Medical Group and its
Specialist Physicians' continuing compliance with the Credentialing Criteria on
a periodic basis. After a thirty (30) day cure period, this Agreement may be
terminated immediately at any time IPA determines that Medical Group or its
Specialist Physicians do not continue to qualify under the Credentialing
Criteria. Medical Group and its Specialist Physicians hereby authorize any
governmental agency or professional licensing, accrediting or certifying agency,
or any other person or entity to release to IPA any information pertaining to
the Credentialing Criteria.
6.5 Hospital Privileges: During the entire Term of this Agreement, Medical
Group's Specialist Physicians shall be and remain members in good standing of
the medical staff of the Primary Hospital with the privileges specified in
Exhibit "A" (unless Medical Group is specifically excused from this requirement
by IPA). Loss for any reason of such medical staff membership by a Medical
Group's Specialist Physician(s) or loss, impairment, suspension or reduction of
privileges for any reason at the Primary Hospital shall, at the option of the
IPA, immediately terminate this Agreement for such Specialist Physician(s),
whereupon it shall become of no further force or effect, as otherwise provided
herein, without regard to whether or not such loss membership or loss,
impairment, suspension or reduction of privileges has been finally adjudicated.
Medical Group agrees and shall cause each of its Specialist Physicians to agree
that any Primary Hospital may provide to IPA a complete listing of physicians
holding medical staff and clinical privileges at such Primary Hospital. Medical
Group further agrees and shall cause each of its Specialist Physicians to agree
that any Primary Hospital and any other health care facility at which Medical
Group's Specialist Physicians at any time hold medical staff membership or
clinical privileges may notify IPA of any disciplinary action taken by such
Primary Hospital or other health care facility with respect to the medical staff
membership or clinical privileges of Medical Group's Specialist Physicians, and
this Agreement shall constitute Medical Group and its Specialist Physicians'
written authorization for the disclosure of such information by any Primary
Hospital or other health care facility to IPA.
6.6 Continuing Education: During the Term of this Agreement, Medical Group
shall cause each of its Specialist Physicians to maintain his or her
professional competence and skills commensurate with the applicable medical
standards, and, if required by law, shall attend and participate in required,
approved continuing education courses.
6.7 Compliance with Rules, Regulations, Policies and Procedures: Medical
Group agrees to be bound by all of the rules, regulations, policies and
procedures of IPA and Plan which include, but are not limited to, all applicable
state, federal and Plan rules, regulations, reviews, audits, and processes.
Medical Group agrees to cooperate with any administrative procedures which may
be adopted by IPA regarding the delivery of Covered Services pursuant to this
Agreement.
6.8 Provider Roster: Medical Group agrees that IPA and each Plan that
contracts with IPA may use Medical Group and its Specialist Physicians' name,
address, phone number, type of practice and willingness to accept new patients
in the IPA or Plan roster of Medical Group participants. The roster may be
inspected by and is intended to be used by prospective patients, prospective IPA
physicians, Plans and others.
6.9 Nondiscrimination: Medical Group agrees and shall cause each of its
Specialist Physicians to agree: (1) not to differentiate or discriminate in its
provision of Covered Services to Enrollees because of race, color, national
origin, ancestry, religion, sex, marital status, sexual orientation, physical or
mental disability or age; and (2) to render Covered Services to Enrollees in the
same manner, in accordance with the same standards, and within the same time
availability as offered to non-Plan patients consistent with existing medical
ethical/legal requirements for providing continuity of care to any patient.
6.10 Cooperation with Plan Medical Directors: Medical Group understands that
contracting Plans will place certain obligations upon IPA regarding the quality
of care received by Enrollees and that such Plans in certain
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instances will have the right to oversee and review the quality of care
administered to Enrollees. Medical Group agrees and shall cause each of its
Specialist Physicians to agree to cooperate with Plan medical directors in the
medical directors' review of the quality of care administered to Enrollees.
Medical Group further agrees and shall cause each of its Specialist Physicians
to agree to participate in any Enrollee grievance procedures, upon the request
of IPA or a contracting Plan.
6.11 Provision of Information to IPA:
(a) Medical Group and its Specialist Physicians, during the Term
of this Agreement, shall promptly notify IPA if any of the information submitted
to IPA for purposes of qualifying Medical Group or its Specialist Physicians as
a provider to IPA or credentialing Medical Group or its Specialist Physicians
under the Credentialing Criteria requires updating or no longer is accurate or
complete and such notification shall include any updated or corrected
information. Medical Group shall and shall cause each of its Specialist
Physicians to notify IPA immediately in the event Medical Group or one of its
Specialist Physicians is subject to any investigation, disciplinary proceeding
or sanction by any governmental authority, regulatory board or agency, hospital
or other healthcare institution and shall provide the facts and circumstances
giving rise to such investigation, proceeding or sanction.
(b) Medical Group consents and shall cause each of its Specialist
Physicians to consent to the inspection by IPA, its employees, agents or
representatives, of all documents that may be pertinent to an evaluation of
Medical Group or its Specialist Physicians under the Credentialing Criteria, and
Medical Group consents and shall cause each of its Specialist Physicians to
consent to the release of such information to IPA. Medical Group and each of its
Specialist Physicians hereby authorizes any governmental agency, Primary
Hospital, other Participating Provider, and any other hospital or health care
facility, employer, managed care program, or any other person or entity, to
release to IPA any information pertaining to the Credentialing Criteria,
including without limitation any disciplinary action initiated by a health care
facility with respect to the medical staff membership or clinical privileges of
Medical Group's Specialist Physicians. Medical Group and its Specialist
Physicians acknowledge and agree that this Agreement, upon execution by Medical
Group, constitutes written authorization for the release of all such information
as provided in this Agreement.
(c) Medical Group shall and shall cause each of its Specialist
Physicians to hereby release from liability IPA, its officers, directors,
employees and agents, for their acts performed and statements made, in good
faith and without malice, in connection with evaluating the Medical Group or its
Specialist Physicians under the Credentialing Criteria. Medical Group shall and
shall cause each of its Specialist Physicians to hereby release from liability
any and all individuals and entities (including, without limitation, Primary
Hospital (s) and other Participating Providers) who furnish to IPA, its
directors, officers, employees or its authorized agents, in good faith and
without malice, information concerning the Credentialing Criteria, and further
releases from liability IPA, its directors, officers, employees and authorized
agents, for the use of such information, in good faith, in connection with the
evaluation of Medical Group or its Specialist Physicians' compliance with the
Credentialing Criteria and terms of this Agreement.
(d) Medical Group acknowledges IPA's and Plan's obligation and
right to report to and access the National Practitioner Data Bank ("Data Bank")
as it relates to Medical Group. Medical Group agrees to assist IPA and Plan in
accessing and reporting to the Data Bank, including making inquiries to the Data
Bank on behalf of IPA and Plan if requested to do so by IPA.
6.12 Credentials: The procedures and criteria for such review of Medical
Group and its Specialist Physicians' credentials and continuing eligibility
under this Agreement shall be established by the Board of Directors of IPA and
communicated to Medical Group. The decision of the Board of Directors of IPA (or
any committee designated by the Board of Directors) with respect to Medical
Group or its Specialist Physicians' compliance with the Credentialing Criteria
and continuing eligibility under this Agreement shall be final. After a thirty
(30) day cure period, this Agreement may be terminated immediately at any time
IPA determines that Medical Group or its Specialist Physicians fail to meet the
criteria for continuing eligibility.
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6.13 Communication with Enrollees: Medical Group shall not issue any
communications which would interfere with or otherwise damage any of IPA's or
Plan's existing or potential contractual relationships. Nothing in this section
shall be construed to prohibit:
a. Communications necessary or appropriate for the delivery of
health care services;
b. Communications to Enrollees regarding treatment alternatives
regardless of the provisions or limitations of the Enrollee's coverage;
c. Communications to Enrollees regarding applicable rights to
appeal coverage determinations; or
d. Communications to Enrollees identifying the type of
reimbursement arrangement under which Medical Group is compensated for Covered
Services under this Agreement (i.e., fee-for-service, capitation, etc.),
excluding any communications with regard to the applicable rates of
reimbursement.
This provision shall survive the termination of this Agreement for a period of
six (6) months following the termination date.
6.14 Non-Conversion: Medical Group is prohibited from encouraging Medicare
or Medicaid Plan Enrollees to convert to any other Medicare or Medicaid Plan or
program throughout the term of this Agreement and for a period of twelve (12)
months beyond the termination date of this Agreement.
6.15 Identification of Special Status Medicare Plan Enrollees: Medical Group
shall use best efforts to identify to IPA and Medicare Plan all Enrollees of
Medicare Plans that qualify for additional compensation through HCFA and
Medicare. In particular, instances involving end stage renal disease, hospice
care, skilled nursing facilities, and institutionalized Medicare Plan Enrollees
will be closely monitored.
ARTICLE VII
MEDICAL RECORDS
7.1 Maintenance of Records under State and Federal Statutes: Medical Group
agrees to cooperate with IPA so that IPA may meet any requirements imposed on
IPA by state and federal law, as amended, and all regulations issued pursuant
thereto. Medical Group agrees and shall cause each of its Specialist Physicians
to agree to maintain such records and provide such information to IPA, to Plans,
to applicable state and federal regulatory agencies for compliance, as may be
required. Such obligations shall not be terminated upon termination of this
Agreement. Medical Group agrees to permit IPA, Plan's, or IPA's authorized
representative at all reasonable times to have access upon request to and to
make copies (at IPA's cost and expense) of books, records, and other papers
relating to Covered Services rendered by Medical Group and access to the cost
thereof, the amounts of any payments received from Enrollees or from others on
such Enrollee's behalf, or to assure financial solvency, health care delivery
capability, or to investigate complaints and grievances.
Medical Group agrees and shall cause each of its Specialist Physicians to agree
to retain such books and records for a term of at least seven (7) years from and
after the termination of this Agreement. Medical Group further agrees and shall
cause each of its Specialist Physicians to agree to permit access to and
inspection by IPA, Plans, all applicable State and Federal agencies, and
self-regulatory authorities, and their duly authorized representatives at all
reasonable times and upon demand, of all of those facilities, books and records
maintained or utilized by Medical Group or its Specialist Physicians in the
performance of Covered Services pursuant to this Agreement.
7.2 Record Retention: Medical Group shall and shall cause each of its
Specialist Physicians to maintain with respect to each Enrollee receiving
Covered Services hereunder a single standard medical record in
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such form, containing such information, and preserved for such time period(s),
and held confidential, as are required by State and Federal Law Such information
shall only be released or disseminated pursuant to the valid authorization of
the Enrollee whose medical condition is reflected in such records or as shall be
otherwise permitted under applicable state and federal law and regulations. To
the extent permitted by law, in accordance with procedures required by law, and
upon receipt of three (3) business days prior written notice from IPA, Medical
Group shall and shall cause each of its Specialist Physicians to permit IPA to
inspect and make copies (at IPA's cost and expense) of said records, and shall
provide copies of such records to IPA upon request. Records of Covered Services
rendered by Medical Group or its Specialist Physicians in a Participating
Hospital shall be created and maintained in accordance with state and federal
laws and regulations and the requirements of the Joint Commission on
Accreditation of Healthcare Organizations.
7.2.1 Medical Group shall maintain in Medical Group's state of operation and
in a manner which facilitates regulatory review and provide IPA and HCFA with
access to any books, records, and documentation relating to services rendered to
Medicare Contract Participants under this Agreement and any other records
requested by HCFA or IPA to assure financial solvency and health care delivery
capability and to investigate complaints and grievances. Access to such books,
records, and documentation shall be provided within the timeframes specified by
HCFA or, if access is requested by IPA only, upon reasonable notice by IPA.
7.3 Confidential Information:
(a) Non-Disclosure of Confidential Information:
(i) Medical Group acknowledges and shall cause each of
its Specialist Physicians to acknowledge that due to the nature of this
Agreement, Medical Group and its Specialist Physicians shall have access to and
acquire Confidential Information as defined in this Addendum related to the
business and operations of IPA which is solely the property of IPA and
constitutes confidential information of IPA, the disclosure of which to third
parties would cause harm to the goodwill of IPA. Disclosure of Confidential
Information to Medical Group and its Specialist Physicians shall be made due to
the position of trust and confidence that Medical Group and its Specialist
Physicians shall occupy and due to the agreement by Medical Group to the
restrictions contained herein.
(ii) In consideration of the acknowledgments set forth
above and in consideration for this Agreement, Medical Group and its Specialist
Physicians (and the employees, agents, successors and assigns of Medical Group
or its Specialist Physicians) shall hold any and all Confidential Information in
the strictest confidence as a fiduciary, and shall not, voluntarily or
involuntarily, sell, transfer, publish, disclose, display or otherwise make
available to others any portion of the Confidential Information without the
express written consent of IPA.
(iii) "CONFIDENTIAL INFORMATION" shall mean information
related to the business of IPA which is subject to efforts by IPA, reasonable
under the circumstances, to protect its confidentially; which derives actual or
potential economic value from not being generally known or readily ascertainable
by others who can obtain economic value from its disclosure or use; which is not
otherwise in the public domain; which is not already known to the recipient at
the time of disclosure; and which is not required to be disclosed under law.
Confidential Information includes, without limitation, this Agreement and the
addenda and other attachments hereto, lists of Payors and Participating
Providers, fees schedules, and information related thereto, information relating
to earnings, volume of business, methods, systems, practices or plans of IPA and
its contracting Plans, and all similar information of any kind or nature
whatsoever which is known only to persons having a fiduciary or confidential
relationship with IPA and its Plans that own proprietary rights in or to such
information.
(b) Medical Records: The parties hereto shall maintain the
confidentiality of any and all medical records which shall be in their
possession and control, and such information shall only be released or
disseminated pursuant to the valid authorization of the patient whose medical
condition is reflected in such medical records or as shall be otherwise
permitted under applicable law.
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7.4 Trademarks and Copyrights: Each party acknowledges each other party's
sole and exclusive ownership of its respective trade name, commercial symbols,
trademarks, service marks, copyrights and patents, whether presently existing or
later established (COLLECTIVELY "MARKS"). No party shall use the other party's
Marks, in advertising or promotional materials or otherwise, without the owner's
prior written consent; PROVIDED, HOWEVER, that Plans holding agreements with IPA
may publicize Medical Group and its Specialist Physicians' names, office
addresses and telephones, the services offered by Medical Group and its
Specialist Physicians, and the status of Medical Group and its Specialist
Physicians as a Participating Physician.
ARTICLE VIII
TERM OF AGREEMENT
8.1 Term: This Agreement will become effective on the date first written
above and will be effective for a period of thirty-six (36) months (except as
modified in 9.3) thereafter (the "Initial Term"). This Agreement, as it may be
amended from time to time, will automatically be renewed for successive periods
of twelve (12) months each (each a "Subsequent Term; together with the Initial
Term, the "Term") on the same terms and conditions contained herein, unless
sooner terminated pursuant to the terms of this Agreement.
ARTICLE IX
TERMINATION OF THE AGREEMENT
9.1 Expiration of Agreement: Unless otherwise terminated as provided
hereinafter, this Agreement shall continue in force as provided herein.
9.2 Immediate Termination: Notwithstanding any other provision of this
Agreement, IPA shall have the right, in its sole and absolute discretion, to
terminate this Agreement immediately in the event that (a) Medical Group or
Medical Group Specialist Physician breaches any agreement, representation,
warranty, or covenant of Medical Group set forth in this Agreement; (b) Medical
Group fails to maintain insurance coverage as set forth in Paragraph 6.2 (d);
(c) Medical Group or Medical Group Specialist Physician has any voluntary or
involuntary restriction, suspension, revocation, withdrawal, or nonrenewal of
Medical Group or Medical Group Specialist Physician's license to practice
medicine; (d) Medical Group or Medical Group Specialist Physician has any loss
of medical staff membership or loss, impairment, suspension, or reduction of
privileges for any reason at a Participating Hospital; or (e) Plan or IPA
reasonably determines that continuation of the terms of this Agreement may
negatively impact the care rendered to Enrollees. Should events stated in (c)
and (d) above affect an individual Specialist Physician only, such termination
rights of IPA as contemplated herein will apply to that Specialist Physician
only and not to the Medical Group as a whole.
