<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: March 31, 1998
( ) 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: 001-12759
Physicians' Specialty Corp.
-------------------------------------
(Exact Name of Registrant as
Specified in its charter)
Delaware 58-2251438
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1150 Lake Hearn Drive, Suite 640
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 6,515,863 shares of common stock, par value $.001 per share,
outstanding as of May 8, 1998.
<PAGE> 2
Physicians' Specialty Corp.
Index
Part 1 - Financial Information
<TABLE>
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1997
and March 31, 1998......................................................... 1
Consolidated Statements of Operations
for the Three Months Ended March 31, 1997 and 1998......................... 2
Consolidated Statement of Cash Flows
for the Three Months Ended March 31, 1997 and 1998......................... 3
Notes to Consolidated Financial Statements ................................ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................11
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds..................................16
Item 5. Other Information..........................................................16
Item 6. Exhibits and Reports on Form 8-K...........................................18
</TABLE>
<PAGE> 3
Part 1: Financial Information
Item 1: Financial Statements
PHYSICIANS' SPECIALTY CORP.
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31 March 31
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,351,639 $ 4,739,055
Accounts receivable, net of allowance for doubtful
accounts of $261,714 and $342,867 in
1997 and 1998, respectively 9,273,565 11,054,758
Notes receivable 81,682 80,000
Prepayments and other 335,650 437,230
----------- -----------
Total current assets 15,042,536 16,311,043
PROPERTY AND EQUIPMENT, net 3,431,707 3,850,781
INTANGIBLE ASSETS, net 11,793,777 12,022,772
OTHER ASSETS 330,338 440,065
----------- -----------
Total Assets $30,598,358 $32,624,661
=========== ===========
LIABILITIES AND SHAREHOLDERS ' EQUITY
CURRENT LIABILITIES:
Due to physicians $ 1,177,009 $ 1,473,365
Accounts payable and accrued expenses 3,057,880 3,441,836
Deferred income taxes 338,218 367,468
----------- -----------
Total current liabilities 4,573,107 5,282,669
SUBORDINATED SELLER NOTES 911,715 911,715
----------- -----------
Total liabilities 5,484,822 6,194,384
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized;
issued: 6,503,098 in 1997 and 6,515,863 in 1998 6,503 6,516
Additional paid-in capital 23,401,657 23,761,644
Retained earnings 1,705,376 2,662,117
----------- -----------
Total shareholders' equity 25,113,536 26,430,277
----------- -----------
Total liabilities and shareholders' equity $30,598,358 $32,624,661
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
1
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PHYSICIAN'S SPECIALTY CORP.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1998
-------- ----------
<S> <C> <C>
Patient service revenue $ 26,361 $ 308,955
Capitation Revenue 55,848 1,165,306
Management fees 156,742 5,924,270
-------- ----------
Net revenue 238,951 7,398,531
Expenses
Provider claims, wages, benefits 183,505 3,318,927
General and administrative 32,784 2,257,354
Depreciation and amortization 2,784 282,789
-------- ----------
Operating Expenses 219,073 5,859,070
Operating income 19,878 1,539,461
Other income, net 13,193 28,900
-------- ----------
Pretax income 33,071 1,568,361
Provision for income taxes 12,898 611,620
-------- ----------
Net income $ 20,173 $ 956,741
======== ==========
Earnings per share:
Basic $ 0.02 $ 0.15
======== ==========
Diluted $ 0.02 $ 0.14
======== ==========
Weighted average shares outstanding:
Basic 836,000 6,511,466
======== ==========
Diluted 865,000 7,033,786
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE> 5
PHYSICIAN'S SPECIALTY CORP.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1997 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,173 $ 956,741
Adjustments to reconcile net income, to net cash
provided by operating activities:
Depreciation and amortization 2,784 282,789
Compensation expenses 48,000 0
Increase in accounts receivable (49,339) (1,729,511)
Increase in prepayments and other 415,588 (101,580)
Increase in accounts payable and accrued liabilities 7,755 671,312
------------ -----------
Total Adjustments 424,788 (876,990)
------------ -----------
Net cash provided by operating activities 444,961 79,751
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisitions, net of cash acquired 0 (122,624)
Purchase of property and equipment 0 (459,989)
Increase in other assets (13,256) (67,454)
------------ -----------
Net cash used in investing activities (13,256) (650,067)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of offering costs 15,408,094 0
Borrowing under short-term debt 170,000 0
Repayment of short-term debt (146,364) 0
Repayment of long-term debt 0 0
Deferred offering costs 0 (42,268)
------------ -----------
Net cash provided by (used in) financing activities 15,431,730 (42,268)
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 15,863,435 (612,584)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 123,540 5,351,639
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,986,975 $ 4,739,055
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 6
Physicians' Specialty Corp.
Notes to the Consolidated Financial Statements (Unaudited)
March 31, 1998
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. The Company has operations in greater Atlanta, Georgia; Chicago,
Illinois; Birmingham, Alabama; and in the South Florida area.
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
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
Comparisons with data for the period ended March 31, 1997 are not
meaningful since the Company did not commence business operations until the
closing of the reorganization and its IPO on March 26, 1997.
NOTE 3. REORGANIZATION
The Company acquired substantially all of the assets (other than
certain excluded assets such as employment agreements and patient charts,
records and files) and certain liabilities of (i) Atlanta ENT, (ii) ENT &
Allergy Associates, (iii) Metropolitan Ear, Nose & Throat, P.C., (iv) Atlanta
Head and Neck Surgery, P.C. and (v) Ear, Nose & Throat Associates, P.C.
(collectively, the "Initial Practices"), and all of the outstanding shares of
common stock of the corporations comprising the ENT Networks in March 1997. In
connection with the acquisition of assets of the practices and the common stock
of the ENT Networks, the Company issued an aggregate of 3,104,755 shares of
Common Stock (valued at the time of issuance at approximately $24.8 million).
4
<PAGE> 7
POST REORGANIZATION ACQUISITIONS DURING 1997
Since the Reorganization and during the fiscal year ended December 31, 1997,
the Company acquired (a) substantially all of the assets (other than certain
excluded assets such as employment agreements and patient charts, records and
files) and assumed certain contractual liabilities of (i) Allatoona Ear, Nose &
Throat Associates, P.C. ("Allatoona ENT"), (ii) Ear Nose & Throat Specialists,
P.C., ("ENT Specialists"), (iii) Ear, Nose & Throat Specialists, Head & Neck
Surgery, P.C. ("ENT Specialists H&N"), (iv) Northside Ear, Nose & Throat
Associates, P.C. ("Northside"), (v) Otolaryngology Medical & Surgical
Associates, Ltd. ("OMSA"), (vi) Cobb Ear, Nose & Throat Associates, P.C.
("Cobb") and (b) the stock of six professional associations owned by seven ENT
physicians and a partnership owned and operated by the professional associations
in Palm Beach and Broward Counties, Florida.