9.3 Renegotiation During Initial Term: Each party to this Agreement will
have the opportunity to open this Agreement for rate negotiation fifteen (15)
months into the Initial Term. During the subsequent sixty (60) day period new
rates (new Exhibit A) will be agreed upon and those rates will be in effect from
the nineteenth (19th) month through the end of the Initial Term. Should no
agreement regarding Exhibit A be reached by the end of the sixty (60) day
period, then this Agreement may be terminated by either party effective after
eighteen (18) months of the Initial Term.
9.4 Termination Without Cause Upon Notice: At least thirty (30) days prior
to the beginning of each subsequent term, the parties shall have agreed upon the
rates as defined in Exhibit A. Should there be no agreement, either party may
terminate this Agreement at the end of that thirty (30) day period (i.e. before
the start of the subsequent Term).
9.5 Termination of Agreement with Plan: In the event that the agreement to
provide services between IPA and a Plan is terminated for any reason, IPA may
terminate this Agreement, with respect to that Plan, on thirty (30) days prior
written notice to Medical Group.
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9.6 Responsibility for Enrollees at Termination: Medical Group shall and
shall cause each of its Specialist Physicians to continue to provide Covered
Services to an Enrollee who is receiving Covered Services from Medical Group or
its Specialists Physicians on the effective termination date of this Agreement
so long as Enrollee retains eligibility under a Plan until the earlier of
completion of such Covered Services, IPA's provision for the assumption of such
treatment by another provider, or the expiration of twelve (12) months
(consistent with existing medical ethical/legal requirements for providing
continuity of care to a patient); however, Medical Group shall and shall cause
each of its Specialists Physicians to cooperate with IPA to arrange for the
prompt assumption of such Covered Services by another Participating Provider.
Medical Group shall be compensated for Covered Services provided to Enrollees
pursuant to this Paragraph 9.6 (prior to and following the effective termination
date of this Agreement) at the lesser of IPA's prevailing fee-for-service rates
or Medical Group's billed charges.
9.7 Non-solicitation of IPA Patients: Subject to and consistent with then
existing medical ethical/legal requirements for providing continuity of care to
patients, Medical Group agrees and shall cause each of its Specialist Physicians
to agree that if this Agreement is terminated for any reason, that Medical Group
and its Specialist Physicians shall not during the Restricted Period (as
hereinafter defined) and within the Area (as hereinafter defined) in any manner
encourage or induce Enrollees to whom Medical Group or its Specialist Physicians
rendered Covered Services pursuant to this Agreement to remain under the
professional care of Medical Group or its Specialist Physicians. Further,
Medical Group and its Specialist Physicians shall not during the Restricted
Period (as hereinafter defined) and within the Area (as hereinafter defined) in
any manner encourage, solicit, or induce any Enrollee to whom Medical Group or
its Specialist Physicians rendered Covered Services pursuant to this Agreement
to obtain Covered Services from any other physician, practice, IPA, medical
group or Plan which would deprive IPA of that Enrollee. These prohibitions shall
be in force for twelve (12) months after the effective date of termination of
this Agreement (the "Restricted Period"). Medical Group agrees and shall cause
each of its Specialist Physicians to agree that IPA is entitled to injunctive
relief, damages and attorney's fees should Medical Group or its Specialist
Physicians breach this section of the Agreement, as determined by an impartial
arbitrator or court of competent jurisdiction. Except as prohibited by law,
damages shall include, but not be limited to, all monies paid to Medical Group
under the terms of this Agreement during the period of this Agreement and all
future Agreements containing the same or similar provisions. For purposes of
this Section 9.7, "Area" shall mean the geographic service area of IPA
consisting of those zip codes shown in Exhibit "C".
9.8 Effect of Termination: Upon expiration of this Agreement or termination
of this Agreement for any reason, Medical Group shall and shall cause each of
its Specialist Physicians to cease use of any signs, trademarks, letterhead,
forms or other materials associating Medical Group and its Specialist Physicians
with IPA. Notwithstanding any termination or expiration of this Agreement,
Medical Group and its Specialist Physicians' names may remain on the
directories, rosters or lists of IPA or of Plans until such directories, rosters
or lists are next regularly revised, and such listing shall not constitute a
reinstatement, renewal or continuation of this Agreement. Upon termination or
expiration of this Agreement, the obligation of either party to perform as to
any duty or obligation which accrued prior to such termination or expiration
shall continue until performed or waived by the other party. Further, upon
expiration or termination of this Agreement for any reason, Medical Group
immediately shall and shall cause each of its Specialist Physicians to return to
IPA all property of IPA in Medical Group or its Specialist Physicians'
possession or under his or her control, including but not limited to manuals,
forms, procedures and policies.
9.9 Indemnification: Medical Group shall and shall cause each of its
Specialist Physicians to indemnify IPA, its directors, officers, agents and
representatives against all damages, claims, losses, settlements, judgments and
liabilities (including but not limited to attorney's fees and costs and the
costs of all dispute resolution proceedings) arising from or relating to any
material breach by Medical Group or its Specialist Physicians of this Agreement.
IPA shall indemnify Medical Group and its Specialist Physicians against
all damages, claims, losses, settlements, judgments and liabilities (including
but not limited to attorney's fees and costs and the costs of all dispute
resolution proceedings) arising from or relating to any material breach by IPA
of this Agreement.
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ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Documentation: IPA shall provide Medical Group with a copy of any
document or agreement required by a Plan which has been approved by IPA's Board
of Directors and which requires Medical Group or its Specialist Physicians'
signature. If Medical Group or its Specialist Physicians do not execute and
return said document within fifteen (15) calendar days of document receipt, IPA
may sign such document (other than documents, agreements or other forms which
require the exercise by Medical Group or its Specialist Physicians' independent
medical judgment) on Medical Group and its Specialist Physicians' behalf as
Medical Group's attorney-in-fact, and Medical Group does hereby appoint IPA as
his or her attorney-in-fact during the Term with respect to the execution and
delivery of such documents or agreements or other forms. Medical Group shall and
shall cause each of its Specialist Physicians to comply with all requests for
business or clinical records by IPA within five (5) working days of the request
for records.
10.2 Amendment: This Agreement may be amended by IPA to comply with any
agreement entered into between IPA and a Plan or to comply with any applicable
state or federal law or regulation or other governmental requirement. All other
amendments to this Agreement shall be made in writing by the mutual consent of
the parties.
10.3 Generic Pharmaceuticals: Medical Group shall use best efforts to
prescribe or authorize the substitution of generic pharmaceuticals when
appropriate and shall cooperate with Plan formularies and state and federal
requirements regarding the substitution of generic pharmaceuticals. This
provision shall not be interpreted to interfere with Medical Group's independent
medical judgment.
10.4 Interpretation: The validity, enforceability, and interpretation of any
of the clauses of this Agreement shall be determined and governed by applicable
Georgia law as well as applicable federal laws. In the event of any conflict
between this Agreement and a contract entered into between a Plan and (a) the
State of Georgia for prepaid Medicaid Enrollees, (b) HCFA for prepaid Medicare
Enrollees, and/or (c) any governmental entity with respect to a government
health care or benefit program (collectively referred to as "Contracts") for
which Medical Group is providing services, the Contracts shall govern. Medical
Group agrees to be subject to all requirements that may be imposed on IPA and
Medical Group by Plan under the Plan's agreement with IPA or the Contracts.
10.5 Assignment of Enrollees: This Agreement shall not be construed as a
guarantee, warrant, or promise that Enrollees will be referred or assigned to
Medical Group by IPA or Plan.
10.6 Agreements with Employees and Independent Contractors: Notwithstanding
any interpretation of this Agreement to the contrary, Medical Group agrees that
all provisions of this Agreement, unless clearly inapplicable (as determined by
IPA), shall apply with equal force to Medical Group's employees or independent
contractors, and Medical Group agrees to assure such compliance. Medical Group
agrees and shall require its employees and independent contractors who are
providing Covered Services to Enrollees to agree that in the event of any
inconsistency, omission, or misinterpretation in the contract entered into by
Medical Group and the employee or independent contractor, the terms of this
Agreement shall control, notwithstanding any review and/or approval of those
agreements by IPA. At IPA's request Medical Group shall provide IPA with copies
of all forms of agreements entered into to render services to Enrollees pursuant
to this Agreement.
ARTICLE XI
UTILIZATION AND QUALITY MANAGEMENT PROCEDURE
11.1 Utilization Management Procedure: A utilization management program
shall be established to review the medical necessity of Covered Services
furnished by Medical Group or its Specialist Physicians to Enrollees on an
inpatient and outpatient basis. Such program will be established by IPA, in its
sole and absolute discretion. This program shall include all elements covered in
the IPA's Utilization Management Plan Manual,
15
<PAGE> 16
which may be amended from time to time by IPA at its sole and absolute
discretion. In addition, any utilization management program required by the
conditions or provisions of a Plan shall also be deemed to be applicable under
the terms and conditions of this Section. Medical Group shall and shall cause
each of its Specialist Physicians to comply with and, subject to Medical Group
and its Specialist Physicians' rights of appeal, shall be bound by such
utilization management program, and if requested, shall serve on the utilization
management committee of such program, with reasonable compensation (as
determined by IPA), in accordance with the procedures established by IPA and
Plans. Failure to comply with the requirements of this Paragraph 11.1 may be
deemed by IPA to be a material breach of this Agreement and may, at IPA's
option, be grounds for immediate IPA termination of this Agreement. Medical
Group agrees and shall cause each of its Specialist Physicians to agree that
decisions of the IPA designated utilization management committee may be used to
deny Medical Group payment hereunder for those Covered Services provided to an
Enrollee which are determined not to be not Medically Necessary or for which
Medical Group or its Specialist Physicians failed to receive a prior written
consent to treat an Enrollee. All documents and information received or obtained
by Medical Group or its Specialist Physicians pursuant to this Paragraph shall
be held confidential by Medical Group and its Specialist Physicians during and
after the term of this Agreement and shall not be disclosed to any person
without the prior written consent of IPA or as otherwise required by applicable
law.
11.2 Quality Management Procedure: A quality management program shall be
established to review the medical appropriateness and quality of Covered
Services furnished by Medical Group or its Specialist Physicians to Enrollees on
an inpatient and outpatient basis. Such program will be established by IPA, in
its sole and absolute discretion. This program shall include all elements
covered in the IPA's Quality Management Plan Manual, which may be amended from
time to time by IPA at its sole and absolute discretion. In addition, any
quality management program required by the conditions or provisions of a Plan
shall also be deemed to be applicable under the terms and conditions of this
Paragraph. Medical Group shall and shall cause each of its Specialist Physicians
to comply with and, subject to Medical Group and its Specialist Physicians'
rights of appeal, shall be bound by such quality management program, and if
requested, shall serve on the quality management committee of such program, with
reasonable compensation (as determined by IPA), in accordance with the
procedures established by IPA and Plans. Failure to comply with the requirements
of this Paragraph 11.2 may be deemed by IPA to be a material breach of this
Agreement and may, subsequent to a thirty (30) day cure period, at IPA's option,
be grounds for immediate IPA termination of this Agreement. All documents and
information received or obtained by Medical Group or its Specialist Physicians
pursuant to this Paragraph shall be held confidential by Medical Group and its
Specialist Physicians during and after the term of this Agreement and shall not
be disclosed to any person without the prior written consent of IPA or otherwise
required by applicable law.
ARTICLE XII
GENERAL PROVISIONS
12.1 Notices: Any notices required or permitted to be given hereunder by
either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph on the first page of this Agreement, but each party may
change such party's address by written notice given in accordance with this
paragraph. Notices delivered personally will be deemed communicated as of actual
receipt; mailed notices will be deemed communicated as of three days after
mailing.
12.2 Entire Agreement of the Parties: This Agreement supersedes any and all
agreements, either written or oral, between the parties hereto with respect to
the subject matter contained herein and contains all of the covenants and
agreements between the parties with respect to the rendering of Covered
Services. Each party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by
either party, or anyone on behalf of either party which are not embodied herein,
and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding. Except as otherwise provided herein, any
effective modification must be in writing signed by the party to be charged.
16
<PAGE> 17
12.3 Severability: If any provision of this Agreement is held by a court of
competent jurisdiction or applicable state or federal law and their implementing
regulations to be invalid, void or unenforceable, the remaining provisions will
nevertheless continue in full force and effect.
12.4 Arbitration: Any controversy or claim arising out of or relating to
this Agreement or the breach thereof will be settled by binding arbitration
before a single neutral arbitrator with experience, if possible, in healthcare
and contracts, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Either party
may elect to conduct the proceedings on an expedited basis and shall have the
right to conduct such discovery of evidence as may be allowed by the arbitrator.
Such arbitration shall occur within the County of Fulton, State of Georgia,
unless the parties mutually agree to have such proceeding in some other locale.
12.5 Governing Law: This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
12.6 Assignment: This Agreement shall be binding upon, and shall inure to
the benefit of, the parties to it, and their respective heirs, legal
representatives, successors and assigns. Notwithstanding the foregoing, Medical
Group and its Specialist Physicians may not assign any of his or her rights or
delegate any of Medical Group and its Specialist Physicians' duties hereunder
without the prior written consent of the IPA. Notwithstanding the foregoing, IPA
may assign any of its respective rights or delegate any of its respective duties
hereunder without obtaining the prior written consent of Medical Group.
12.7 Independent Contractor: At all times relevant and pursuant to the terms
and conditions of this Agreement, Medical Group and each of its Specialist
Physicians is and shall be construed to be an independent contractor practicing
Medical Group and its Specialist Physicians' profession and shall not be deemed
to be construed to be an agent, servant or employee of IPA. This Agreement shall
not be deemed to create a joint venture or partnership. Medical Group and each
of its Specialist Physicians shall be liable for his or her own debts and
liabilities associated with the practice of medicine and shall further be solely
responsible for payment of any income tax, unemployment insurance, social
security or other withholding or payroll taxes.
12.8 Confidentiality: The terms of this Agreement and in particular the
provisions regarding compensation, are confidential and shall not be disclosed
except as necessary to the performance of this Agreement or as required by law.
12.9 Waiver: The waiver of any provision, or of the breach of any provision,
of this Agreement must be set forth specifically in writing and signed by the
waiving party. Any such waiver shall not operate or be deemed to be a waiver of
any prior or future breach of such provision or of any other provision.
12.10 Headings: The subject headings of the articles and paragraphs of this
Agreement are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
12.11 Third Party Beneficiaries: Except where provided in favor of Enrollee,
Plans, and/or certain governmental entities, there shall be no third party
beneficiaries to this Agreement.
17
<PAGE> 18
IN WITNESS HEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
AHI MEDICAL GROUP, ATLANTA - (IPA) ENT Center of Atlanta, Inc.
By: By:
/s/ Richard Collado 10/6/97 /s/ Ramie A. Tritt 8/1/97
- ---------------------------------- ----------------------------------
Signature Date Signature Date
Richard Collado Ramie A. Tritt
- ---------------------------------- ----------------------------------
Printed Name Printed Name
Vice President
- ---------------------------------- ----------------------------------
Title State License, Certificate or
Authorization No.
58-2009302
----------------------------------
Social Security Number or Federal
Tax I.D. No.
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 Commision.
EXHIBIT "A"
COMPENSATION
Medical Group agrees to accept the Capitated Services payment amounts listed
below as compensation for all Covered Services customarily provided by a
Physician practicing in the field of OTOLARYNGOLOGY including, without
limitation, such services rendered in a Physician's office, ambulatory care
facility, or on an inpatient basis performed at the applicable IPA's
Participating Hospitals which are Covered Services and are rendered in a manner
consistent with all provisions of this Agreement, IPA's UM/QI protocols, and the
applicable Certificate, and at non-participating hospitals in the Service Area
provided Participating Physician is notified of the need for a Participating
Physician by IPA or its designee.
<TABLE>
<CAPTION>
Health Plan Type Capitated Services Payment
---------------- --------------------------
<S> <C>
Commercial [*] per member per month
Medicare [*] per member per month
Medicaid N/A
</TABLE>
HEALTH SERVICES COVERED UNDER CAPITATED ARRANGEMENT
1. PHYSICIAN'S SERVICES, INCLUDING INPATIENT AND OUTPATIENT HEALTH CARE SERVICES
2. LABORATORY AND RAYDIOLOGY SERVICES RENDERED IN PROVIDER'S FACILITY
3. AUDIOLOGY SERVICES RENDERED IN THE PROVIDER'S FACILITY OFFICE
4. ALL EMERGENCY AND URGENT SERVICES RENDERED BY PROVIDERS FOR MEMBERS COVERED
BY PLAN
5. ALL APPROVED ENTRELATED CPT CODES EXCEPT THE CPT CODES LISTED IN #11 BELOW
HEALTH SERVICES WHICH ARE NOT COVERED UNDER THE CAPITATED ARRANGEMENT
(compensated at [*] on a fee-for-service basis)
1. DURABLE MEDICAL EQUIPMENT ITEMS REFERRED TO THE APPLICABLE PARTICIPATING
PROVIDER(S) SPECIFED BY PAYOR.
2. PHYSICAL AND/OR OCCUPATIONAL THERAPY SERVICE SUCH-SERVICE WILL BE REFERRED
TO THE PARTICIPATING FACILITY SPECIFIED BY PAYOR.
3. HOSPITAL AND ALL (THERE FACILITY CHARGES FOR INPATIENT AND OUTPATIENT SERVICE
(INCLUDING PHYSICIAN OWNED, LICENSED AMBULATORY SURGERY CENTER(S).
4. HEARING AIDS AND IMPLANTS OF HEARING DEVICES (INCLUDING CPT CODES-69710,
60711 AND 69730)
5. LABORATORY VASCULAR LABORATORY AND RADIOLOGY SERVICE REFERRED BY
OTOLARYNGOLOGIST TO APPLICABLE PARTICIPATING PROVIDERS SPECIFIED BY PAYOR.
6. HOME HEALTH SERVICES AND HOSPICE CARE
7. PHARMACEUTICAL CHARGES DISPENSED BY APPLICABLE PARTICIPATING PROVIDERS
SPECIFIED BY PAYER.
8. CHRONIC PAIN MAMAGEMENT
9. COSMETIC SERVICES
10. DENTAL PROCEDURES INCLUDING TMJ THERAPY, SPLINTS AND MUSCLE SPASM TREATMENTS
11. THE FOLLOWING CPT CODES:
<TABLE>
<S> <C> <C> <C> <C>
15100 60220 61600-01 69710-11 69950
15770 60225 61605-06-07-08-09-10-11-12-13 69720 69955
20926 60240 61615-16 69725 69960
21235 60245 61618-19 69740 69970
31360 60256 62100 69745 69979
31365 60260 62120-21 69801-02 92599 (VORTEQ)
31367 60270-71 62140 69805-06 95920
31368 61518-19 63707 69820 95925
31390 61520-21 69300 69840 95933
31395 61526 69310 69905 95935
42425 61530 69320 69910 95937
42426 61580-81-82-83-84-85 69530 69915
60252 61590-91-92 69335 69930
60254 61595-96-97-98 69700 69949
8/1/97
--------- --------
Initials Date
</TABLE>
19
<PAGE> 20
EXHIBIT "B"
CREDENTIALING CRITERIA
AS AN INDUCEMENT TO IPA TO ENTER INTO THIS AGREEMENT, EACH OF THE MEDICAL
GROUP'S SPECIALIST PHYSICIANS REPRESENTS AND WARRANTS TO IPA THE FOLLOWING, AND
COVENANTS AND AGREES AS FOLLOWS:
I. SPECIALIST PHYSICIAN CREDENTIALS
1.1 Specialist Physician holds as of the date of this Agreement and will
hold throughout the term of this Agreement an unrestricted license or other
authorization to practice in the state of Georgia. A copy of Specialist
Physician current valid license shall be provided to IPA.
1.2 Specialist Physician is a member of the medical staff at the following
Primary Hospital(s) or other hospital(s), having full and unrestricted clinical
and admitting privileges in Specialist Physician specialty at such hospitals:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------
Specialist Physician shall maintain all such medical staff appointments and all
clinical and admitting privileges granted in connection therewith unrestricted
throughout the term of this Agreement.
1.3 Specialist Physician has and shall have and maintain throughout the
term of this Agreement unrestricted prescribing privileges. A copy of Specialist
Physician's current DEA certification and state drug registration shall be
provided to IPA.
1.4 Specialist Physician has not and shall not (i) have any hospital
appointment or privileges reduced, limited, suspended or terminated or been
placed on probation by any hospital at which Professional has had a medical or
professional staff appointment or privileges; (ii) been restricted from
receiving payments from Medicare, Medicaid or any other third party
reimbursement programs; (iii) been subject to disciplinary action by any state
or local medical society, specialty society, state board of medical examiners or
the Drug Enforcement Agency; or (iv) been subject to sanctions of any kind
whatsoever by any person or entity for improper prescribing procedures or
actions; PROVIDED, HOWEVER, that in the discretion of IPA, the foregoing shall
not apply to suspensions related to a reasonable delay in completing medical
records. Any such actions shall be reported by Specialist Physician to IPA.
1.5 Specialist Physician has not and shall not have been disciplined,
suspended or terminated for cause from a preferred provider organization, health
maintenance organization, or other managed care organization.
1.6 Specialist Physician has not been subject to indictment for any crime.
1.7 Specialist Physician shall report to IPA any physical or mental
problems that may affect Specialist Physician ability to practice Specialist
Physician profession. If Specialist Physician has such disabilities then
Specialist Physician shall provide a statement from Specialist Physician's
personal physician stating that the disabilities shall not interfere with
Specialist Physician's ability to provide high quality medical care.
1.8 Specialist Physician shall furnish all information requested by IPA on
its application form for credentialing and recredentialing for Participating
provider status under this Agreement. Specialist Physician shall furnish
complete information with respect to Specialist Physician's professional
training and experience, including, without limitation, medical and professional
education, internship and residency, Board Certification and eligibility,
fellowships, teaching appointments, licensure, medical staff membership and
clinical privileges at any facility,
24
<PAGE> 21
employment history, and references. IPA has the sole discretion with respect to
the determination of the acceptability of such credentials. Specialist Physician
shall execute the appropriate release directing any and all entities that have
information with respect to the Credentialing Criteria to furnish such
information to IPA upon request. Such entities include, without limitation, all
Participating Hospitals, Primary Hospitals, other hospitals and health care
facilities, medical societies, state examining boards, Medicare intermediaries
and third party payors.
1.9 Specialist Physician shall provide the following information:
(a) Details of any liability actions brought against
Specialist Physician arising out of or related to the
delivery of patient care services, that have resulted
in adverse judgments or in any financial settlements.
(b) Details of any pending liability action brought
against Specialist Physician arising out of or
related to the delivery of patient care services.
IPA has sole discretion in the determination of the impact of this information
for purposes of compliance with the Credentialing Criteria.
1.10 As of the date of this Agreement, Specialist Physician is duly
qualified to offer, and in fact offers and will continue to offer throughout the
term of this Agreement, Specialist Care Services in the area of [Name of
Specialty].
1.11 Specialist Physician shall be board certified by all appropriate boards
applicable to the Specialist Care Services in the specialty identified above.
(Professionals who have recently completed training and are board eligible may
be considered for Participating Providers, pending board certification;
PROVIDED, HOWEVER, if a Specialist Physician fails to become board certified
within the time frame prescribed by the appropriate board, the Participating
Provider status of such Specialist Physician shall be subject to termination).
II. BUSINESS CRITERIA
The Specialist Physician Credentials constitute the Credentialing Criteria for
the professional qualifications of physician Providers. Specialist Physician
qualifying under the Specialist Physician Credentials shall be evaluated by IPA
to determine if such Specialist Physician fulfills the Business Criteria. The
Business Criteria of IPA regard the evaluation of the Specialist Physician in
the context of the business needs of IPA and its clients.
2.1 IPA may utilize available data sources to evaluate, where possible, the
cost effectiveness of the patterns of practice of Medical Group. The evaluation
factors may include, without limitation: frequency of service; intensity of
service; average cost per DRG; average cost per encounter; and usage of
ancillary services. A significant differentiation by Specialist Physician in any
of the parameters subject to this evaluation may indicate a practice style and
philosophy incompatible with the business objectives of IPA. IPA may determine,
in its sole discretion, to decline to execute a Participating Physician
agreement with any Specialist Physician based upon this or any other
information.
2.2 IPA may also consider how the participation of Specialist Physician
furthers the needs of IPA's clients and their Enrollees. Such an evaluation may
include, without limitation: Specialist Physician specialty, if any; the need
for a physician of such qualifications in a specific geographic area; the number
of physicians necessary to service the population; the relationship of
Specialist Physician to other Participating Providers; and unique skills such as
foreign language proficiency. Qualification under the Business Criteria shall be
in the sole discretion of IPA.
2.3 From time to time IPA may, in its sole discretion, to serve the needs
of Plan and Enrollees, offer Participating Provider agreements to physicians or
other providers deemed to be competent who may not fulfill each aspect of the
Credentialing Criteria.
25
<PAGE> 22
III. GENERAL
3.1 IPA reserves the right to require independent verification of any and
all of the Credentialing Criteria and to perform site visits to the location of
Specialist Physician office.
3.2 From time to time, IPA may, in its sole discretion, to meet the needs
of its clients and Enrollees,
(a) modify the Credentialing Criteria, and
(b) offer participation in selected Plans to Participating
Providers meeting criteria that, in the discretion of IPA,
best meet the specific terms, conditions, and purposes of such
Plans and the needs of its Enrollees.
3.3 Specialist Physician agrees that IPA may confirm Specialist Physician
compliance with any of the Credentialing Criteria for the benefit of payors and
for the purpose of showing Specialist Physician compliance with credentialing
criteria applicable under any agreement with payors. Specialist Physician agrees
to cooperate with IPA in demonstrating Specialist Physician compliance with
Credentialing Criteria under such agreements.
26
<PAGE> 23
EXHIBIT "C"
IPA SERVICE AREAS
Below is listed the name of each IPA and its corresponding zip code service
area:
AHI Medical Group, Atlanta - Northeast (Network 1) consists of the following zip
codes:
<TABLE>
<S> <C>
30075 30328
30076 30338
30130 30341
30131 30342
30201 30345
30202 30346
30319 30350
30326 30360
</TABLE>
AHI Medical Group, Atlanta - North (Network 2) consists of the following zip
codes:
<TABLE>
<S> <C>
30060 30101
30062 30102
30064 30114
30066 30144
30067 30183
30068 30188
30080
</TABLE>
AHI Medical Group, Atlanta - West (Network 3) consists of the following zip
codes:
<TABLE>
<S> <C>
30001 30134
30057 30135
30059 30141
30082 30187
30132 30336
</TABLE>
AHI Medical Group, Atlanta - East Central (Network 4) consists of the following
zip codes:
<TABLE>
<S> <C>
30002 30083
30021 30084
30030 30088
30032 30324
30033 30329
30079
</TABLE>
AHI Medical Group, Atlanta - East (Network 5) consists of the following zip
codes:
<TABLE>
<S> <C> <C>
30034 30207 30267
30035 30208 30278
30038 30209 30279
30058 30211 30340
30071 30221 30518
30087 30243 30620
30092 30244 30641
30093 30245 30655
30136 30247 30666
30174 30249 30680
30203 30255
</TABLE>
27
<PAGE> 24
AHI Medical Group, Atlanta - Metro (Network 6) consists of the following zip
codes:
<TABLE>
<S> <C>
30214 30314
30303 30315
30305 30316
30306 30317
30307 30318
30308 30327
30309 30330
30310 30331
30311 30334
30312 30339
30313
</TABLE>
AHI Medical Group, Atlanta - South (Network 7) consists of the following zip
codes:
<TABLE>
<S> <C> <C>
30027 30236 30291
30049 30248 30296
30050 30253 30334
30205 30260 30337
30213 30268 30344
30216 30273 30349
30223 30274 30354
30228 30276
30233 30281
30234 30290
</TABLE>
AHI Medical Group, Atlanta - Southwest (Network 8) consists of the following zip
codes:
30220
30259
30263
30265
30269
30277
28
<PAGE> 25
EXHIBIT "D"
PARTICIPATING PHYSICIANS
I. Medical Group Participating Physicians:
<TABLE>
<S> <C> <C>
ATLANTA EAR, NOSE AND THROAT
ASSOCIATES, P.C.:
Ramie A. Tritt, M.D.
Micheal F. Pratt, M.D. ALLATOONA ENT & FACIAL PLASTIC
Harold W. Moss, M.D. SURGERY:
Andrew J. Diamond, M.D.
Daniel M. Adams, M.D. Thomas Muller, M.D.
William S. Smith, M.D.
Keith R. Jackson, M.D. Elizabeth Von Biberstein, M.D.
Robert A. Gradlage, M.D.
Michael J. Pickford, M.D.
Nancy R. Griner, M.D. JONES OTOLARYNGOLOGY GROUP,
Ann K. White, M.D. P.C.:
Albert A. Clairmont, M.D.
Keith A. Kowal, M.D. Herbert C. Jones, M.D.
David Cohen, M.D.
Sanjay A. Bhansali, M.D. H. Chapman Jones, M.D.
Arthur J. Torsiglieri, M.D.
Terry L. Good, M.D. Sandra Jones, M.D.
Donald Cote, M.D.
Andrew R. Golde, M.D.
Ronald Van Tuyl, M.D. WILLIS P. CALLINS, M.D.
Deborah M. Burton, M.D.
EMORY CLINIC
Michael A. Avidano, M.D.
Danko Cerenko, M.D.
Burke P. Robinson, M.D.
John M. DelGaudio, M.D.
Norman J. Novelly, D.O.
Todd Kingdom, M.D.
Samuel A Mickelson, M.D.
</TABLE>
II. Medical Group shall provide written notification to Plan ninety (90)
days prior to adding any Participating Physician to Medical Group and
shall notify Plan immediately upon termination of a Participating
Physician from Medical Group.
--------- ------
Initials Date
29
<PAGE> 1
EXHIBIT 10.38
(Medical Space)
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made and entered into this 31st day of
July, 1997, by and between Landlord and Tenant.
W I T N E S S E T H:
1. CERTAIN DEFINITIONS. For purposes of this Lease, the following
terms shall have the meanings hereinafter ascribed thereto:
(A) LANDLORD: PAVILION PARTNERS, L.P.
(B) LANDLORD'S ADDRESS: LANDLORD'S ADDRESS FOR PAYMENTS:
1100 Lake Hearn Drive 1100 Lake Hearn Drive
Suite 106 Suite 106
Atlanta, GA 30342 Atlanta, GA 30342
(C) TENANT: PHYSICIANS' SPECIALTY CORP.
(D) TENANT'S ADDRESS:
Before Lease Commencement:
5555 Peachtree Dunwoody Road, Suite 201
Atlanta, GA 30342
After Lease Commencement:
1150 Lake Hearn Drive, Suite 640
Atlanta, GA 30342
(E) BUILDING ADDRESS:
1150 Lake Hearn Drive
Atlanta, Georgia 30342
(F) SUITE NUMBER:640
(G) RENTABLE FLOOR AREA OF THE DEMISED PREMISES: Approximately
4,985 rentable square feet.
(H) RENTABLE FLOOR AREA OF THE BUILDINGS (1100 AND 1150):
237,715 rentable square feet.
(I) TENANT'S PERCENTAGE SHARE: The proportion that the Rentable
Floor Area of the Demised Premises bears to ninety-five
percent (95%) of the Rentable Floor Area of the Buildings or
the average percentage of the Rentable Floor Area of the
Buildings actually leased in the Project if such average is
greater than ninety-five percent (95%) of the Rentable Floor
Area of the Buildings. The average percentage of the Rentable
Area of the Buildings actually leased shall be determined by
adding together the total leased space on the last day of each
month during the calendar year in question and dividing such
sum by twelve (12).
(J) LEASE TERM: Commencing on the Commencement Date and
terminating on the last day of the calendar month which is
Five (5) years and 0 months thereafter.
(K) BASE RENTAL : $15.89 per square foot of Rentable Floor Area
of Demised Premises per year.
(L) COMMENCEMENT DATE: The earlier of (x) October 1, 1997, or
(y) the date upon which Tenant takes possession and occupies
the Demised Premises.