In connection with the acquisition of assets or equity of these
practices, the Company (i) paid an aggregate of approximately $5.0 million in
cash, (ii) issued an aggregate of 598,450 shares of Common Stock (valued at an
aggregate of approximately $4.5 million), (iii) agreed to issue an aggregate of
276,249 additional shares of Common Stock (valued at an aggregate of
approximately $2.5 million) to two of the affiliated practices beginning in
September 1998, (iv) issued subordinated convertible promissory notes in the
aggregate principal amount of approximately $912,000, which notes mature in
October 2000 and accrue interest at a rate of 5.61% per annum and are
convertible into shares of Common Stock at a conversion price of $10.00 per
share and (v) issued non-interest bearing contingent subordinated promissory
notes in the aggregate principal amount of approximately $3.0 million. The
payment of these notes is contingent upon the physicians or practice holding
such notes reaching certain performance targets. Substantially all of these
contingent notes are payable by the Company, at the Company's option, in shares
of Common Stock, valued at the average closing price of the Common Stock for the
ten trading days preceding the date of delivery of such shares. In connection
with these acquisitions, the Company paid an aggregate of approximately $397,000
to Premier HealthCare, an affiliate of the Company's Vice Chairman and
Secretary, for advisory services rendered.
POST REORGANIZATION ACQUISITIONS THROUGH MARCH 31, 1998
On February 1, 1998, the Company acquired substantially all of the
assets (other than certain excluded assets such as employment agreements and
patient charts, records, and files) and assumed certain contractual liabilities
of James J. Murata M.D., P.A. ("Murata"). In connection with the acquisition of
the assets of this practice, the Company (i) paid approximately $90,000 in cash,
(ii) issued an aggregate of 12,765 shares of Common Stock (valued at an
aggregate of approximately $120,000), and (iii) agreed to issue an aggregate of
25,530 additional shares of Common Stock (valued at an aggregate of
approximately $240,000) beginning in February 1999. In connection with this
acquisition, the Company paid approximately $32,000 to Premier HealthCare, for
advisory services rendered.
5
<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 $14,275,000 and
a portion of which 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. 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 (the
"Credit Facility"). 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. As of March 31, 1998 the Company had no outstanding borrowings
under the Credit Facility.
NOTE 6. 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:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
------------------
(unaudited)
<S> <C>
Percentage of affiliated
practice patient service revenue $1,359,746
Reimbursement of practice
operating expenses 4,564,524
Total management fee revenue $5,924,270
==========
</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.
6
<PAGE> 9
Supplemental System Wide Information
<TABLE>
<CAPTION>
Three months ended
March 31, 1998
------------------
<S> <C>
Supplemental Net Patient Service Revenue:
Owned Practice $ 308,955
Managed Practices 10,491,185
-----------
Total Supplemental Patient
Service Revenue 10,800,140
Plus:
Capitation Revenue 1,165,306
Management Fees 38,619
Total Supplemental
-----------
System wide Revenue 12,004,065
Less:
Amounts Retained by
Physicians Groups 4,605,534
-----------
Total Net Revenue $ 7,398,531
===========
</TABLE>
Comparisons with data for the period ended March 31, 1997 are not meaningful
since the Company did not commence business operations until the closing of the
reorganization and its IPO on March 26, 1997.
NOTE 7. 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 March 31, 1998, the
amount of such intangible assets was approximately $12,230,000, with accumulated
amortization totaling approximately $207,000.
NOTE 8. AMENDMENT TO 1996 STOCK OPTION PLAN
In March 1998, the Board of Directors adopted an amendment to the 1996
Stock Option Plan to increase the number of shares of common stock authorized
under the plan to 1,100,000 shares of the Company's authorized but unissued
common stock authorized for issuance pursuant to the grant by the Company of
options to officers, directors, employees, consultants, and independent
contractors of the Company.
7
<PAGE> 10
NOTE 9. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 is designed to improve the reporting of
changes in equity from period to period. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 in the
quarter ended March 31, 1998 was not material to the Company's financial
statements.
The Emerging Issues Task Force of the FASB has recently issued its
Consensus on Issue 97-2 ("EITF 97-2"). EITF 97-2 addresses certain specific
matters pertaining to the physician practice management industry. EITF 97-2
would be effective for the Company for its year ending December 31, 1998. EITF
97-2 addresses the ability of physician practice management companies to
consolidate the results of physician practices with which it has an existing
contractual relationship. The Company is in the process of analyzing the effect
of all its contractual relationships but currently believes that certain
contracts would meet the criteria of EITF 97-2 for consolidating the results of
operations of the related physician practices, which would require the Company
to restate its prior period financial statements to conform to such
consideration. EITF 97-2 also has addressed the accounting method for future
combinations with individual physician practices. The Company believes that,
based on the criteria set forth in EITF 97-2, virtually all of its future
acquisitions of individual physician practices will continue to be accounted for
under the purchase method of accounting.
NOTE 10. PROBABLE PRACTICE ACQUISITIONS
In March 1998, the Company entered into a non-binding letter of intent
relating to the Company's proposed acquisition of substantially all of the
tangible assets of Physicians' Domain, Inc., a metropolitan New York based ENT
physician practice management company ("Physician's Domain"), along with the
stock of corporations that are successors to six ENT physician practices
affiliated with Physicians Domain (collectively, "PDI"). Based on the terms of
the letter of intent, the aggregate consideration to be paid by the Company in
connection with the PDI acquisition, if such transaction is consummated on the
terms contemplated, will be approximately $22.5 million consisting of
approximately $2.1 million in cash, the repayment of approximately $4.2 million
of outstanding indebtedness of PDI and the issuance of a promissory note in the
principal amount of approximately $16.2 million. The letter of intent provides
that the promissory note will bear interest at a rate of 6% per annum, payable
quarterly, will be secured by certain fixed assets acquired by the Company in
the transaction and will be subordinate to borrowings under the Credit Facility.
Pursuant to the proposed terms of the promissory note, approximately $9.2
million of the principal amount of the note will mature five years from the date
of issuance and approximately $7.0 million of the principal amount of the note
will mature upon the earlier of (i) three days following the closing of a public
offering by the Company and (ii) December 31, 1998. In the event the Public
Offering (as defined in Note 11) is not consummated prior to the closing of the
PDI transaction, the
8
<PAGE> 11
Company expects to borrow approximately $4.2 million under the Credit Facility
to repay approximately $4.2 million of outstanding indebtedness of PDI at the
closing of the transaction. The terms of the letter of intent also provide that
(i) the management services agreements to be entered into between the Company
and the practices will provide for a fixed management fee of an aggregate of
approximately $3.0 million per year, subject to annual increases consistent with
the annual percentage increase in the consumer price index after the fifth
anniversary of the date of the agreement, (ii) the Company will receive a
break-up fee equal to $250,000 in the event the transaction is not consummated
on or before June 1, 1998, (iii) the physicians at these practices will have the
right to nominate one member to the Board of Directors of the Company and (iv)
the Company will pay an additional $500,000, payable in cash or shares of Common
Stock at the Company's option, if these practices achieve stipulated performance
targets. In addition, the Company has non-binding letters of intent for two
other probable practice acquisitions for an aggregate purchase price of $1.6
million., payable in cash, Common Stock and notes, or a combination thereof.
In May 1998, the Company and PDI entered into a Stock Purchase
Agreement relating to the PDI transaction (the "PDI Stock Purchase Agreement").
Although the Company has entered into the PDI Stock Purchase Agreement, the
consummation of the PDI transaction is subject to various closing conditions,
including the consent of NationsBank, N.A. under the Credit Facility, and there
can be no assurances that the transaction can be consummated in a timely manner
or at all. The letters of intent for the other probable practice acquisitions
are mere statements of intention and each of these probable practice
acquisitions is subject to various conditions to closing, including the
negotiation and execution of an acquisition agreement related to such potential
acquisition. Although the Company expects to complete these acquisitions in the
near future, there can be no assurance that any of these acquisitions will be
completed on the terms contemplated, as to the terms of such acquisitions or
that the Company will be able to integrate any of these probable practice
acquisitions, including PDI, into its business. Pursuant to the terms of the PDI
Stock Purchase Agreement, in the event the Public Offering is consummated prior
to the closing of the PDI transaction, the PDI purchase price will be comprised
of approximately $9.1 million in cash, the repayment of approximately $4.2
million of outstanding indebtedness of PDI and the issuance of a promissory note
in the principal amount of approximately $9.2 million. In addition, the Company
will use approximately $9.1 million and $4.2 million of the net proceeds of the
Public Offering, respectively, to pay the cash portion of the purchase price of
the PDI transaction and to repay approximately $4.2 million of outstanding
indebtedness of PDI.
NOTE 11. SUBSEQUENT EVENTS
In April 1998, the Company filed a registration statement, under the
Securities Act of 1933, as amended (the "Act"), with the Securities and Exchange
Commission (the "Commission") which was subsequently amended, in connection
with the proposed public offering of 2,114,000 shares of the Company's Common
Stock, 2,000,000 shares of which are being sold by the Company and 114,000 are
being sold by certain selling stockholders of the Company. The proposed public
offering is being underwritten by a group of underwriters for which Hambrecht &
Quist LLC, Volpe Brown Whelan & Company LLC, and Barington Capital Group, L.P.
are acting as representatives (the "Public Offering"). In connection with the
Public Offering, the Company has granted the underwriters an option to purchase
up to 317,100 additional shares of Common Stock to cover over-allotments, if
any. The selling stockholders are certain
9
<PAGE> 12
physicians at practices which are affiliated with the Company, none of whom are
officers or directors of the Company. These physicians acquired their shares of
Common Stock from the Company in connection with the Company's acquisition of
the related practice assets.
The offering price will be based on the market price of the Company's Common
Stock immediately prior to the effective date of the proposed Public Offering.
Assuming the Company's proposed affiliation with PDI is consummated on the terms
contemplated by the PDI Stock Purchase Agreement, a substantial portion of the
proceeds of the Public Offering are intended to be used to pay a substantial
portion of the purchase price of the PDI transaction. The remaining proceeds are
intended to be used primarily for working capital purposes and for potential
future acquisitions.
In April 1998, the Company also filed a registration statement, under the
Act with the Commission which was subsequently amended in connection with the
registration of an aggregate of 3,146,514 shares of Common Stock, of which
2,750,000 shares may be issued from time to time by the Company in connection
with potential future affiliation transactions with ENT physicians or related
specialty practices or the merger with or acquisition by the Company of other
related businesses or assets, 220,000 shares of Common Stock issuable upon
exercise of warrants issued to the representatives of the underwriters in the
IPO which may be sold from time to time by the holders of the warrants after
issuance and 176,514 shares which are issuable in December 1998 in connection
with a practice asset acquisition completed in December 1997, which may be sold
from time to time by the physician stockholders after issuance (the "Shelf
Registration Statement").
On April 21, 1998, the Company acquired substantially all of the assets
(other than certain excluded assets such as employment agreements and patient
charts, records, and files) and assumed certain contractual liabilities of John
C. Westerkamm M.D., P.A. ("Westerkamm"). In connection with the acquisition of
the assets of this practice, the Company (i) paid approximately $250,000 in
cash, and (ii) issued a promissory note in the principal amount of $250,000
which note matures in April 2000, accrues interest at a rate of 6.0% per annum,
payable quarterly, and is payable at the Company's option, in cash or Common
Stock valued at the average closing price of the Common Stock for the ten
trading days preceding the date of delivery of such shares. In connection with
this acquisition, the Company paid approximately $30,000 to Premier HealthCare
for advisory services rendered.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the descriptions of historical facts contained herin,
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 reimbursement; competition; regulatory risks; risks relating to credit
facility and substantial leverage; and other risks.
GENERAL
The Company is a physician practice management company which provides
comprehensive management services to physician practices specializing in the
treatment and management of ENT diseases and disorders, including specialists
practicing in the fields of allergy, audiology, oral surgery, plastic surgery
and sleep medicine. In March 1997, simultaneously with the closing of the
Company's IPO, the Company effected the Reorganization in which the Company
acquired all of the common stock of the ENT Networks and substantially all of
the assets of the Initial Practices. Since the consummation of the
Reorganization through May 8, 1998, the Company has acquired substantially all
of the assets of four ENT physician practices with ten physicians in the
metropolitan Atlanta area, one ENT physician practice with two physicians in
North Georgia, one ENT physician practice with four physicians in the
metropolitan Chicago area and two ENT physician practices with two physicians in
South Florida, as well as the stock and related assets of six professional
associations comprising one ENT physician practice group with seven physicians
in South Florida. As a result of these acquisitions as of May 8, 1998, the
Company was affiliated with 48 physicians, one TMJ specialist and 52 allied
health care professionals with 43 clinical offices in Alabama, Florida, Georgia
and Illinois and expects to add 30 physicians and 25 allied health care
professionals with 17 clinical offices in the New York metropolitan area and
South Florida in connection with the Probable Practice Acquisitions.
The Company's revenue is derived (i) under management services
agreements with affiliated practices; (ii) from capitated managed care contracts
held by the ENT Networks, wholly-owned subsidiaries of the Company; and (iii)
from patient service revenue generated by the Company's wholly owned subsidiary,
ENT & Allergy Associates, which directly employs physicians in Birmingham,
Alabama.
Management fees consist of a stipulated percentage of revenue generated
by or on behalf of physicians practicing at (non-owned) affiliated practices,
along with reimbursement of Practice Expenses (as defined). Capitation revenue
consists of fixed monthly payments received by the Company directly from health
maintenance organizations ("HMO's") (or payors subcontracting with HMOs).
Patient service revenue consists of gross charges, less allowances for bad debts
and contractual adjustments, generated by or on behalf of physicians practicing
at the Company's wholly-owned subsidiary, ENT & Allergy Associates.