(M) RENTAL COMMENCEMENT DATE: The Commencement Date.
(N) TENANT IMPROVEMENT ALLOWANCE: None
(O) RENTAL DEPOSIT: None
(P) BROKER(S): Meadows & Ohly, Inc.
representing Landlord
(Q) INCREASE MULTIPLIER: The term "Increase Multiplier" shall
mean a fraction:
THE NUMERATOR: The Consumer Price Index, as herein defined,
published for the month which is three (3) months prior to the
month in which the Increase Multiplier is being calculated.
THE DENOMINATOR: The Consumer Price Index published for the
month which is fifteen (15) months prior to the month in which
the Increase Multiplier is being calculated. provided however,
in no event shall the Increase Multiplier be less than 1.00.
(R) CONSUMER PRICE INDEX: The revised Consumer Price Index,
Atlanta, Georgia, All Items (1982-1984=100), issued by the
U.S. Department of Labor, Bureau of Labor Statistics. If the
Consumer Price Index published by the U.S. Bureau of Labor
Statistics is discontinued, another index recognized as
authoritative shall in good faith be substituted by Landlord.
<PAGE> 2
2. LEASE OF PREMISES. Landlord, in consideration of the covenants and
agreements to be performed by Tenant, and upon the terms and conditions
hereinafter stated, does hereby rent and lease unto Tenant, and Tenant does
hereby rent and lease from Landlord, certain premises (the "Demised Premises")
in the building known as 1100 Lake Hearn Drive (the "Building") located on that
certain tract of land, more particularly described on EXHIBIT "A" attached
hereto and by this reference made a part hereof (the "Land"), which Demised
Premises are outlined on the floor plan attached hereto as EXHIBIT "B" and by
this reference made a part hereof, with no easement for light, view or air
included in the Demised Premises or being granted hereunder. The "Project" is
comprised of the Building, the other building located on the Land, known as 1150
Lake Hearn Drive (the "Other Building"; the Building and the Other Building
being hereinafter sometimes collectively called the "Buildings"), the Land, the
Buildings' parking facilities, any walkways, covered walkways, tunnels or other
means of access to the Building and the Buildings' parking facilities, all
common areas, including any lobbies or plazas, and any other improvements or
landscaping now or hereafter located on the Land. Except as set forth in EXHIBIT
"G" attached hereto, no rights to any parking spaces are granted under this
Lease; however, Tenant and Tenant's employees, invitees and licensees shall be
entitled to use, on a non-exclusive basis in common with other tenants of the
Building or adjacent buildings, the surface parking facilities located from time
to time adjacent to the Building and owned by Landlord. Such use of the parking
facilities shall be subject to any and all reasonable rules and regulations
established by Landlord with respect to the parking facilities. Anything to the
contrary in this Lease notwithstanding, Landlord reserves the right and
privilege to, from time to time, alter, increase and reduce the location,
structure and layout of the Project, including, but not limited to, the parking
areas and other common areas as long as the alterations, increase and
regulations do not materially interfere with Tenant's occupancy of the Demised
Premises. Tenant's parking rights are set forth in Special Stipulation #1,
EXHIBIT "G" attached hereto.
3. TERM. The term of this Lease (the "Lease Term") shall commence on the
Commencement Date, and, unless sooner terminated as provided in this Lease,
shall end on the expiration of the period designated in Article 1(j) above.
Promptly after the Commencement Date, Landlord shall send to Tenant a Tenant
Acceptance Agreement in the form of EXHIBIT "C" attached hereto and by this
reference made a part hereof, specifying the Commencement Date, the Rental
Commencement Date, the date of expiration of the Lease Term in accordance with
Article 1(j) above and certain other matters as therein set forth.
4. POSSESSION. 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 "C".
5. BASE RENTAL.
(a) Tenant covenants and agrees to pay to Landlord during the Lease
Term the amounts specified in Article 1(k) (as adjusted from time to time, the
"Base Rental") as base 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 Rental Commencement
Date for any fraction of a month if the Rental Commencement Date occurs 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
expire or terminate on any day other than the last day of any month.
(b) The Base Rental for the first year of the Lease Term is set forth
in Article 1(k) above. On each anniversary of the Commencement Date, the Base
Rental shall be increased to an amount equal to the product of: (i) the amount
of Base Rental for the previous calendar year (or portion thereof adjusted to
reflect an annual rental) multiplied by (ii) the Increase Multiplier.
(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. As used herein, the term "Rent" shall mean
Base Rental, Additional Rental, and any other amounts due from Tenant hereunder.
Any sums payable to Landlord by Tenant hereunder shall be deemed Additional
Rental, and Landlord shall have all of the remedies upon default as it does for
failure to pay Base Rental.
6. RENTAL DEPOSIT. Landlord acknowledges that it has received from Tenant
the amount specified in Article 1(o) above (the "Rental Deposit"), which sum
shall be retained by Landlord, without obligation for interest, as security for
the performance of Tenant's covenants and obligations under this Lease. Landlord
shall have no obligation to segregate such Rental Deposit from any other funds
of Landlord. The Rental Deposit shall be returned to Tenant within thirty (30)
days after the expiration of the Lease Term, if Tenant has fully performed its
material obligations hereunder. Landlord shall have the right to apply any part
of said Rental Deposit to cure any material default of Tenant if such default is
not cured within such applicable grace period and if Landlord does so, Tenant
shall upon demand deposit with Landlord the amount so applied so that Landlord
shall have the full Rental Deposit on hand at all times during the Lease Term.
If there is a sale or lease of the Building subject to this Lease, Landlord
shall transfer the Rental Deposit to the vendee or lessee, and Landlord shall be
released from all liability for the return of such Rental Deposit. Tenant shall
look solely to the successor Landlord for the return of said Rental Deposit.
This provision shall apply to every transfer or assignment made of the Rental
Deposit to a successor Landlord. The Rental Deposit shall not be assigned or
encumbered by Tenant without the prior consent of Landlord and any such
unapproved assignment or encumbrance shall be void.
7. ADDITIONAL RENTAL. Tenant shall pay, as Additional Rental, Tenant's
Percentage Share of the amount, if any, by which Operating Expenses (as
hereinafter defined) for any calendar year exceed $1,545,147.50 ($6.50/rentable
square foot of the Buildings). 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 Article 7 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's Percentage Share of the actual increase in
Operating Expenses for such calendar year is an amount that is less than the
estimated payments actually made by Tenant for such calendar year, Landlord
shall credit such excess to the next payments of Additional Rental and Base
Rental coming due. If on the basis of such statement Tenant's Percentage Share
of the actual increase in Operating Expenses for such calendar year is an amount
greater that the estimated payments actually made by Tenant, Tenant shall pay as
Additional Rental the deficiency to Landlord within thirty (30) days after
delivery of the statement.
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(iii) If this Lease shall commence, expire or terminate on a day
other than the last day of a calendar year, the amount of Additional Rental
payable during the first or final calendar year of the Lease Term, as the case
may be, shall be prorated based on the actual number of days of the Lease Term
during such calendar year. The expiration or termination of this Lease shall not
affect the obligations of Landlord and Tenant to be performed after such
expiration or termination, pursuant to this Article 7.
8. OPERATING EXPENSES.
For purposes of this Lease, "Operating Expenses" shall mean all costs
and expenses of the ownership, operation, maintenance, repair, ad valorem taxes,
management, and security of the Project of every kind and nature (including,
without limitation, all amounts, including interest thereon if such amounts are
borrowed, spent by Landlord to reduce Operating Expenses, comply with government
regulations, promote safety or maintain the status of the Project, calculated on
an accrual basis. Operating Expenses shall specifically include an annual
replacement reserve ("Annual Replacement Reserve"). For the calendar year 1997,
the Annual Replacement Reserve shall be $142,629.00 ($.60/rentable square foot
of the Buildings). Each calendar year thereafter the Annual Replacement Reserve
shall be increased by the Increase Multiplier. Operating Expenses shall not
include (i) depreciation on the Buildings and personal property, (ii) Tenant
Costs (as defined in the Tenant Improvement Agreement), (iii) payments by
Landlord of interest and principal on any mortgage secured by the Project or any
portion thereof, (iv) the cost of special services rendered to a particular
tenant of the Buildings, which are paid or reimbursed by such tenant, and (v)
leasing commissions. If the average occupancy level was less than ninety five
percent (95%) of the total Rentable Floor Area of the Buildings during a
calendar year, the Operating Expenses for that calendar year shall be adjusted
to an amount equal to Landlord's computation of Operating Expenses had ninety
five percent (95%) of the total Rentable Floor Area of the Buildings been
occupied, and the amount so computed shall be deemed to be "Operating Expenses"
for the purpose of computing Additional Rental.
9. SERVICES BY LANDLORD. 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 Demised Premises and only on Mondays through Fridays,
inclusive, with New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day and such other holidays which are observed
locally by national banks (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 excessive 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 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, and 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. 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 medical 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 use
electric current in excess of 110 volts, which will increase the amount of
electricity ordinarily furnished for the use of the Premises as medical office
space or which requires clean circuits or other special distribution circuits.
Landlord's consent for Tenant's use of such equipment shall be conditioned upon
Tenant and Landlord agreeing upon the amount Tenant shall pay each month for
increased electrical consumption.
(e) Water shall be provided to the Demised 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.
(f) Upon Landlord determining Tenant is using utility services that are
not consistent with normal office usage, Landlord reserves the right to install
separate metering devices, at Tenant's expense, and to charge Tenant for the
cost of all excess or after-hours use of services.
10. TENANT TAXES. Tenant shall pay promptly when due all taxes directly or
indirectly imposed or assessed upon Tenant's gross sales, business operations,
machinery, equipment, trade fixtures and other personal property or assets,
whether such taxes are assessed against Tenant, Landlord or the Project. In the
event that such taxes are imposed or assessed against Landlord or the Project,
Landlord shall furnish Tenant with all applicable tax bills, public charges and
other assessments or impositions and Tenant shall forthwith pay the same either
directly to the taxing authority or, at Landlord's option, to Landlord.
11. PAYMENTS. All payments of Rent and other payments to be made to
Landlord shall be made on a timely basis and shall be payable to Landlord or as
Landlord may otherwise designate. All such payments shall be mailed or delivered
to Landlord's Address for payments designated in Article 1(b) above or at such
other place as Landlord may designate from time to time in writing. If mailed,
all payments shall be mailed in sufficient time and with adequate postage
thereon to be received in Landlord's account by no later than the due date for
such payment. Tenant agrees to pay to Landlord Fifty Dollars ($50.00) for each
check presented to Landlord in payment of any obligation of Tenant which is not
paid by the bank on which it is drawn, together with interest from and after the
due date for such payment at the rate of eighteen percent (18%) per annum on the
amount due.
12. LATE CHARGES. Any Rent or other amounts payable to Landlord under this
Lease, if not paid by the fifth day of the month for which such Rent is due, or
by the due date specified on any invoices from Landlord for any other amounts
payable hereunder, shall incur a late charge of Fifty Dollars ($50.00) for
Landlord's administrative expense in processing such delinquent payment and in
addition thereto shall bear interest at the rate of eighteen percent (18%) per
annum from and after the due date for such payment. Notwithstanding anything to
the contrary contained in this Lease, in no event shall the rate of interest
payable on any amount due under this Lease exceed the legal limits for such
interest enforceable under applicable law.
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13. USE RULES. The Demised Premises shall be used for office space purposes
and no other purposes and in accordance with all applicable laws, ordinances,
rules and regulations of governmental authorities and the Rules and Regulations
attached hereto as EXHIBIT "E" and the Building Moving Policy attached hereto as
EXHIBIT "F" and made a part hereof. Tenant covenants and agrees that it will, at
its expense, comply with all laws, ordinances, orders, directions, requirements,
rules and regulations of all governmental authorities (including Federal, State,
county and municipal authorities), now in force or which may hereafter be in
force, which shall impose any duty upon Landlord or Tenant with respect to the
use, occupancy or alteration of the Demised Premises (including, without
limitation, the Americans With Disabilities Act ["ADA"]) or any unique aspect of
Tenant's use, occupancy or alteration thereof, and of all insurance bodies
applicable to the Demised Premises or to the Tenant's use, occupancy or
alteration thereof. Tenant covenants and agrees to abide by the Rules and
Regulations and the Building Moving Policy in all respects as now set forth and
attached hereto or as hereafter reasonably promulgated by Landlord. Landlord
shall have the right at all times during the Lease Term to publish and
promulgate and thereafter enforce such rules and regulations or changes in the
existing Rules and Regulations as it may reasonably deem necessary in its sole
discretion to protect the tenantability, safety, operation, and welfare of the
Demised Premises and the Project.
14. ALTERATIONS. Tenant shall not make, suffer or permit to be made any
alterations, additions or improvements to or of the Demised Premises or any part
thereof, or attach any fixtures or equipment thereto, without first obtaining
Landlord's written consent, and Landlord shall not unreasonably withhold or
delay its consent of any non-structural alterations, additions or improvements
that do not affect building systems. Any such alterations, additions or
improvements to the Demised Premises consented to by Landlord shall be made by
Landlord or under Landlord's supervision for Tenant's account and Tenant shall
reimburse Landlord for all costs thereof (including a reasonable charge for
Landlord's overhead), as Rent, within ten (10) days after receipt of a
statement. All such alterations, additions and improvements, shall become
Landlord's property at the expiration or earlier termination of the Lease Term
and shall remain on the Demised Premises without compensation to Tenant unless
Landlord elects by notice to Tenant to have Tenant remove such alterations,
additions and improvements, in which event, notwithstanding any contrary
provisions respecting such alterations, additions and improvements contained in
Article 32 hereof, Tenant shall promptly restore, at its sole cost and expense,
the Demised Premises to its condition prior to the installation of such
alterations, additions and improvements, normal wear and tear excepted.
15. REPAIRS.
(a) Landlord shall maintain in good order and repair, subject to normal
wear and tear and subject to casualty and condemnation, the Building (excluding
the Demised Premises and other portions of the Building leased to other
tenants), the Building parking facilities, the public areas and the landscaped
areas. Notwithstanding the foregoing obligation, the cost of any repairs or
maintenance to the foregoing necessitated by the intentional acts or negligence
of Tenant or its agents, contractors, employees, invitees, licensees, tenants or
assigns, shall be borne solely by Tenant and shall be deemed Rent hereunder and
shall be reimbursed by Tenant to Landlord upon demand. Landlord shall not be
required to make any repairs or improvements to the Demised 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.
(b) Tenant covenants and agrees that it will take good care of the
Demised Premises and all alterations, additions and improvements thereto and
will keep and maintain the same in good condition and repair, except for normal
wear and tear. Tenant shall at once report, in writing, to Landlord any
defective or dangerous condition 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 Demised 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 Demised 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 Demised Premises or any part of the Building. To the fullest extent
permitted by law, Tenant hereby waives all rights to make repairs at the expense
of Landlord or in lieu thereof to vacate the Demised Premises as may be provided
by any law, statute or ordinance now or hereafter in effect. Landlord has no
obligation and has made no promise to alter, remodel, improve, repair, decorate
or paint the Demised Premises or any part thereof, except as specifically and
expressly herein set forth.
(c) Tenant shall at its own cost and expense keep and maintain the
Demised Premises and all parts 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 Demised Premises in good repair and
tenantable condition or due to any act or neglect 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
shall be 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 Demised Premises without Landlord's
approval, which approval shall not be unreasonably withheld. Landlord's
withholding of consent shall not be unreasonable if, by way of illustration and
not limitation, adequate protection for the safety of people is not installed in
connection with such equipment. 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 or other equipment which emits
radiation. All equipment owned or operated by Tenant must be installed and
protected in a manner satisfactory to Landlord and in compliance with all
governmental regulations. Tenant will be obligated to obtain and maintain at its
expense any permits, licenses or approvals required in connection with its use
of the Demised Premises or in connection with any equipment of Tenant in the
Demised Premises.
All repairs, replacements and clearing of stoppages from plumbing
fixtures within the Demised Premises, as well as repair or replacement of
special or non-standard electrical fixtures, lights and light bulbs within the
Demised Premises (other than standard 2x4 lights), and the furnishing of toilet
paper and paper towels to toilets and sinks located within the Demised Premises
shall be at Tenant's expense.