Operating expenses consist of (i) provider claims, wages and benefits,
(ii) general and administrative expenses and (iii) depreciation and
amortization. Provider claims include claims paid or incurred in connection with
medical surgical services provided to managed care enrollees covered under the
Company's capitated managed care agreements. Wages and benefits include all
salary and benefit costs associated with corporate and clinic level personnel.
General and administrative expenses include all other corporate and clinic level
operating expenses, including real and personal property rent, medical and
office supplies, utilities and professional fees. Depreciation and amortization
expense includes non-cash charges related to corporate and clinic level
equipment depreciation, along with amortization
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<PAGE> 14
of intangible assets, including the costs of acquisitions in excess of the fair
value of tangible and identifiable intangible assets acquired. Depreciation is
computed utilizing the straight-line method over lives ranging from three to
seven years, while intangible assets are amortized utilizing the straight-line
method primarily over a period of 25 years.
The Company's relationships with its affiliated physicians are set
forth in various asset acquisition 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 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 (typically 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. In connection with the PDI
transaction, the Company will enter into management services agreements with the
PDI practices which will provide for an aggregate fixed management fee of
approximately $3.0 million per year subject to annual increases consistent with
the annual percentage increase in the consumer price index after the fifth
anniversary of the date of the agreements.
The Company holds, manages and administers capitated managed care
contracts with Cigna HealthCare of Georgia, Inc., United HealthCare of Georgia,
Inc., and FPA Medical Management, Inc., which require the Company to contract
for the provision of substantially all of the ENT medical and surgical
professional services required by the enrollees of these managed care companies
in the metropolitan Atlanta area. The Company has contracted with associated
physicians, including those at the Company's affiliated practices in Atlanta and
North Georgia, to provide substantially all of such medical professional
services in exchange for compensation on a discounted fee-for-service basis. At
March 31, 1998, the Company's three capitated managed care contracts covered an
aggregate of 332,405 enrollees.
In May 1998, the Company entered into the PDI Stock Purchase Agreement
relating to the Company's acquisition of substantially all of the tangible
assets of Physicians' Domain, along with the equity of corporations that are
successors to six ENT physician practices affiliated with Physicians' Domain.
12
<PAGE> 15
Upon completion of the PDI transaction, the Company will add 26 physicians and
21 allied health care professionals with 14 clinical offices in the New York
metropolitan area. In addition, the Company has non-binding letters of intent
for two other probable practice acquisitions. These two ENT physician practices
consist of an aggregate of four physicians and four allied health care
professionals with three clinical offices in South Florida. Although the Company
intends to complete these acquisitions, including PDI, in the near future there
can be no assurance that any of these acquisitions will be completed, as to the
terms of such acquisitions or that the Company will be able to integrate any of
these acquisitions into its business. The purchase price for PDI will be
comprised of cash and promissory notes and in the event that any of the other
two probable practice acquisitions are completed, the Company expects that the
purchase prices will be comprised of cash, promissory notes or shares of Common
Stock, or a combination thereof. See "--Liquidity and Capital Resources."
RESULTS OF OPERATIONS
Comparisons with data for the period ended March 31, 1997 are not meaningful
since the Company did not commence business operations until the closing of the
reorganization and its IPO on March 26, 1997. Accordingly, the Company's results
of operations for the three months ended March 31, 1997 only reflect five days
of business operating activities.
Revenue. Net revenue was $7,398,531 for the quarter ended March 31, 1998,
consisting of $5,924,270 of management fees, $308,955 of patient service revenue
and $1,165,306 of capitation revenue.
Operating Expenses. Operating expenses were $5,859,070 or 79.2% of net revenue
for the quarter ended March 31, 1998 consisting largely of provider claims,
wages and benefits ($3,318,927 or 44.9% of net revenue); general and
administrative expense ($2,257,354 or 30.5% of net revenue); and depreciation
and amortization expense ($282,789 or 3.8% of net revenue). The Company had 328
employees and 42 clinical locations at March 31, 1998.
Other Income, Net. Other income for the quarter ended March 31, 1998 was $28,900
of interest income, net of immaterial amounts of interest expense.
Income Taxes. Income taxes for the quarter ended March 31, 1998 were provided
for at a 39% effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes capital primarily (i) to acquire assets or equity
of physician practices, (ii) to acquire equipment utilized by affiliated
practices, (iii) to fund corporate capital expenditures including management
information systems and (iv) to fund ongoing corporate working capital
requirements.
13
<PAGE> 16
At March 31, 1998, the Company had working capital of $11,028,374
which included cash and cash equivalents of $4,739,055.
Net cash provided by operating activities for the three month period
ended March 31, 1998 was $79,751 while cash used in investing activities was
$650,067 primarily related to property and equipment additions during the
quarter. Cash used in financing activities, specifically deferred offering
costs, was $42,268 during the quarter. For the three months ended March 31,
1998, the Company did not remit any estimated income tax payments related to
Company pre-tax earnings.
During the first quarter of 1998, the Company acquired the non-medical
assets of one physician practice and paid $90,000 in cash using a portion of the
net proceeds received from the Company's IPO in March 1997.
The Company paid advisory fees in the amount of $32,000 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. As of March 31, 1998, the Company had no outstanding borrowings under
the Credit Facility. In April 1998, the Company received a proposal letter from
NationsBank, N.A. proposing an increase in the Credit Facility from $20.0
million to $45.0 million of which $25.0 million would be syndicated to other
banks, and an amendment to certain of the other terms of the Credit Facility.
However, there can be no assurance that the Company will be able to obtain such
increase or amendments.
In connection with certain physician practice acquisitions, the Company
issued long-term promissory notes in the aggregate principal amount of
$1,162,000, which promissory notes bear simple interest, payable quarterly, at
rates ranging from 5.6% to 6.0% per annum, have varying maturity dates, and
certain of which are convertible into shares of Common Stock at the option of
the holders and certain of which are payable by the Company at the Company's
option in shares of Common Stock. The Company also issued various contingent
promissory notes in connection with certain physician practice acquisitions in
the aggregate principal amount of $3.0 million which are payable only in the
event the holders of such notes attain certain performance targets, certain of
which notes are payable by the Company, at the Company's option, in shares of
Common Stock.
The Company intends to acquire the assets or equity of additional ENT
and related specialty practices and to fund this growth in part with its
existing cash resources, the net proceeds of the Public Offering, if
consummated, and borrowings under the Credit Facility, as well as through equity
and debt issuances. In May 1998, the Company entered into the PDI Stock Purchase
Agreement relating to the Company's affiliation with six ENT physician practices
associated with Physicians' Domain. Upon completion of the PDI transaction, the
Company will add 26 physicians and 21 allied health care professionals with 14
clinical offices in the New York metropolitan area. Based on the terms of the
PDI Stock Purchase Agreement, the aggregate consideration to be paid by the
Company in connection with the PDI acquisition, if such transaction is
consummated, will be $22.5 million consisting of approximately $2.1 million in
cash, the repayment of approximately $4.2 million of outstanding indebtedness of
PDI and the issuance of a
14
<PAGE> 17
promissory note in the principal amount of approximately $16.2 million. The PDI
Stock Purchase Agreement provides that the promissory note will bear interest at
a rate of 6% per annum, payable quarterly, will be secured by certain fixed
assets acquired by the Company in the transaction and will be subordinate to
borrowings under the Credit Facility. Pursuant to the terms of the promissory
note to be issued in connection with the PDI transaction, approximately $9.2
million of the principal amount of the note will mature five years from the date
of issuance and approximately $7.0 million of the principal amount of the note
will mature upon the earlier of (i) three days following the closing of a public
offering by the Company and (ii) December 31, 1998. In the event the PDI
transaction is consummated in a timely manner and the proposed Public Offering
is not consummated prior to December 31, 1998, the Company would need to borrow
under the Credit Facility or seek additional financings to make the $7.0 million
payment under the promissory note. In addition, in the event the Public Offering
is not consummated prior to the closing of the PDI transaction, the Company
expects to borrow approximately $4.2 million under the Credit Facility to repay
approximately $4.2 million of outstanding indebtedness to PDI at the closing of
the transaction. Pursuant to the terms of the PDI Stock Purchase Agreement, in
the event the Public Offering is consummated prior to the closing of the PDI
transaction, the PDI purchase price will be comprised of approximately $9.1
million in cash, the repayment of approximately $4.2 million of outstanding
indebtedness of PDI and the issuance of a promissory note in the principal
amount of approximately $9.2 million. In addition, the Company will use
approximately $9.1 million and $4.2 million of the net proceeds of the Public
Offering, respectively, to pay the cash portion of the purchase price of the PDI
transaction and to repay approximately $4.2 million of outstanding indebtedness
of PDI. Pursuant to the terms of the PDI Stock Purchase Agreement, the Company
will also pay an additional $500,000, payable in cash or shares of Common Stock
at the Company's option, if these practices achieve stipulated performance
targets. The Company expects to recognize a non-recurring non-cash charge
relating to the restructuring of certain of the operations at PDI, if the
transaction is consummated. The Company has not yet determined the extent of the
restructuring and therefore, the Company has not yet estimated the amount of
such non-cash charge.
In addition, the Company has non-binding letters of intent for the two
other probable practice acquisitions for an aggregate purchase price of
approximately $1.6 million. These two ENT physician practices consist of an
aggregate of four physicians and four allied health care professionals with
three clinical offices in South Florida. The Company will pay approximately
$410,000 (net of salary paid to Gerald R. Benjamin by the Company) to Premier
HealthCare, an affiliate of Mr. Benjamin, the Company's Vice Chairman and
Secretary, for consulting services in connection with these probable practice
acquisitions, including PDI, if such transactions are consummated on the terms
contemplated. Although the Company expects to complete these acquisitions in the
near future, there can be no assurance that any of these acquisitions will be
completed, as to the terms of such acquisitions or that the Company will be able
to integrate any of these acquisitions into its business. In the event that any
of the other two probable practice acquisitions are completed, the Company
expects that the purchase price will be comprised of cash, promissory notes, or
shares of its common stock, or a combination thereof. The Company is currently
evaluating and is in various stages of discussions in connection with the
potential acquisition of assets or equity of other additional ENT physician and
related specialty practices. However, the Company has no agreements or
arrangements with respect to the terms of any other specific acquisitions (other
than the probable practice acquisitions, as described herein) and, accordingly,
there can be no assurance that any of the acquisitions under evaluation will be
completed, as to the terms of any such acquisition or as to the Company's
ability to complete future acquisitions.
15
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the acquisition of assets of Murata in February
1998, the Company issued 12,765 shares of Common Stock and agreed to issue
an additional 25,530 shares of Common Stock commencing in February 1999.
This transaction was a private transaction not involving a public offering and
was 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 Company's 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 (the "Commission")
on March 20, 1997.
During the three months ended March 31, 1998 a portion of the net
proceeds received from the Company's IPO in March 1998 were used by the Company
(i) to pay $90,000 in cash in connection with the acquisition of the assets of
Murata (ii) to pay approximately $32,000 to Premier Healthcare, a corporation of
which Gerald R. Benjamin, the Company's Vice Chairman and Secretary, is a
principal, for consulting services in connection with the acquisition of assets
of Murata and (iii) to purchase, among other things, medical and computer
equipment and office furniture in the aggregate amount of approximately
$460,000.
ITEM 5. OTHER INFORMATION
In March 1998, the Company entered into a non-binding letter of intent
relating to the Company's proposed PDI acquisition. Based on the terms of the
letter of intent, the aggregate consideration to be paid by the Company in
connection with the PDI acquisition, if such transaction is consummated on the
terms contemplated, will be approximately $22.5 million consisting of
approximately $2.1 million in cash, the repayment of approximately $4.2 million
of outstanding indebtedness of PDI and the issuance of a promissory note in the
principal amount of approximately $16.2 million. The letter of intent provides
that the promissory note will bear interest at a rate of 6% per annum, payable
quarterly, will be secured by certain fixed assets acquired by the Company in
the transaction and will be subordinate to borrowings under the Credit Facility.
Pursuant to the proposed terms of the promissory note, approximately $9.2
million of the principal amount of the note will mature five years from the date
of issuance and approximately $7.0 million of the principal amount of the note
will mature upon the earlier of (i) three days following the closing of a public
offering by the Company and (ii) December 31, 1998. In the event the Public
Offering is not consummated prior to the closing of the PDI transaction, the
Company expects to borrow approximately $4.2 million under the Credit Facility
to repay approximately $4.2 million of outstanding indebtedness of PDI at the
closing of the transaction. The terms of the letter of intent also provide that
(i) the management services agreements to be entered into between the Company
and the practices will provide for a fixed management fee of an aggregate of
approximately $3.0 million per year, subject to annual increases consistent with
the annual percentage increase in the consumer price index after the fifth
anniversary of the date of the agreement, (ii) the Company will receive a
break-up fee equal
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<PAGE> 19
to $250,000 in the event the transaction is not consummated on or before June
1, 1998, (iii) the physicians at these practices will have the right to nominate
one member to the Board of Directors of the Company and (iv) the Company will
pay an additional $500,000, payable in cash or shares of Common Stock at the
Company's option, if these practices achieve stipulated performance targets. In
addition, the Company has non-binding letters of intent for two other probable
practice acquisitions for an aggregate purchase price of $1.6 million., payable
in cash, Common Stock and notes, or a combination thereof.
In May 1998, the Company and PDI entered into a Stock Purchase
Agreement relating to the PDI transaction (the "PDI Stock Purchase Agreement").