(d) 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 Demised Premises, or any decorating, lettering or
advertising matter on any exterior door to the Demised Premises. Tenant shall
not affix or attach anything to windows in the Demised Premises.
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16. LANDLORD'S RIGHT OF ENTRY. Landlord shall retain duplicate keys to all
doors of the Demised Premises, and Landlord and its agents, employees and
independent contractors shall have the right to enter the Demised Premises at
reasonable hours to inspect and examine same, to make repairs, additions,
alterations and improvements, to exhibit the Demised Premises to mortgagees,
prospective mortgagees, purchasers or tenants, and to inspect the Demised
Premises to ascertain that Tenant is complying with all of its covenants and
obligations hereunder, all without being liable to Tenant in any manner
whatsoever for any damages arising therefrom; provided, however, that Landlord
shall, except in case of emergency, afford Tenant such prior notification of an
entry into the Demised Premises as shall be reasonably practicable under the
circumstances. Landlord shall be allowed to take into and through the Demised
Premises any and all materials that may be required to make such repairs,
additions, alterations or improvements. During such time as such work is being
carried on, in or about the Demised Premises, the Rent provided herein shall not
abate, and Tenant waives any claim or cause of action against Landlord for
damages by reason of interruption of Tenant's business or loss of profits
therefrom because of the prosecution of any such work or any part thereof.
Tenant shall give written notice to Landlord at least thirty (30) days prior to
vacating the Demised Premises.
17. INSURANCE. Tenant shall procure at its expense and maintain throughout
the Lease Term a policy or policies of commercial property insurance, issued on
an "all risks" basis insuring the full replacement cost of its furniture,
equipment, supplies and other property owned, leased, held or possessed by it
and contained in the Demised Premises, together with the excess value of the
improvements to the Demised Premises over the Tenant Improvement Allowance (with
a replacement cost endorsement sufficient to prevent Tenant from becoming a
co-insurer), and workmen's compensation insurance as required by applicable law.
Tenant shall also procure at its expense and maintain throughout the Lease Term
a policy or policies of commercial general liability insurance, written on an
occurrence basis and insuring Tenant, Landlord and any other person designated
by Landlord, against any and all liability for injury to or death of a person or
persons and for damage to property occasioned by or arising out of any
construction work being done on the Demised Premises, or arising out of the
condition, use or occupancy of the Demised Premises, or in any way occasioned by
or arising out of the activities of Tenant, its agents, contractors, employees,
guests or licensees in the Demised Premises, or other portions of the Building
or the Project, the limits of such policy or policies to be in combined single
limits for both damage to property and personal injury and in amounts not less
than Three Million Dollars ($3,000,000.00) for each occurrence. Such insurance
shall, in addition, extend to any liability of Tenant arising out of the
indemnities provided for in this Lease. Tenant shall also carry such other types
of insurance in form and amount which Landlord shall reasonably deem to be
prudent for Tenant to carry. All insurance policies procured and maintained by
Tenant pursuant to this Article 17 shall name Landlord and any additional
parties designated by Landlord as additional insured, shall be carried with
companies licensed to do business in the State of Georgia reasonably
satisfactory to Landlord and shall be non-cancelable and not subject to material
change except after twenty (20) days' written notice to Landlord. Such policies
or duly executed certificates of insurance with respect thereto, accompanied by
proof of payment of the premium therefor, shall be delivered to Landlord prior
to the Rental Commencement Date, and renewals of such policies shall be
delivered to Landlord at least thirty (30) days prior to the expiration of each
respective policy term during the term of this Lease or any renewal or extension
thereof.
18. WAIVER OF SUBROGATION. Landlord and Tenant shall each have included in
all policies of commercial property insurance, and business interruption and
other property insurance respectively obtained by them covering the Demised
Premises, the Building and contents therein, a waiver by the insurer of all
right of subrogation against the other in connection with any loss or damage
thereby insured against. Any additional premium for such waiver shall be paid by
the primary insured. To the full extent permitted by law, Landlord and Tenant
each waives all right of recovery against the other for, and releases the other
from liability for, loss or damage to the extent such loss or damage is covered
by valid and collectable insurance in effect at the time of such loss or damage
or would be covered by the insurance required to be maintained under this Lease
by the party seeking recovery.
19. DEFAULT.
(a) The following events shall be deemed to be events of default by
Tenant under this Lease: (i) Tenant shall fail to pay any installment of Rent or
any other charge or assessment against Tenant pursuant to the terms hereof
within five (5) days after the due date thereof; (ii) Tenant shall fail to
comply with any term, provision, covenant or warranty made under this Lease by
Tenant, other than the payment of the Rent or any other charge or assessment
payable by Tenant, and shall not cure such failure within forty-five (45) days
after notice is received or deemed received thereof to Tenant; (iii) Tenant or
any guarantor of this Lease shall make a general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a petition in bankruptcy, or shall be adjudicated as
bankrupt or insolvent, or shall file a petition in any proceeding seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, or
shall file an answer admitting, or fail timely to contest the material
allegations of a petition filed against it in any such proceeding; (iv) a
proceeding is commenced against Tenant or any guarantor of this Lease seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, and such proceeding shall not have been dismissed within fifteen
(15) days after the commencement thereof; (v) a receiver or trustee shall be
appointed for the Demised Premises or for all or substantially all of the assets
of Tenant or of any guarantor of this Lease; (vi) Tenant shall abandon or vacate
all or any portion of the Demised Premises or fail to take possession thereof as
provided in this Lease; (vii) Tenant shall do or permit to be done anything
which creates a lien upon the Demised Premises or the Project and such lien is
not removed or discharged within thirty (30) days after the filing thereof;
(viii) Tenant shall fail to return a properly executed instrument to Landlord in
accordance with the provisions of Article 27 hereof within the time period
provided for such return following Landlord's request for same as provided in
Article 27; or (ix) Tenant shall fail to return a properly executed estoppel
certificate to Landlord in accordance with the provisions of Article 28 hereof
within the time period provided for such return following Landlord's request for
same as provided in Article 28. Notwithstanding anything to the contrary herein,
Tenant shall not be considered in default if Tenant abandons the Demised
Premises as long as Tenant continues to fulfill all of its obligations herein,
including, but not limited to, the payment of rent.
(b) Upon the occurrence of any of the aforesaid events of default,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever: (i) terminate this Lease, in
which event Tenant shall immediately surrender the Demised Premises to Landlord
and if Tenant fails to do so, Landlord may without prejudice to any other remedy
which it may have for possession or arrearages in Rent, enter upon and take
possession of the Demised Premises and expel or remove Tenant and any other
person who may be occupying said Demised Premises or any part thereof, by force,
if necessary, without being liable for prosecution or any claim of damages
therefor; Tenant hereby agreeing to pay to Landlord on demand the amount of all
loss and damage which Landlord may suffer by reason of such termination, whether
through inability to relet the Demised Premises on satisfactory terms or
otherwise; (ii) terminate Tenant's right of possession (but not this Lease) and
enter upon and take possession of the Demised Premises and expel or remove
Tenant and any other person who may be occupying said Demised Premises or any
part thereof, by entry (including the use of force, if necessary), dispossessory
suit or otherwise, without thereby releasing Tenant from any liability
hereunder, without terminating this Lease,
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and without being liable for prosecution or any claim of damages therefor and,
if Landlord so elects, make such alteration, redecorations and repairs as, in
Landlord's judgment, may be necessary to relet the Demised Premises, and
Landlord may, but shall be under no obligation to do so, relet the Demised
Premises or any portion thereof in Landlord's or Tenant's name, but for the
account of Tenant, for such term or terms (which may be for a term extending
beyond the Lease Term) and at such rental or rentals and upon such other terms
as Landlord may deem advisable, with or without advertisement, and by private
negotiations, and receive the rent therefor, Tenant hereby agreeing to pay to
Landlord the deficiency, if any, between all Rent reserved hereunder and the
total rental applicable to the Lease Term hereof obtained by Landlord
re-letting, and Tenant shall be liable for Landlord's reasonable expenses in
redecorating and restoring the Demised Premises and all reasonable costs
incident to such re-letting, including broker's commissions and lease
assumptions, and in no event shall Tenant be entitled to any rentals received by
Landlord in excess of the amounts due by Tenant hereunder except to offset
redecorating expenses; or (iii) enter upon the Demised Premises by force, if
necessary, without being liable for prosecution or any claim of damages
therefor, and do whatever Tenant is obligated to do under the terms of this
Lease; and Tenant agrees to reimburse Landlord on demand for any reasonable
expenses including, without limitation, reasonable attorneys' fees actually
incurred which Landlord may incur in thus effecting compliance with Tenant's
obligations under this Lease and Tenant further agrees that Landlord shall not
be liable for any damages resulting to Tenant from such action, whether caused
by negligence of Landlord or otherwise. If this Lease is terminated by Landlord
as a result of the occurrence of an event of default, Landlord may declare the
entire amount of Rent and other charges and assessments which in Landlord's
reasonable determination would become due and payable during the remainder of
the Lease Term (including, but not limited to, increases in Rent pursuant to
Article 7 hereof), discounted to present value by using a discount factor of
eight percent (8%) per annum, to be due and payable immediately. Upon the
acceleration of such amounts, Tenant agrees to pay the same at once, together
with all Rent and other charges and assessments theretofore due, at Landlord's
address as provided herein; provided, however, that such payment shall not
constitute a penalty or forfeiture but shall constitute liquidated damages for
Tenant's failure to comply with the terms and provisions of this Lease (Landlord
and Tenant agreeing that Landlord's actual damages in such an event are
impossible to ascertain and that the amount set forth above is a reasonable
estimate thereof). Upon making the entire such payment, Tenant shall receive
from Landlord all rents received by Landlord from other tenants renting the
Demised Premises or any portion thereof during the Lease Term (with appropriate
allocations of such rents in the event such other tenants lease space in
addition to the Demised Premises), provided that the monies to which Tenant
shall so become entitled shall in no event exceed the entire amount actually
paid by Tenant to Landlord pursuant to the preceding sentence, less all of
Landlord's costs and expenses (including, without limitation, Landlord's
expenses in redecorating and restoring the Demised Premises and all costs
incident to such reletting, including broker's commissions and lease
assumptions) incurred in connection with or in any way related to the reletting
of the Demised Premises.
(c) Pursuit of any of the foregoing remedies shall not preclude pursuit
of any other remedy herein provided or any other remedy provided by law or at
equity, nor shall pursuit of any remedy herein provided constitute an election
of remedies thereby excluding the later election of an alternate remedy, or a
forfeiture or waiver of any Rent or other charges and assessments payable by
Tenant and due to Landlord hereunder or of any damages accruing to Landlord by
reason of violation of any of the terms, covenants, warranties and provisions
herein contained. No reentry or taking possession of the Demised Premises by
Landlord or any other action taken by or on behalf of Landlord shall be
construed to be an acceptance of a surrender of this Lease or an election by
Landlord to terminate this Lease unless written notice of such intention is
given to Tenant. Forbearance by Landlord to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default. In determining the amount of loss or damage
which Landlord may suffer by reason of termination of this Lease or the
deficiency arising by reason of any reletting of the Demised Premises by
Landlord as above provided, allowance shall be made for the expense of
repossession. Tenant agrees to pay to Landlord all costs and expenses incurred
by Landlord in the enforcement of this Lease, including without limitation, the
fees of Landlord's attorneys as provided in Article 25 hereof.
20. WAIVER OF BREACH. No waiver of any breach of the covenants, warranties,
agreements, provisions, or conditions contained in this Lease shall be construed
as a waiver of said covenant, warranty, provision, agreement or condition or of
any subsequent breach thereof, and if any breach shall occur and afterwards be
compromised, settled or adjusted, this Lease shall continue in full force and
effect as if no breach occurred.
21. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written
consent of Landlord, assign this Lease or any interest herein or in the Demised
Premises, or mortgage, pledge, encumber, hypothecate or otherwise transfer or
sublet the Demised Premises or any part thereof or permit the use of the Demised
Premises by any party other than Tenant. Consent to one or more such transfers
or subleases shall not destroy or waive this provision, and all subsequent
transfers and subleases shall likewise be made only upon obtaining the prior
written consent of Landlord. Without limiting the foregoing prohibition, in no
event shall Tenant assign this Lease or any interest herein, whether directly,
indirectly or by operation of law, or sublet the Demised Premises or any part
thereof or permit the use of the Demised Premises or any part thereof by any
party if such proposed assignment, subletting or use would contravene any
restrictive covenant (including any exclusive use) granted to any other tenant
of the Building or would contravene the provisions of Article 13 of this Lease.
Subleasees, assignees or transferees of the Demised Premises for the balance of
the Lease Term shall become directly liable to Landlord for all obligations of
Tenant hereunder, without relieving Tenant (or any guarantor of Tenant's
obligations hereunder) of any liability therefor, and Tenant shall remain
obligated, as a principal and not as surety, for all liability to Landlord
arising under this Lease during the entire remaining Lease Term including any
extensions thereof, whether or not authorized herein. If Tenant is a partnership
or limited liability company, a withdrawal or change, whether voluntary,
involuntary or by operation of law, of partners or members owning a controlling
interest in the Tenant shall be deemed a voluntary assignment of this Lease and
subject to the forgoing provisions. If Tenant is a corporation, any dissolution,
merger, consolidation or other reorganization of Tenant, or the sale or transfer
of a controlling interest in the capital stock of Tenant, whether in a single
transaction or in a series of transactions, shall be deemed a voluntary
assignment of this Lease and subject to the foregoing provisions. Landlord may,
as a prior condition to considering any request for consent to an assignment or
sublease, require Tenant to obtain and submit current financial statements of
any proposed subtenant or assignee and such other financial documentation
relative to the proposed subtenant or assignee as Landlord may reasonably
require. In the event Landlord consents to an assignment or sublease, Tenant
shall pay to the Landlord a fee to cover Landlord's accounting costs plus any
legal fees incurred by Landlord as a result of the assignment or sublease. The
consent of Landlord to any proposed assignment or sublease may be withheld by
Landlord in its sole and absolute discretion. Landlord may require an additional
security deposit from the assignee or subtenant as a condition of its consent.
Any consideration, in excess of the Rent and other charges and sums due and
payable by Tenant under this Lease, paid to Tenant by any assignee of this Lease
for its assignment, or by any sublessee under or in connection with its
sublease, or otherwise paid to Tenant by another party for use and occupancy of
the Demised Premises or any portion thereof, shall be promptly remitted by
Tenant to Landlord as additional rent hereunder and Tenant shall have no right
or claim thereto as against Landlord. No assignment of this Lease consented to
by Landlord shall be effective unless and until Landlord shall receive an
original assignment and assumption agreement, in form and substance satisfactory
to Landlord, signed by Tenant and Tenant's proposed assignee, whereby the
assignee assumes due performance of this Lease to be done and performed for the
balance of the then remaining Lease Term of this Lease. No subletting of the
Demised Premises, or any part thereof, shall be effective unless and until there
shall have been delivered to Landlord an agreement, in form and substance
satisfactory to Landlord, signed by Tenant
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and the proposed sublessee, whereby the sublessee acknowledges the right of
Landlord to continue or terminate any sublease, in Landlord's sole discretion,
upon termination of this Lease, and such sublessee agrees to recognize and
attorn to Landlord in the event that Landlord elects under such circumstances to
continue such sublease. Upon Landlord's receipt of a request by Tenant to assign
this Lease or any interest herein or in the Demised Premises or to transfer or
sublet the Demised Premises or any part thereof or permit the use of the Demised
Premises by any party other than Tenant, Landlord shall have the right, at
Landlord's option, to exercise in writing any of the following options: (a) to
terminate this Lease as to the portion of the Demised Premises proposed to be
assigned or sublet; (b) to consent to the proposed assignment or sublease,
subject to the other terms and conditions set forth in this Article 21; or (c)
to refuse to consent to the proposed assignment or sublease, which refusal shall
be deemed to have been exercised unless Landlord gives Tenant written notice
providing otherwise.
22. DESTRUCTION.
(a) If the Demised Premises are damaged by fire or other casualty, the
same shall be repaired or rebuilt as speedily as practical under the
circumstances at the expense of Landlord, unless this Lease is terminated as
provided in this Article 22, and during the period required for restoration, a
just and proportionate part of Base Rental shall be abated until the Demised
Premises are repaired or rebuilt.