Although the Company has entered into the PDI Stock Purchase Agreement, the
consummation of the PDI transaction is subject to various closing conditions,
including the consent of NationsBank, N.A. under the Credit Facility, and there
can be no assurances that the transaction can be consummated in a timely manner
or at all. Pursuant to the terms of the PDI Stock Purchase Agreement, in the
event the Public Offering is consummated prior to the closing of the PDI
transaction, the PDI purchase price will be comprised of approximately $9.1
million in cash, the repayment of approximately $4.2 million of outstanding
indebtedness of PDI and the issuance of a promissory note in the principal
amount of approximately $9.2 million. In addition, the Company will use
approximately $9.1 million and $4.2 million of the net proceeds of the Public
Offering, respectively, to pay the cash portion of the purchase price of the PDI
transaction and to repay approximately $4.2 million of outstanding indebtedness
of PDI.
In April 1998, the Company filed a registration statement, under the
Act with the Commission, which was subsequently amended, in connection with the
proposed Public Offering of 2,114,000 shares of the Company's Common Stock,
2,000,000 shares of which are being sold by the Company and 114,000 are being
sold by certain selling stockholders of the Company. The proposed Public
Offering is being underwritten by a group of underwriters for which Hambrecht &
Quist LLC, Volpe Brown Whelan & Company LLC, and Barington Capital Group, L.P.
are acting as representatives. In connection with the Public Offering, the
Company has granted the underwriters an option to purchase up to 317,100
additional shares of Common Stock to cover over-allotments, if any. The selling
stockholders are certain physicians at practices which are affiliated with the
Company, none of whom are officers or directors of the Company. These physicians
acquired their shares of Common Stock from the Company in connection with the
Company's acquisition of the related practice assets.
The offering price will be based on the market price of the Company's
Common Stock immediately prior to the effective date of the proposed Public
Offering. Assuming the Company's proposed affiliation with PDI is consummated on
the terms contemplated by the PDI Stock Purchase Agreement, a substantial
portion of the proceeds of the Public Offering are intended to be used to pay a
substantial portion of the purchase price
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<PAGE> 20
of the PDI transaction. The remaining proceeds are intended to be used
primarily for working capital purposes and for potential future acquisitions.
In April 1998, the Company also filed the Shelf Registration Statement,
under the Act with the Commission, which was subsequently amended, in connection
with the registration of an aggregate of 3,146,514 shares of Common Stock, of
which 2,750,000 shares may be issued from time to time by the Company in
connection with potential future affiliation transactions with ENT physicians or
related specialty practices or the merger with or acquisition by the Company of
other related businesses or assets, 220,000 shares of Common Stock issuable upon
exercise of warrants issued to the representatives of the underwriters in the
IPO which may be sold from time to time by the holders of the warrants after
issuance and 176,514 shares, which are issuable in December 1998 in connection
with a practice asset acquisition completed in December 1997, which may be sold
from time to time by the physician stockholders after issuance.
On April 21, 1998, the Company acquired substantially all of the assets
(other than certain excluded assets such as employment agreements and patient
charts, records, and files) and assumed certain contractual liabilities of
Westerkamm. In connection with the acquisition of the assets of this practice,
the Company (i) paid approximately $250,000 in cash, and (ii) issued a
promissory note in the principal amount of $250,000 which note matures in April
2000, accrues interest at a rate of 6.0% per annum, payable quarterly, and is
payable at the Company's option, in cash or Common Stock valued at the average
closing price of the Common Stock for the ten trading days preceding the date of
delivery of such shares. In connection with this acquisition, the Company paid
approximately $30,000 to Premier HealthCare for advisory services rendered.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.13(a) 1996 Stock Option Plan, as amended
10.42(a) 1997 Employee Stock Purchase Plan, as amended
10.43 Amendment No.1 to Restated and Amended Lease Agreement dated January 1,
1998 between Ramie A. Tritt, M.D. and the Registrant as successor in
interest to Atlanta ENT(1)
10.44 Amendment dated March 19, 1998 to Agreement dated May 19, 1997 by and
between the Registrant and Premier HealthCare(1)
10.45 Amendment No. 1 to Employment Agreement dated as of March 25, 1998
between the Registrant and Gerald R. Benjamin(2)
10.46 Stock Purchase Agreement dated as of May 1, 1998 by and among the
Registrant, PSC Acquisition and the other parties named therein.
10.47 Form of Management Services Agreement by and among the ENT Associates,
LLP, PSC Management and the Registrant.
27 Financial Data Schedule (for SEC use only)
</TABLE>
- ----------------------------
(1) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
(2) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (file No. 333-50419).
18
<PAGE> 21
(b) Reports on Form 8-K
The Registrant filed a Form 8-K on March 24, 1998 reporting information
under Item 2.
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 May 11, 1998 /s/ Robert A. DiProva
------------ -----------------------------------
Robert A. DiProva
Executive Vice President and
Chief Financial Officer
19
<PAGE> 1
EXHIBIT 10.13(a)
PHYSICIANS' SPECIALTY CORP.
1996 STOCK OPTION PLAN, AS AMENDED
1. Purpose.
The purpose of this plan (the "Plan") is to secure for
Physicians' Specialty Corp. (the "Company") and its shareholders the benefits
arising from capital stock ownership by employees, officers and directors of,
and consultants or advisors to, the Company who are expected to contribute to
the Company's future growth and success. Except where the context otherwise
requires, the term "Company" shall include all present and future subsidiaries
of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended or replaced from time to time (the "Code"). Those
provisions of the Plan which make express reference to Section 422 shall apply
only to Incentive Stock Options (as that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan
shall be authorized by action of the Board of Directors of the Company (or a
Committee designated by the Board of Directors) and may be either incentive
stock options ("Incentive Stock Options") meeting the requirements of Section
422 of the Code or non-statutory options which are not intended to meet the
requirements of Section 422 of the Code.
(b) Administration. The Plan will be administered by a
committee (the "Committee") appointed by the Board of Directors of the Company,
whose construction and interpretation of the terms and provisions of the Plan
shall be final and conclusive. The delegation of powers to the Committee shall
be consistent with applicable laws or regulations (including, without
limitation, applicable state law and Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"), or any successor rule ("Rule
16b-3")). The Committee may in its sole discretion grant options to purchase
shares of the Company's Common Stock, $.001 par value per share ("Common Stock")
and issue shares upon exercise of such options as provided in the Plan. The
Committee shall have authority, subject to the express provisions of the Plan,
to construe the respective option agreements and the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the terms
and provisions of the respective option agreements, which need not be identical,
and to make all other determinations in the judgment of the Committee necessary
or desirable for the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Board of Directors shall be liable for any action or determination under the
Plan made in good faith. Subject to adjustment as provided in Section 15 below,
the aggregate number of shares of
<PAGE> 2
Common Stock that may be subject to Options granted to any person in a calendar
year shall not exceed 35% of the maximum number of shares which may be issued
and sold under the Plan, as set forth in Section 4 hereof, as such section may
be amended from time to time.
(c) Applicability of Rule 16b-3. Those provisions of the Plan
which make express reference to Rule 16b-3 shall apply to the Company only at
such time as the Company's Common Stock is registered under the Exchange Act,
subject to the last sentence of Section 3(b), and then only to such persons as
are required to file reports under Section 16(a) of the Exchange Act (a
"Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the
time of grant, employees, officers or directors of, or consultants or advisors
to, the Company or any subsidiaries of the Company as defined in Sections 424(e)
and 424(f) of the Code ("Participants") provided, that Incentive Stock Options
may only be granted to individuals who are employees of the Company (within the
meaning of Section 3401(c) of the Code). A person who has been granted an option
may, if he or she is otherwise eligible, be granted additional options if the
Committee shall so determine.
(b) Grant of Options to Reporting Persons. The selection of a
director or an officer who is a Reporting Person (as the terms "director" and
"officer" are defined for purposes of Rule 16b-3) as a recipient of an option,
the timing of the option grant, the exercise price of the option and the number
of shares subject to the option shall be determined either (i) by the Board of
Directors, (ii) by a committee consisting of two or more directors having full
authority to act in the matter, each of whom shall be an "Independent Director"
as defined by Rule 1.62-27 of the Code or (iii) pursuant to provisions for
automatic grants set forth in Section 3(c) below.
(c) Directors' Options. Commencing on the date this plan is
adopted by the Board of Directors, directors of the Company who are not
employees or stockholders of the Company owning in excess of 5% of the
outstanding Common Stock of the Company ("Eligible Directors") will receive an
option ("Director Option") to purchase 7,500 shares of Common Stock. Future
Eligible Directors of the Company will be granted a Director Option to purchase
7,500 shares of Common Stock on the date that such person is first elected or
appointed a director ("Initial Director Option"). Commencing on the day
immediately following the date of the annual meeting of stockholders for the
Company's fiscal year ending December 31, 1997, each Eligible Director will
receive an automatic grant ("Automatic Grant") of a Director Option to purchase
2,500 shares of Common Stock, other than Eligible Directors who received an
Initial Director Option since the most recent Automatic Grant, on the day
immediately following the date of each annual meeting of stockholders, as long
as such director is a member of the Board of Directors. The exercise price for
each share subject to a Director Option shall be equal to the fair market value
of the Common Stock on the date of grant. Director Options shall become
exercisable as set forth in the option agreement and will expire the earlier of
10 years after the date of grant or 90 days after the termination of the
director's service on the Board unless such
-2-
<PAGE> 3
Director Option is an Incentive Stock Option in which case such Director Option
shall be subject to the additional terms and conditions set forth in Section 11.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be
shares of authorized but unissued or reacquired Common Stock. Subject to
adjustment as provided in Section 15 below, the maximum number of shares of
Common Stock of the Company which may be issued and sold under the Plan is
1,100,000 shares. If an option granted under the Plan shall expire, terminate or
is cancelled for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for
subsequent option grants under the Plan.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement in such form not
inconsistent with the Plan as may be approved by the Board of Directors. Such
option agreements may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable
upon the exercise of an option shall be determined by the Board of Directors at
the time of grant of such option; provided, however, that in the case of an
Incentive Stock Option, the exercise price shall not be less than 100% of the
Fair Market Value (as hereinafter defined) of such stock, at the time of grant
of such option, or less than 110% of such Fair Market Value in the case of
options described in Section 11(b). "Fair Market Value" of a share of Common
Stock of the Company as of a specified date for the purposes of the Plan shall
mean the closing price of a share of the Common Stock on the principal
securities exchange (including the Nasdaq National Market) on which such shares
are traded on the day immediately preceding the date as of which Fair Market
Value is being determined, or on the next preceding date on which such shares
are traded if no shares were traded on such immediately preceding day, or if the
shares are not traded on a securities exchange, Fair Market Value shall be
deemed to be the average of the high bid and low asked prices of the shares in
the over-the-counter market on the day immediately preceding the date as of
which Fair Market Value is being determined or on the next preceding date on
which such high bid and low asked prices were recorded. If the shares are not
publicly traded, Fair Market Value of a share of Common Stock (including, in the
case of any repurchase of shares, any distributions with respect thereto which
would be repurchased with the shares) shall be determined in good faith by the
Board of Directors. In no case shall Fair Market Value be determined with regard
to restrictions other than restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan
may provide for the payment of the exercise price by delivery of cash or a check
to the order of the Company
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<PAGE> 4
in an amount equal to the exercise price of such options, or by any other means
which the Board of Directors determines are consistent with the purpose of the
Plan and with applicable laws and regulations (including, without limitation,
the provisions of Rule 16b-3 and Regulation T promulgated by the Federal Reserve
Board).
7. Option Period.
Subject to earlier termination as provided in the Plan, each
option and all rights thereunder shall expire on such date as determined by the
Board of Directors and set forth in the applicable option agreement, provided,
that such date shall not be later than (10) ten years after the date on which
the option is granted.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either
in full or in installments at such time or times and during such period as shall
be set forth in the option agreement evidencing such option, subject to the
provisions of the Plan. Subject to the requirements in the immediately preceding
sentence, if an option is not at the time of grant immediately exercisable, the
Board of Directors may (i) in the agreement evidencing such option, provide for
the acceleration of the exercise date or dates of the subject option upon the
occurrence of specified events, and/or (ii) at any time prior to the complete
termination of an option, accelerate the exercise date or dates of such option.
9. Nontransferability of Options.
No option granted under this Plan shall be assignable or
otherwise transferable by the optionee except by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
in the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder. An option may be exercised during the lifetime of the optionee
only by the optionee. In the event an optionee dies during his employment by the
Company or any of its subsidiaries, or during the three-month period following
the date of termination of such employment, his option shall thereafter be
exercisable, during the period specified in the option agreement, by his
executors or administrators to the full extent to which such option was
exercisable by the optionee at the time of his death during the periods set
forth in Section 10 or 11(d).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive
Stock Options and except as otherwise determined by the Committee at the date of
grant of an Option, and subject to the provisions of the Plan, an optionee may
exercise an option at any time within three months following the termination of
the optionee's employment or other relationship with the Company or within one
(1) year if such termination was due to the death or disability of the optionee
but, except in the case of the optionee's death, in no event later than the
expiration date of the Option.
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<PAGE> 5
If the termination of the optionee's employment is for cause or is otherwise
attributable to a breach by the optionee of an employment or confidentiality or
non-disclosure agreement, the option shall expire immediately upon such
termination. The Board of Directors shall have the power to determine what
constitutes a termination for cause or a breach of an employment or
confidentiality or non-disclosure agreement, whether an optionee has been
terminated for cause or has breached such an agreement, and the date upon which
such termination for cause or breach occurs. Any such determinations shall be
final and conclusive and binding upon the optionee.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be
Incentive Stock Options shall be subject to the following additional terms and
conditions:
(a) Express Designation. All Incentive Stock Options granted
under the Plan shall, at the time of grant, be specifically designated as such
in the option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive
Stock Option is to be granted under the Plan is, at the time of the grant of
such option, the owner of stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company (after taking into account
the attribution of stock ownership rules of Section 424(d) of the Code), then
the following special provisions shall be applicable to the Incentive Stock
Option granted to such individual:
(i) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than
110% of the Fair Market Value of one share of Common Stock at
the time of grant; and
(ii) The option exercise period shall not exceed five
years from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so
provide, options granted to any employee under the Plan (and any other incentive
stock option plans of the Company) which are intended to constitute Incentive
Stock Options shall not constitute Incentive Stock Options to the extent that
such options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair Market Value, as
of the respective date or dates of grant, of more than $100,000.