(b) If (i) the Demised Premises or the Project are damaged to such an
extent that repairs cannot, in Landlord's judgment, be completed within one
hundred eighty (180) days after the date of the commencement of repair of the
casualty, or (ii) the Demised Premises or the Project are damaged or destroyed
as a result of a risk which is not insured under the insurance polices required
hereunder, or (iii) the Demised Premises are damaged or destroyed during the
last twelve (12) months of the Lease Term, or (iv) if the Project is damaged in
whole or in part (whether or not the Demised Premises are damaged) to such an
extent that the Project cannot, in Landlord's judgment, be operated economically
as an integral unit, then and in any such event Landlord may at its option
terminate this Lease by notice in writing to Tenant within sixty (60) days after
the day of such occurrence. If the Demised Premises are damaged to such an
extent that repairs cannot, in Landlord's judgment, be completed within one
hundred eighty (180) days after the date of the commencement of repair of the
casualty or if the Demised Premises are substantially damaged during the last
twelve (12) months of the Lease Term, then in either such event Tenant may elect
to terminate this Lease by notice in writing to Landlord within fifteen (15)
days after the date of such occurrence. Unless Landlord or Tenant elects to
terminate this Lease as hereinabove provided, this Lease will remain in full
force and effect and Landlord shall repair such damage at its expense to the
extent required under subparagraph (c) below as expeditiously as possible under
the circumstances.
(c) If Landlord should elect or be obligated pursuant to subparagraph
(a) above to repair or rebuild because of any damage or destruction, Landlord's
obligation shall be limited to the original Building and any other work or
improvements which were originally performed or installed at Landlord's expense
as described in EXHIBIT "D" hereto or with the proceeds of the Tenant
Improvement Allowance. If the cost of performing such repairs exceeds the actual
proceeds of insurance paid or payable to Landlord on account of such casualty,
or if Landlord's mortgagee or the lessor under a ground or underlying lease
shall require that any insurance proceeds from a casualty loss be paid to it,
Landlord may terminate this Lease unless Tenant, within fifteen (15) days after
demand therefor, deposits with Landlord a sum of money sufficient to pay the
difference between the cost of repair and the proceeds of the insurance
available to Landlord for such purpose.
(d) In no event shall Landlord be liable for any loss or damage
sustained by Tenant by reason of casualties mentioned hereinabove or any other
accidental casualty. In no event shall Landlord be required to rebuild, repair,
or replace any tenant improvements or any personal property, equipment, or trade
fixtures which belong to Tenant.
(e) Any insurance which may be carried by Landlord or Tenant against
loss or damage to the Building or the Demised Premises shall be for the sole
benefit of the party carrying such insurance.
(f) If any such casualty stated in this Article 22 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 Demised Premises or any part or all of the Building or for
termination of this Lease as provided in this Article 22.
(g) Anything in this Article 22 to the contrary notwithstanding, for
purposes of this Article 22, Landlord shall not be obligated to commence any
repair or restoration unless and until insurance proceeds are actually received
by Landlord, and Landlord's restoration obligations shall be limited to the
extent of the insurance proceeds actually received by Landlord therefor and
which the holder of any mortgage or deed to secure debt encumbering any portion
of the Building, or the ground lessor under any ground lease affecting any
portion of the Building, permit Landlord to apply toward the restoration of the
Building.
23. LANDLORD'S LIEN. Landlord shall at all times have a valid first lien
upon all of the personal property of Tenant situated in the Demised Premises to
secure payment of Rent and other sums and charges due hereunder from Tenant to
Landlord and to secure the performance by Tenant of each and all of the
covenants, warranties, agreements and conditions hereof. Said personal property
shall not be removed from the Demised Premises without the consent of Landlord
until all arrearage in Rent and other charges as well as any and all other sums
of money due hereunder shall first have been paid and discharged and until this
Lease and all of the covenants, conditions, agreements and provisions hereof
have been fully performed by Tenant. Tenant shall from time to time execute any
financing statements and other instruments necessary to perfect the security
interest granted herein. The lien herein granted may be foreclosed in the manner
and form provided by law for the foreclosure of security instruments or chattel
mortgages, or in any other manner provided by law. This Lease is intended as and
constitutes a security agreement within the meaning of the Uniform Commercial
Code of the State of Georgia.
24. NOT USED.
25. ATTORNEYS' FEES AND HOMESTEAD. If any Rent or other debt owing by
Tenant to Landlord hereunder is collected by or through an attorney-at-law,
Tenant agrees to pay Landlord's actual reasonable attorneys' fees thereby
incurred. In the event of litigation between the Landlord and the Tenant
relative to rights, obligations and duties of either party under the Lease,
attorneys' fees and costs shall be paid by the non-prevailing party. Tenant
waives all homestead rights and exemptions which it may have under any law as
against any obligation owing under this Lease, and assigns to Landlord its
homestead and exemptions to the extent necessary to secure payment and
performance of its covenants and agreements hereunder.
26. TIME. Time is of the essence of this Lease and whenever a certain day
is stated for payment or performance of any obligation of Tenant or Landlord,
the same enters into and becomes a part of the consideration hereof.
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27. SUBORDINATION AND ATTORNMENT.
(a) Tenant agrees that this Lease and all rights of Tenant hereunder
are and shall be subject and subordinate to any ground or underlying lease which
may now or hereafter be in effect regarding the Project or any component
thereof, to any mortgage now or hereafter encumbering the Demised Premises or
the Project or any component thereof, to all advances made or hereafter to be
made upon the security of such mortgage, to all amendments, modifications,
renewals, consolidations, extensions and restatements of such mortgage, and to
any replacements and substitutions for such mortgage. The terms of this
provision shall be self-operative and no further instrument of subordination
shall be required. Tenant, however, upon request of any party in interest, shall
execute promptly such instrument or certificates as may be reasonably required
to carry out the intent hereof, whether said requirement is that of Landlord or
any other party in interest, including, without limitation, any mortgagee.
Landlord is hereby irrevocably vested with full power and authority as
attorney-in-fact for Tenant and in Tenant's name, place and stead, to
subordinate Tenant's interest under this Lease to the lien or security title of
any mortgage and to any future instrument amending, modifying, renewing,
consolidating, extending, restating, replacing or substituting any such
mortgage.
(b) If any mortgagee or lessee under a ground or underlying lease
elects to have this Lease superior to its mortgage or ground lease and signifies
its election in the instrument creating its lien or lease or by separate
recorded instrument, then this Lease shall be superior to such mortgage or
lease, as the case may be. The term "mortgage", as used in this Lease, includes
any deed to secure debt, deed of trust or security deed and any other instrument
creating a lien in connection with any other method of financing or refinancing.
The term "mortgagee", as used in this Lease, refers to the holder(s) of the
indebtedness secured by a mortgage.
(c) In the event any proceedings are brought for the foreclosure of, or
in the event of exercise of the power of sale under, any mortgage covering the
Demised Premises or the Project, or in the event the interests of Landlord under
this Lease shall be transferred by reason of deed in lieu of foreclosure or
other legal proceedings, or in the event of termination of any lease under which
Landlord may hold title, Tenant shall, at the option of the transferee or
purchase at foreclosure or under power of sale, or the lessor of the Landlord
upon such lease termination, as the case may be (sometimes hereinafter called
"such person"), attorn to such person and shall recognize and be bound and
obligated hereunder to such person as the Landlord under this Lease; provided,
however, that no such person shall be (i) bound by any payment of Rent for more
than one (1) month in advance, except prepayments in the nature of security for
the performance by Tenant of its obligations under this Lease (and then only if
such prepayments have been deposited with and are under the control of such
person); (ii) bound by any amendment or modification of this Lease made without
the express written consent of the mortgagee or lessor of the Landlord, as the
case may be; (iii) obligated to cure any defaults under this Lease of any prior
landlord (including Landlord); (iv) liable for any act or omission of any prior
landlord (including Landlord); (v) subject to any offsets or defenses which
Tenant might have against any prior landlord (including Landlord); or (vi) bound
by any warranty or representation of any prior landlord (including Landlord)
relating to work performed by any prior landlord (including Landlord) under this
Lease. Tenant agrees to execute any attornment agreement not in conflict
herewith requested by Landlord, the mortgagee or such person. Tenant's
obligation to attorn to such person shall survive the exercise of any such power
of sale, foreclosure or other proceeding. Tenant agrees that the institution of
any suit, action or other proceeding by any mortgagee to realize on Landlord's
interest in the Demised Premises or the Project, or any portion thereof pursuant
to the powers granted to a mortgagee under its mortgage, shall not, by operation
of law or otherwise, result in the cancellation or termination of the
obligations of Tenant hereunder. Landlord and Tenant agree that notwithstanding
that this Lease is expressly subject and subordinate to any mortgages, any
mortgagee, its successors and assigns, or other holder of a mortgage or of a
note secured thereby, may sell the Demised Premises or the Project, or any
portion thereof in the manner provided in the mortgage and may, at the option of
such mortgagee, its successors and assigns, or other holder of the mortgage or
note secured thereby, make such sale of the Demised Premises or Project subject
to this Lease.
28. ESTOPPEL CERTIFICATES. Within ten (10) days after request therefor by
Landlord, Tenant agrees to execute and deliver to Landlord in recordable form an
estoppel certificate addressed to Landlord, any mortgagee or assignee of
Landlord's interest in, or purchaser of, the Demised Premises or the Project or
any part thereof, certifying (if such be the case) that this Lease is unmodified
and is in full force and effect (and if there have been modifications, that the
same is in full force and effect as modified and stating said modifications);
that there are no defenses or offsets against the enforcement thereof or stating
those claimed by Tenant; and stating the date to which Rent and other charges
have been paid. Such certificate shall also include such other information as
may reasonably be required by such mortgagee, proposed mortgagee, assignee,
purchaser or Landlord. Any such certificate may be relied upon by Landlord, any
mortgagee, proposed mortgagee, assignee, purchaser and any other party to whom
such certificate is addressed.
29. NO ESTATE. This Lease shall create the relationship of landlord and
tenant only between Landlord and Tenant and no estate shall pass out of
Landlord. Tenant shall have only an usufruct, not subject to levy and sale and
not assignable in whole or in part by Tenant except as herein provided.
30. CUMULATIVE RIGHTS. All rights, power and privilege conferred hereunder
upon the parties hereto shall be cumulative to, but not restrictive of, or in
lieu of those conferred by law.
31. HOLDING OVER. If Tenant remains in possession after expiration or
termination of the Lease Term with or without Landlord's written consent, Tenant
shall become a tenant-at-sufferance, and there shall be no renewal of this Lease
by operation of law. During the period of any such holding over, all provisions
of this Lease shall be and remain in effect except that the monthly rental shall
be double the amount of Rent (including any adjustments as provided herein)
payable for the last full calendar month of the Lease Term including renewals or
extensions. The inclusion of the preceding sentence in this Lease shall not be
construed as Landlord's consent for Tenant to hold over.
32. SURRENDER OF PREMISES. Upon the expiration or other termination of this
Lease, Tenant shall quit and surrender to Landlord the Demised Premises and
every part thereof and all alterations, additions and improvements thereto,
broom clean and in reasonably good condition and state of repair, reasonable
wear and tear only excepted. If Tenant is not then in material default, Tenant
shall remove all personalty and equipment not attached to the Demised Premises
which it has placed upon the Demised Premises and which Tenant is entitled to
remove in accordance with the provisions of this Lease, and Tenant shall restore
the Demised Premises to the condition immediately preceding the time of
placement thereof. If Tenant shall fail or refuse to remove all of Tenant's
effects, personalty and equipment from the Demised Premises upon the expiration
or termination of this Lease for any cause whatsoever or upon Tenant being
dispossessed by process of law or otherwise, such effects, personalty and
equipment shall be deemed conclusively to be abandoned and may be appropriated,
sold, stored, destroyed or otherwise disposed of by Landlord without written
notice to Tenant or any other party and without obligation to account for them.
Tenant shall pay Landlord on demand any and all reasonable expenses incurred by
Landlord in the removal of such property, including, without limitation, the
cost of repairing any damage to the Building or Project caused by the removal of
such property and storage
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charges (if Landlord elects to store such property). The covenants and
conditions of this Article 32 shall survive any expiration or termination of
this Lease.
33. NOTICES. All notices required or permitted to be given hereunder shall
be in writing and shall be deemed to have been fully given, whether actually
received or not, when delivered in person, or deposited with an overnight
commercial courier, or deposited, postage prepaid, in the United States Mail,
certified, return receipt requested, and addressed to Landlord or Tenant at
their respective address set forth hereinabove or at such other address as
either party shall have theretofore given to the other by notice as herein
provided. Tenant hereby designates and appoints as its agent to receive notice
of all distraint proceedings and all other notices required under this Lease,
the person in charge of the Demised Premises at the time said notice is given or
occupying said Demised Premises at said time; and, if no person is in charge of
or occupying the said Demised Premises, then such service or notice may be made
by attaching the same, in lieu of mailing, on the main entrance to the Demised
Premises.
34. DAMAGE OR THEFT OF PERSONAL PROPERTY. All personal property brought
into the Demised Premises by Tenant, or Tenant's employees, agents, or business
visitors, shall be at the risk of Tenant only, and Landlord shall not be liable
for theft thereof or any damage thereto occasioned by any act of co-tenants,
occupants, invitees or other users of the Building or any other person. Landlord
shall not at any time be liable for damage to any property in or upon the
Demised Premises, which results from gas, smoke, water, rain, ice or snow which
issues or leaks from or forms upon any part of the Building or from the pipes or
plumbing work of the same, or from any other place whatsoever.
35. EMINENT DOMAIN.
(a) If all or part of the Demised Premises shall be taken for any
public or quasi-public use by virtue of the exercise of the power of eminent
domain or by private purchase in lieu thereof, this Lease shall terminate as to
the part so taken as of the date of taking, and, in the case of a partial
taking, Landlord shall have the right to terminate this Lease as to the balance
of the Demised Premises by written notice to Tenant if, in Landlord's judgment,
the taking would prevent or materially impair the use of the Project or the
Demised Premises or if an adequate award is not made available to Landlord for
restoration. If title to so much of the Project is taken that a reasonable
amount of reconstruction thereof will not in Landlord's sole discretion result
in the Building being a practical improvement and reasonably suitable for use
for the purpose for which it is designed, then this Lease shall terminate on the
date that the condemning authority actually takes possession of the part so
condemned or purchased.
(b) If this Lease is terminated under the provisions of this Article
35, Rent shall be apportioned and adjusted as of the date of termination. Tenant
shall have no claim against Landlord or against the condemning authority for the
value of any leasehold estate or for the value of the unexpired Lease Term
provided that the foregoing shall not preclude any claim that Tenant may have
against the condemning authority for the unamortized cost of leasehold
improvements, to the extent the same were installed at Tenant's expense (and not
with the proceeds of the Tenant Improvement Allowance), or for loss of business,
moving expenses or other consequential damages, in accordance with subparagraph
(d) below.
(c) If there is a partial taking of the Project and this Lease is not
thereupon terminated under the provisions of this Article 35, then this Lease
shall remain in full force and effect, and Landlord shall, within a reasonable
time thereafter, repair or reconstruct the remaining portion of the Building to
the extent necessary to make the same a complete architectural unit; provided,
that in complying with its obligations hereunder, Landlord shall not be required
to expend more than the net proceeds of the condemnation award which are paid to
Landlord, to the extent the holder of any mortgage or ground lessor under any
ground lease permits such award to be applied to restoration. Upon any such
partial taking, Landlord shall have the right to reduce the rent-stop figure
described in Article 7 hereof by an amount equal to the product of (x) the
amount of tax savings arising from such partial taking, as determined by
Landlord in its sole but reasonable discretion, divided by the number of square
feet of Rentable Floor Area of the Building, multiplied by (y) the number of
square feet of Rentable Floor Area of the Demised Premises.
(d) All compensation awarded or paid to Landlord upon a total or
partial taking of the Demised Premises or the Project shall belong to and be the
property of Landlord without any participation by Tenant. Nothing herein shall
be construed to preclude Tenant from prosecuting any claim directly against the
condemning authority for loss of business, for damage to, and cost of removal
of, trade fixtures, furniture and other personal property belonging to Tenant,
and for the unamortized cost of leasehold improvements to the extent the same
were installed at Tenant's expense (and not with the proceeds of the Tenant
Improvement Allowance); provided, however, that no such claim shall diminish or
adversely affect Landlord's award.
(e) Notwithstanding anything to the contrary contained in this Article
35, if, during the Lease Term, the use or occupancy of any part of the Project
or the Demised Premises shall be taken or appropriated temporarily for any
public or quasi-public use under any governmental law, ordinance or regulation,
or by right of eminent domain, this Lease shall be and remain unaffected by such
taking or appropriation and Tenant shall continue to pay in full all Rent
payable hereunder by Tenant during the Lease Term. In the event of any such
temporary appropriation or taking, Tenant shall be entitled to receive that
portion of any award which represents compensation for the loss of use or
occupancy of the Demised Premises during the Lease Term, and Landlord shall be
entitled to receive that portion of any award which represents the cost of
restoration and compensation for the loss of use or occupancy of the Demised
Premises after the end of the Lease Term.
36. PARTIES. The term "Landlord", as used in this Lease, shall include
Landlord and its successors and assigns. It is hereby covenanted and agreed by
Tenant that should Landlord's interest in the Demised Premises cease to exist
for any reason during the Lease Term, then notwithstanding the happening of such
event, this Lease nevertheless shall remain in full force and effect, and Tenant
hereby agrees to attorn to the then owner of the Demised Premises. The term
"Tenant" shall include Tenant and its heirs, legal representatives and
successors, and shall also include Tenant's assignees and sublessees, if this
Lease shall be validly assigned or the Demised Premises sublet for the balance
of the Lease Term or any renewals or extensions thereof. In addition, Landlord
and Tenant covenant and agree that Landlord's right to transfer or assign
Landlord's interest in and to the Demised Premises, or any part or parts
thereof, shall be unrestricted, and that in the event of any such transfer or
assignment by Landlord which includes the Demised Premises, Landlord's
obligations to Tenant hereunder shall cease and terminate, and Tenant shall look
only and solely to Landlord's assignee or transferee for performance thereof.
37. LIABILITY OF TENANT. Tenant hereby indemnifies Landlord from and agrees
to hold Landlord harmless against, any and all liability, loss, cost, damage or
expense, including, without limitation, court costs and reasonable attorneys'
fees, imposed on Landlord by any person whomsoever, caused in whole or in part
by any act or omission of Tenant, or any of its employees, contractors,
servants, agents, subtenants,
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assignees, representatives or invitees, or otherwise occurring in connection
with any default of Tenant hereunder. The provisions of this Article 37 shall
survive any termination of this Lease.
38. RELOCATION OF THE PREMISES. Landlord reserves the right at any time or
from time to time, at its option and upon giving not less than thirty (30) days'
prior written notice to Tenant, to transfer and remove Tenant from the Demised
Premises herein specified to any other available rooms and offices in the
Project (or other building in the development of which the Building is a part).
Landlord shall bear the expense of said removal together with the reasonable
expense of replacement business cards and stationery and the expense of any
necessary renovation or alterations to said substituted space, as calculated by
Landlord. If Landlord exercises such option, then the substituted space shall
for all purposes hereof be deemed to be and to constitute the Demised Premises
under this Lease and all terms, conditions, covenants, warranties, agreements
and provisions of this Lease including but not limited to the same Base Rental
Rate per square foot of Rentable Floor Area shall continue in full force and
effect and shall apply to the substituted space. Tenant agrees to vacate the
Demised Premises herein specified and relocate to said substituted space
promptly after the substituted space is ready for Tenant's occupancy as provided
herein, and Tenant's failure to do so shall constitute an event of default by
Tenant under this Lease. If Tenant has not relocated its premises within sixty
(60) days after Landlord first notifies Tenant of Landlord's desire to relocate
Tenant, Landlord shall have the right to terminate this Lease by giving notice
of such termination to Tenant. Such termination shall be effective upon any date
selected by Landlord in the Termination Notice which is at least ten (10) days
after the Termination Notice is given by Landlord to Tenant. Tenant hereby
further covenants and agrees to promptly execute and deliver to Landlord any
lease amendment or other such document appropriate to reflect the changes in the
Lease described or contemplated above.
39. FORCE MAJEURE. In the event of strike, lockout, labor trouble, civil
commotion, Act of God, or any other cause beyond a party's control (collectively
"force majeure") resulting in Landlord's inability to supply the services or
perform the other obligations required of Landlord hereunder, Landlord's
performance shall be excused for the period of force majeure, this Lease shall
not terminate and Tenant's obligation to pay Rent and all other charges and sums
due and payable by Tenant shall not be affected or excused and Landlord shall
not be considered to be in default under this Lease. If, as a result of force
majeure, Tenant is delayed in performing any of its obligations under this
Lease, other than Tenant's obligation to take possession of the Demised Premises
on or before the Rental Commencement Date and to pay Rent and all other charges
and sums payable by Tenant hereunder, Tenant's performance shall be excused for
a period equal to such delay and Tenant shall not during such period be
considered to be in default under this Lease with respect to the obligation,
performance of which has thus been delayed.
40. LANDLORD'S LIABILITY. Landlord shall have no personal liability with
respect to any of the provisions of this Lease. If Landlord is in default with
respect to its obligations under this Lease, Tenant shall look solely to the
equity of Landlord in and to the Building and the Land for satisfaction of
Tenant's remedies, if any. It is expressly understood and agreed that Landlord's
liability under the terms of this Lease shall in no event exceed the amount of
its interest in and to said Land and Building. In no event shall any partner of
Landlord nor any joint venturer in Landlord, nor any officer, director or
shareholder of Landlord or any such partner or joint venturer of Landlord be
personally liable with respect to any of the provisions of 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 Building, 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 Building, as aforesaid.
41. LANDLORD'S COVENANT OF QUIET ENJOYMENT. Provided Tenant performs the
terms, conditions and covenants of this Lease, and subject to the terms and
provisions hereof, Landlord covenants and agrees to take all necessary steps to
secure and to maintain for the benefit of Tenant the quiet and peaceful
possession of the Demised Premises, for the Lease Term, without hindrance, claim
or molestation by Landlord or any other person lawfully claiming under Landlord.
42. NOT USED.
43. HAZARDOUS SUBSTANCES. Tenant hereby covenants and agrees that Tenant
shall not cause or permit any "Hazardous Substances" (as hereinafter defined) to
be generated, placed, held, stored, used, located or disposed of at the Project
or any part thereof, except for Hazardous Substances as are commonly and legally
used or stored as a consequence of using the Demised Premises for general office
and administrative purposes, but only so long as the quantities thereof do not
pose a threat to public health or to the environment or would necessitate a
"response action", as that term is defined in CERCLA (as hereinafter defined),
and so long as Tenant strictly complies or causes compliance with all applicable
governmental rules and regulations concerning the use or production of such
Hazardous Substances. For purposes of this Article 43, "Hazardous Substances"
shall mean and include those elements or compounds which are contained in the
list of Hazardous Substances adopted by the United States Environmental
Protection Agency (EPA) or in any 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 (including, without limitation, strict liability) or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereinafter in effect (collectively
"Environmental Laws"). Tenant hereby agrees to indemnify Landlord and hold
Landlord harmless from and against any and all losses, liabilities, including
strict liability, damages, injuries, expenses, including reasonable attorneys'
fees, cost of settlement or judgment and claims of any and every kind whatsoever
paid, incurred or suffered by, or asserted against, Landlord by any person,
entity or governmental agency for, with respect to, or as a direct or indirect
result of, the presence in, or the escape, leakage, spillage, discharge,
emission or release from, the Demised Premises of any Hazardous Substances
(including, without limitation, any losses, liabilities, including strict
liability, damages, injuries, expenses, including reasonable attorneys' fees,
costs of any settlement or judgment or claims asserted or arising under the
Comprehensive Environmental Response, Compensation and Liability Act ["CERCLA"],
any so-called federal, state or local "Superfund" or "Superlien" laws or any
other Environmental Law); provided, however, that the foregoing indemnity is
limited to matters arising solely from Tenant's violation of the covenant
contained in this Article. The obligations of Tenant under this Article shall
survive any expiration or termination of this Lease.
44. SUBMISSION OF LEASE. The submission of this Lease for examination
does not constitute an offer to lease and this Lease shall be effective only
upon execution hereof by Landlord and Tenant and Guarantors.
45. SEVERABILITY. If any clause or provision of the Lease is illegal,
invalid or unenforceable under present or future laws, the remainder of this
Lease shall not be affected thereby, and in lieu of each clause or provision of
this Lease which is illegal, invalid or unenforceable, there shall be added as a
part of this Lease a clause or provision as nearly identical to the said clause
or provision as may be legal, valid and enforceable.
10
<PAGE> 11
46. 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. No failure of Landlord to exercise any power given Landlord hereunder,
or to insist upon strict compliance by Tenant with any obligation of Tenant
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. This Lease may not be altered, waived, amended or
extended except by an instrument in writing signed by Landlord and Tenant. This
Lease is not in recordable form, and Tenant agrees not to record or cause to be
recorded this Lease or any short form or memorandum thereof.
47. HEADINGS. The use of headings herein is solely for the convenience of
indexing the various paragraphs hereof and shall in no event be considered in
construing or interpreting any provision of this Lease.
48. BROKER. Broker(s) (as defined in Article 1[p] is [are] entitled to a
leasing commission from Landlord by virtue of this Lease, which leasing
commission shall be paid by Landlord to Broker(s) in accordance with the terms
of a separate agreement between Landlord and Broker(s). Tenant hereby authorizes
Broker(s) and Landlord to identify Tenant as a tenant of the Building and to
state the amount of space leased by Tenant in advertisements and promotional
materials relating to the Building. Tenant represents and warrants to Landlord
that (except with respect to any Broker[s] identified in Article 1[p]
hereinabove, which has [have] acted as agent for Tenant [and not for Landlord]
in this transaction) no broker, agent, commission salesperson, or other person
has represented Tenant in the negotiations for and procurement of this Lease and
of the Demised Premises and that (except with respect to any Broker[s]
identified in Article 1[p] hereinabove) no commissions, fees or compensation of
any kind are due and payable in connection herewith to any broker, agent,
commission salesperson or other person as a result of any act or agreement of
Tenant. Tenant agrees to indemnify and hold Landlord harmless from all loss,
liability, damage, claim, judgment, cost or expense (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, or as a result of any claim for any fee, commission or
similar compensation with respect to this Lease made by any broker, agent or
finder (other than the Broker[s] identified in Article 1[p] hereinabove)
claiming to have dealt with Tenant, whether or not such claim is meritorious.
The parties hereto do hereby acknowledge and agree that Meadows & Ohly, Inc. has
acted as agent for Landlord in this transaction and shall be paid a commission
by Landlord in connection with this transaction pursuant to the terms of a
separate written commission agreement. Meadows & Ohly, Inc. has not acted as
agent for Tenant in this transaction. Landlord hereby warrants and represents to
Tenant that Landlord has not dealt with any broker, agent or finder other than
Meadows & Ohly, Inc. in connection with this Lease and, Landlord hereby agrees
to indemnify and hold Tenant harmless from and against any and all loss, damage,
liability, claim, judgment, cost or expense (including, but not limited to,
reasonable attorneys' fees and court costs) that may be incurred or suffered by
Tenant because of any claim for any fee, commission or similar compensation with
respect to this Lease made by any broker, agent or finder claiming to have
represented Landlord.
49. GOVERNING LAW. The laws of the State of Georgia shall govern the
validity, performance and enforcement of this Lease.
50. AUTHORITY. 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 incorporated or a duly qualified (if
a foreign corporation) corporation and if fully authorized and qualified to do
business in the State in which the Demised Premises are located, that the
corporation has full right and authority to enter into this Lease, and that each
person signing on behalf of the corporation is an officer of the corporation and
is authorized to sign on behalf of the corporation. If Tenant signs as a
partnership, joint venture or sole proprietorship or other business entity (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
on behalf of the Entity, and that such execution is fully binding upon the
Entity and its partners, joint venturers or principals, as the case may be. Upon
the request of Landlord, Tenant shall deliver to Landlord documentation
satisfactory to Landlord evidencing Tenant's compliance with this Article, and
Tenant agrees to promptly execute all necessary and reasonable applications or
documents as reasonably requested by Landlord, required by the jurisdiction in
which the Demised Premises is located, to permit the issuance of necessary
permits and certificates for Tenant's use and occupancy of the Demised Premises.
51. JOINT AND SEVERAL LIABILITY. If Tenant comprises more than one person,
corporation, partnership or other entity, the liability hereunder of all such
persons, corporations, partnerships or other entities shall be joint and
several.
52. SPECIAL STIPULATIONS. The special stipulations attached hereto as
EXHIBIT "G" are hereby incorporated herein by this reference as though fully set
forth (if none, so state). To the extent the special stipulations conflict with
or are inconsistent with the foregoing provisions of this Lease or any exhibit
to this Lease, the special stipulations shall control.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the day, month and year first above written.
LANDLORD:
PAVILION PARTNERS, L.P.
By: Bentley Investments, Inc., general partner
By: /s/ Lawrence E. Cooper
----------------------------------------------
Title: President
------------------------------------------
[CORPORATE SEAL]
TENANT:
PHYSICIANS' SPECIALTY CORP.
By: /s/ Richard D. Ballard
----------------------------------------------
[CORPORATE SEAL]
(if appropriate)
11
<PAGE> 12
EXHIBIT "A"
LEGAL DESCRIPTION
TRACT ONE:
All that tract or parcel of land lying and being in Land Lot 17 of the 17th
District, Fulton County, Georgia, and being more particularly described as
follows:
To find the POINT OF BEGINNING, begin at a point located at the intersection of
the northern right of way line of Lake Hearn Drive (60-foot right of way) and
the line dividing Land Lot 17 of the 17th District, Fulton County, Georgia, and
Land Lot 329 of the 18th District, DeKalb County, Georgia; thence running along
the northern right of way line of Lake Hearn Drive south 89 degrees 39 minutes
30 seconds west, 254.49 feet to a point and the POINT OF BEGINNING; thence
running along the northern right of way line of Lake Hearn Drive south 89
degrees 39 minutes 30 seconds west, 590.38 feet to an iron pin; thence leaving
the northern right of way line of Lake Hearn Drive and running north 00 degrees
01 minute 35 seconds west, 420.26 feet to an iron pin located on the
southeastern right of way line of Interstate Highway No. 285; thence running
along the southeastern right of way line of Interstate Highway No. 285 the
following courses and distances: north 56 degrees 56 minutes 10 seconds east,
86.42 feet to a point; north 69 degrees 19 minutes 30 seconds east, 184.42 feet
to a point; north 69 degrees 20 minutes 30 seconds east, 89.0 feet to a point;
north 69 degrees 32 minutes east, 290.8 feet to an iron pin; and south 76
degrees 29 minutes 30 seconds east, 54.11 feet to a point; thence leaving said
right of way line of Interstate Highway No. 285 and running south 21 degrees 12
minutes 15 seconds west, 66.10 feet to a point; thence running south 00 degrees
25 minutes 28 seconds east, 466.17 feet to a point; thence running south 58
degrees 48 minutes 27 seconds west, 50.14 feet to a point; thence running south
00 degrees 22 minutes 59 seconds east, 95.70 feet to the POINT OF BEGINNING.
All as is more particularly described and delineated in that survey prepared by
Watts & Browning Engineers, dated December 5, 1985, last revised November 8,
1993, bearing the seal of G.M. Gillespie, Georgia registered land surveyor no.
2121.
Together with those easements as set forth in that Easement and Maintenance
Agreement Peachtree Dunwoody Pavilion, dated August 31, 1992, by and between
Trustees under Declaration of Trust, dated October 8, 1984, as amended, of EQK
Realty Investors I, a Massachusetts Business Trust, and Computer Generation
Incorporated, a Delaware Corporation, recorded at Deed Book 15695, commencing at
page 208, records of the Clerk of the Superior Court, Fulton County, Georgia.
A-1
<PAGE> 13
EXHIBIT "B"
[FLOOR PLAN]
B-1
<PAGE> 14
EXHIBIT "C"
TENANT ACCEPTANCE AGREEMENT
This Agreement made this ____ day of _______________, 199_ between PAVILION
PARTNERS, L.P., a Georgia limited partnership (hereinafter referred to as
"Landlord") and PHYSICIANS' SPECIALTY CORP. (hereinafter referred to as
"Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into a Lease, dated _________________,
199_, (hereinafter referred to as the "Lease") for Suite 640 (hereinafter
referred to as the "Premises") in the building located at 1100 Lake Hearn Drive,
Atlanta, Georgia 30342.
NOW, THEREFORE, pursuant to the provisions of the Lease, Landlord and Tenant
mutually agree as follows:
Capitalized terms not defined herein shall have the meanings set forth in the
Lease.
The Commencement Date of the Lease Term is October 1, 1997. The Expiration Date
of the Lease Term is ___________________. The Rentable Area of the Premises is
__________ Square Feet.
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 C-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:
PAVILION PARTNERS, L.P.
By: Bentley Investments, Inc., its general partner
By:
----------------------------------------------
Title:
----------------------------------------
(CORPORATE SEAL)
TENANT:
PHYSICIANS' SPECIALTY CORP.
By:
-----------------------------------
Title:
------------------------
Attest:
----------------------------------
Title:
------------------------
(CORPORATE SEAL)
C-1
<PAGE> 15
EXHIBIT "C-1"
As of this _____ day of _______________, 199_, the following punchlist items
remain to be completed: (If "none", so state.)
Tenant Name: Initial:
PHYSICIANS' SPECIALTY CORP. /s/ LEC Landlord
---------
Suite Number: 640
--------- Tenant
C-2
<PAGE> 16
EXHIBIT "D"
TENANT IMPROVEMENT AGREEMENT
NOT USED.
D-1
<PAGE> 17
EXHIBIT "E"
RULES AND REGULATIONS
1. No sign, picture, advertisement or notice visible from the
exterior of the Demised Premises shall be installed, affixed,
inscribed, painted or otherwise displayed by Tenant on any part of the
Demised Premises or the Building unless the same is first approved by
Landlord. Any such sign, picture, advertisement or notice approved by
Landlord shall be painted or installed for Tenant at Tenant's cost by
Landlord or by a party approved by Landlord. No awnings, curtains,
blinds, shades or screens shall be attached to or hung in, or used in
connection with any window or door of the Demised Premises without the
prior consent of Landlord, including approval by Landlord of the
quality, type, design, color and manner of attachment.
2. Tenant agrees that its use of electrical current shall never
exceed the capacity of existing feeders, risers or wiring installation.
3. The Demised Premises shall not be used for storage of
merchandise held for sale to the general public. Tenant shall not do or
permit to be done in or about the Demised Premises or Project anything
which shall increase the rate of insurance on said Project or obstruct
or interfere with the rights of other lessees of Landlord or annoy them
in any way, including, but not limited to, using any musical
instrument, making loud or unseemly noises, or singing, etc. The
Demised Premises shall not be used for sleeping or lodging. No cooking
or related activities shall be done or permitted by Tenant in the
Demised Premises except with permission of Landlord. Tenant will be
permitted to use for its own employees within the Demised Premises a
small microwave oven and Underwriters' Laboratory approved equipment
for brewing coffee, tea, hot chocolate and similar beverages, provided
that such use is in accordance with all applicable federal, state,
county and city laws, codes, ordinances, rules and regulations. No
vending machines of any kind will be installed, permitted or used on
any part of the Demised Premises without the prior consent of Landlord.
No part of said Project or Demised Premises shall be used for gambling,
immoral or other unlawful purposes. No intoxicating beverage shall be
sold in said or around the Project or Demised Premises without the
prior written consent of Landlord. No area outside of the Demised
Premises shall be used for storage purposes at any time.
4. No birds or animals of any kind shall be brought into the
Building (other than trained seeing-eye dogs required to be used by the
visually impaired). No bicycles, motorcycles or other motorized
vehicles shall be brought into the Building.
5. The sidewalks, entrances, passages, corridors, halls,
elevators and stairways in the Building shall not be obstructed by
Tenant or used for any purposes other than those for which same were
intended as ingress and egress. No windows, floors or skylights that
reflect or admit light into the Building shall be covered or obstructed
by Tenant. Toilets, wash basins and sinks shall not be used for any
purpose other than those for which they were constructed, and no
sweeping, rubbish or other obstructing or improper substances shall be
thrown therein. Any damage resulting to them, or to heating apparatus,
from misuse by Tenant or its employees, shall be borne by Tenant.
6. Only one (1) key for the Demised Premises will be furnished
to Tenant without charge. Landlord may make a reasonable charge for any
additional keys. Only one (1) access card for the Building will be
furnished to Tenant without charge. Landlord may make a reasonable
charge for any additional access cards. No additional lock, latch or
bolt of any kind shall be placed upon any door nor shall any changes be
made in existing locks without written consent of Landlord and Tenant
shall in each such case furnish Landlord with a key for any such lock.
At the termination of the Lease, Tenant shall return to Landlord all
keys and access cards furnished to Tenant by Landlord, or otherwise
procured by Tenant, and in the event of loss of any keys or access
cards so furnished, Tenant shall pay to Landlord the cost thereof.
7. Landlord shall have the right to prescribe the weight,
position, and manner of installation of heavy articles such as safes,
machines and other equipment brought into the Building. No safes,
furniture, boxes, large parcels or other kind of freight shall be taken
to or from the Demised Premises or allowed in any elevator, hall or
corridor except at times allowed by Landlord. No deliveries shall be
made in passenger elevators. Tenant shall make prior arrangements with
Landlord for use of freight elevator for the purpose of transporting
such articles and such articles may be taken in or out of said Building
only between or during such hours as may be arranged with and
designated by Landlord. The persons employed to move the same must be
approved by Landlord. No hand trucks, except those equipped with rubber
tires and side guards, shall be permitted in the Building. No hand
trucks shall be permitted in any passenger elevator. In no event shall
any weight be placed upon any floor by Tenant so as to exceed the
design conditions of the floors at the applicable locations.
8. Tenant shall not cause or permit any gases, liquids or odors
to be produced upon or permeate from the Demised Premises, and no
flammable, combustible or explosive fluid, chemical, substance or item
(including, without limitation, natural Christmas trees) shall be
brought into the Building.
9. Every person, including Tenant, its employees and visitors,
entering and leaving the Building may be questioned by a watchman as to
that person's business therein and may be required to sign such
person's name on a form provided by Landlord for registering such
person; provided that, except for emergencies or other extraordinary
circumstances, such procedures shall not be required between the hours
of 7:00 a.m. and 6:00 p.m., on all days except Saturdays, Sunday, and
Holidays. Landlord may also implement a card access security system to
control access during such other times. Landlord shall not be liable
for excluding any person from the Building during such other times, or
for admission of any person to the Building at any time, or for damages
or loss or theft resulting therefrom to any person, including Tenant.
E-1
<PAGE> 18
10. Unless agreed to in writing by Landlord, Tenant shall not
employ any person other than Landlord's contractors for the purpose of
cleaning and taking care of the Demised Premises. Cleaning service will
not be furnished on nights when rooms are occupied after 6:30 p.m.,
unless, by agreement in writing, service is extended to a later hour
for specifically designated rooms. Landlord shall not be responsible
for any loss, theft, mysterious disappearance of or damage to, any
property, however occurring. Only persons authorized by Landlord may
furnish ice, drinking water, towels, and other similar services within
the Building and only at hours and under regulations fixed by Landlord.
11. No connection shall be made to 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 Demised Premises shall be kept whole and in good repair.
Tenant shall not injure, overload or deface the Building, the woodwork
or the walls of the Demised Premises, nor permit any noisome, noxious,
noisy or offensive business.
12. If Tenant requires wiring for a bell or buzzer system, such
wiring shall be done by the electrician of Landlord only, and no
outside wiring persons shall be allowed to do work of this kind unless
by the written permission of Landlord or its representatives. If
telegraph or telephonic service is desired, the wiring for same shall
be approved by Landlord, and no boring or cutting for wiring shall be
done unless approved by Landlord or its representatives, as stated. The
electric current shall not be used for power or heating unless written
permission to do so shall first have been obtained from Landlord or its
representatives in writing, and at an agreed cost to Tenant.
13. Tenant and its employees and invitees shall observe and obey
all parking and traffic regulations as imposed by Landlord. All
vehicles shall be parked only in areas designated therefor by Landlord.
14. Canvassing, peddling, soliciting and distribution of
handbills or any other written materials in the Building are
prohibited, and Tenant shall cooperate to prevent the same.
15. Landlord shall have the right to change the name of the
Building and/or the Project and to change the street address of the
Building, provided that in the case of a change in the street address,
Landlord shall give Tenant not less that 180 days' prior notice of the
change, unless the change is required by governmental authority.
16. The directory of the Building will be provided for the display
of the name and location of the tenants. Any additional name which
Tenant shall desire to place upon said directory must first be approved
by Landlord, and if so approved, a reasonable charge will be made
therefor.
17. Tenant, in order to obtain maximum effectiveness of the
cooling system, shall lower and close the blinds (at not less than a
45 degree angle) or drapes when the sun's rays are directly in windows
of the Demised Premises. Tenant shall not remove the standard blinds
installed in the Demised Premises. Tenant shall not place items on
window sills in the Demised Premises.
18. Smoking is prohibited in the main building lobby, public
corridors, elevator lobbies, service elevator vestibules, stairwells,
restrooms and other common areas within the Building.
19. Landlord may waive any one or more of these Rules and
Regulations for the benefit of any particular lessee, but no such
waiver by Landlord shall be construed as a wavier of such Rules and
Regulations in favor of any other lessee, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all
of the other lessees of the Building.
20. These Rules and Regulations are supplemental to, and shall
not be construed to in any way modify or amend, in whole or in part,
the terms, covenants, agreements and conditions of any lease of any
premises in the Building.
21. Landlord reserves the right to make such other and reasonable
Rules and Regulations as in its judgment may from time to time be
needed for the safety, care and cleanliness of the Buildings and the
Land, and for the preservation of good order therein.
E-2
<PAGE> 19
EXHIBIT "F"
BUILDING MOVING POLICY/RULES AND REGULATIONS
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 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 at 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 where 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.
F-1
<PAGE> 20
EXHIBIT "G"
SPECIAL STIPULATIONS
1. PARKING RIGHTS: Landlord has commenced construction of a parking deck upon
the Land (the "Parking Deck"). Upon completion of the Parking Deck, it is
anticipated that the Parking Deck and surface parking areas will provide
approximately 4.6 parking spaces for each 1,000 square feet of Rentable
Floor Area of the Building. Landlord, at its sole option, shall have the
right to gate and card the Parking Deck and, at its option, the surface
parking and to charge for parking in the Parking Deck and in the surface
lots (collectively, the "Parking Area") as follows:
a. Tenant shall be entitled without charge to the use by its employees the
greater of three (3) unassigned parking spaces in the Parking Area for
each 1,000 square feet of Rentable Floor Area in the Premises, or
fifteen (15) unassigned spaces.
b. Tenant shall be entitled to additional unassigned parking spaces for
its employees, subject to availability, at Landlord's then current
monthly rate, payable at the same time and in the same manner as Base
Rent under the Lease.
c. Landlord shall have the right to charge Tenant's invitees and
licensees, including patients and guests, for parking in the Parking
Area at Landlord's then current daily rate.
d. If Landlord elects to gate or card the Parking Area or any portion
thereof, Landlord shall have the right to deny access to any employee
of Tenant who has not obtained the required card or pass and to
establish reasonable rules and regulations for parking on the Land.
e. Access to additional parking for Tenants employees up to approximately
4.6 unassigned spaces per 1,000 rentable square feet shall be provided
at an initial rate of $40.00 per space per month.
2. TENANT IMPROVEMENTS:
a. Tenant shall select and engage the Designer of Tenant's own choosing,
subject to Landlord's approval, to develop the Schematic, Design
Development and Construction Documents (the "Plans") for the Premises.
Tenant's Designer shall coordinate all phases of the construction of
the Premises and shall be paid by Tenant.
b. Tenant shall select and engage the contractor of Tenant's own choosing
to construct the Premises pursuant to the Plans. The cost of all such
construction shall be paid by Tenant ("Tenant's Cost").
c. Landlord reserves the right to approve of Tenant's Designer, Plans,
interior finishes and Contractor. Tenant agrees to provide Landlord
with all such contracts, lien waivers, permits, certifications,
certificates of occupancy and other information as Landlord or
Landlord's lender may require.
d. Landlord reserves the right to approve of all Tenant improvements prior
to commencement of construction, and Tenant shall not commence
construction until Landlord's approval has been given. Tenant shall
submit complete and accurate construction documents to Landlord for
Landlord's approval at least five (5) days prior to the planned
construction start.
e. Landlord and Tenant acknowledge and agree that the HVAC system for the
Building is in place and existing, as are the ceiling grid, ceiling
tiles, 2x4 fluorescent lights for the Premises, and certain walls and
doors within the Premises. With regard to such items, Landlord and
Tenant agree as follows:
1) Landlord's approved HVAC subcontractor shall be used to do any and
all HVAC rework necessary as determined by Landlord's approved
HVAC subcontractor. Tenant will pay for any such rework that is
necessarily occasioned by Tenant's Plan or special use requiring
more heating or cooling than customary including requested special
zones or thermostats. Such HVAC work shall be done to Tenant's
specifications and subject to Landlord's approval and said cost
for such work shall not be unreasonably priced.
2) Any sprinklers needed or additional fire control systems required
will be Tenant's Cost.
3) Any ceiling grid rework, ceiling tile replacements, additional
lighting or relocation of lighting fixtures shall be Tenant's
Cost.
4) Any costs associated with demolition and disposal of existing
walls, doors or finishes now located within the Premises in order
to comply with the Plans shall be Tenant's Cost.
f. All completed improvements to the Demised Premises shall be in
compliance with all applicable government ordinances, codes and
building permits and in accordance with the approved plans and subject
to Landlord's reasonable satisfaction. Tenant shall apply for any and
all governmental approvals required for the construction of Tenant's
space including building permits required for the improvements which
are issued pursuant to a local building code. If the Plans must be
revised in order to obtain such building permits, Tenant shall promptly
notify Landlord. In such case, Tenant shall promptly arrange for the
plans to be revised to satisfy the building permit requirements and
shall submit revised Plans to Landlord for approval. Landlord shall
have no obligation to apply for any approvals, permits or variances or
any other governmental approval, permit or action. If any such other
matters are required, Tenant shall promptly seek to satisfy such
requirements or revise the Plans to eliminate such requirements,
subject to Landlord's approval.
G-1
<PAGE> 21
g. All construction techniques used within the Premises shall be subject
to Landlord's reasonable approval. Tenant shall limit the hours of
access for construction crews and construction techniques to the hours
reasonably designated by Landlord. All construction shall be
accomplished in a manner that minimizes disturbance of Building tenants
and invitees. All construction shall be accomplished in a manner that
minimizes the impact of said construction on all common areas and
corridors.
h. Tenant shall move construction materials to and from the Building as
directed by Landlord or Landlord's agents. Tenant shall remove and
dispose of all construction debris from the Building as reasonably
directed by Landlord. Tenant shall insure that contractor does not
damage the Building in any manner, and Tenant shall be responsible for
reimbursement to Landlord of any building damage caused by Tenant,
Tenant's contractor, Tenant's subcontractors or Tenant's invitees.
Initial:
/s/ LEC Landlord
--------------
/s/ RDB Tenant
--------------
G-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PHYSICIANS SPECIALTY CORP. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 10,941,558
<SECURITIES> 0
<RECEIVABLES> 5,617,880
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,645,958
<PP&E> 2,139,551
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,120,947
<CURRENT-LIABILITIES> 3,302,291
<BONDS> 0
0
0
<COMMON> 6,327
<OTHER-SE> 19,812,329
<TOTAL-LIABILITY-AND-EQUITY> 23,120,947
<SALES> 9,441,346
<TOTAL-REVENUES> 9,441,346
<CGS> 0
<TOTAL-COSTS> 7,739,453
<OTHER-EXPENSES> (259,376)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,961,269
<INCOME-TAX> 764,895
<INCOME-CONTINUING> 1,196,374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,196,374
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