(d) Termination of Employment, Death or Disability. No
Incentive Stock Option may be exercised unless, at the time of such exercise,
the optionee is, and has been continuously since the date of grant of his or her
option, employed by the Company, except that:
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<PAGE> 6
(i) an Incentive Stock Option may be exercised within
the period of three months after the date the optionee ceases
to be an employee of the Company (or within such lesser period
as may be specified in the applicable option agreement),
provided, that the agreement with respect to such option may
designate a longer exercise period and that the exercise after
such three-month period shall be treated as the exercise of a
non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the
Company, or within three months after the optionee ceases to
be such an employee, the Incentive Stock Option may be
exercised by the person to whom it is transferred by will or
the laws of descent and distribution within the period of one
year after the date of death (or within such lesser period as
may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor
provisions thereto) while in the employ of the Company, the
Incentive Stock Option may be exercised within the period of
one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser
period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may,
in its sole discretion, include additional provisions in option agreements
covering options granted under the Plan, including without limitation
restrictions on transfer, repurchase rights, rights of first refusal,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Board of Directors; provided, that such
additional provisions shall not be inconsistent with any other term or condition
of the Plan and such additional provisions shall not cause any Incentive Stock
Option granted under the Plan to fail to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may,
in its sole discretion, (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised; provided, however, that no such extension shall
be permitted if it would cause the Plan to fail to comply with Section 422 of
the Code or with Rule 16b-3 (if applicable).
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<PAGE> 7
13. General Restrictions.
(a) Investment Representations. The Company may require any
person to whom an Option is granted, as a condition of exercising such option,
to give written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the option
or award, for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws, or with covenants or
representations made by the Company in connection with any public offering of
its Common Stock, including any "lock-up" or other restriction on
transferability.
(b) Compliance With Securities Law. Each Option shall be
subject to the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such option upon any securities exchange or automated quotation system or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition is necessary as a condition of, or in
connection with the issuance or purchase of shares thereunder, such option may
not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board of Directors.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification, or to satisfy such condition.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder
with respect to any shares covered by the option (including, without limitation,
any rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations
and Related Transactions.
(a) Recapitalizations and Related Transactions. If, through or
as a result of any recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar transaction, (i) the outstanding
shares of Common Stock are increased, decreased or exchanged for a different
number or kind of shares or other securities of the Company, or (ii) additional
shares or new or different shares or other non-cash assets are distributed with
respect to such shares of Common Stock or other securities, an appropriate and
proportionate adjustment shall be made in (x) the maximum number and kind of
shares reserved for issuance under or otherwise referred to in the Plan, (y) the
number and kind of shares or other securities subject to any then outstanding
options under the Plan, and (z) the price for each share subject to
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<PAGE> 8
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment (i) would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 or (ii) would be considered as the adoption of a new
plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. All
outstanding Options under the Plan shall become fully exercisable for a period
of sixty (60) days following the occurrence of any Trigger Event, whether or not
such Options are then exercisable under the provisions of the applicable
agreements relating thereto. For purposes of the Plan, a "Trigger Event" is any
one of the following events:
(i) the date on which shares of Common Stock
are first purchased pursuant to a tender offer or exchange
offer (other than such an offer by the Company, any
Subsidiary, any employee benefit plan of the Company or of any
Subsidiary or any entity holding shares or other securities of
the Company for or pursuant to the terms of such plan),
whether or not such offer is approved or opposed by the
Company and regardless of the number of shares purchased
pursuant to such offer;
(ii) the date the Company acquires knowledge
that any person or group deemed a person under Section 13(d)-3
of the Exchange Act (other than the Company, any Subsidiary,
any employee benefit plan of the Company or of any Subsidiary
or any entity holding shares of Common Stock or other
securities of the Company for or pursuant to the terms of any
such plan or any individual or entity or group or affiliate
thereof which acquired its beneficial ownership interest prior
to the date the Plan was adopted by the Board), in a
transaction or series of transactions, has become the
beneficial owner, directly or indirectly (with beneficial
ownership determined as provided in Rule 13d-3, or any
successor rule, under the Exchange Act), of securities of the
Company entitling the person or group to 30% or more of all
votes (without consideration of the rights of any class or
stock to elect directors by a separate class vote) to which
all shareholders of the Company would be entitled in the
election of the Board of Directors were an election held on
such date;
(iii) the date, during any period of two
consecutive years, when individuals who at the beginning of
such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by the stockholders of the Company, of each new director was
approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of
such period; and
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<PAGE> 9
(iv) the date of approval by the
stockholders of the Company of an agreement (a "reorganization
agreement") providing for:
(A) The merger of consolidation of the
Company with another corporation where the stockholders of the
Company, immediately prior to the merger or consolidation, do
not beneficially own, immediately after the merger or
consolidation, shares of the corporation issuing cash or
securities in the merger or consolidation entitling such
shareholders to 80% or more of all votes (without
consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all stockholders
of such corporation would be entitled in the election of
directors or where the members of the Board of Directors of
the Company, immediately prior to the merger or consolidation,
do not, immediately after the merger or consolidation,
constitute a majority of the Board of Directors of the
corporation issuing cash or securities in the merger or
consolidation; or
(B) The sale or other disposition of all or
substantially all the assets of the Company.
(c) Board Authority to Make Adjustments. Any adjustments under
this Section 15 will be made by the Board of Directors, whose determination as
to what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of any sale, merger, transfer or
acquisition of the Company or substantially all of the assets of the Company in
which the Company is not the surviving corporation, and provided that after the
Company shall have requested the acquiring or succeeding corporation (or an
affiliate thereof), that equivalent options shall be substituted and such
successor corporation shall have refused or failed to assume all options
outstanding under the Plan or issue substantially equivalent options, then any
or all outstanding options under the Plan shall accelerate and become
exercisable in full immediately prior to such event. The Committee will notify
holders of options under the Plan that any such options shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the options will terminate upon expiration of such notice.
(b) Substitute Options. The Company may grant options under
the Plan in substitution for options held by employees of another corporation
who become employees of the Company, or a subsidiary of the Company, as the
result of a merger or consolidation of the employing corporation with the
Company or a subsidiary of the Company, or as a result of the acquisition by the
Company, or one of its subsidiaries, of property or stock of the employing
corporation. The Company may direct that substitute options be granted on such
terms and conditions as the Board of Directors considers appropriate in the
circumstances.
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<PAGE> 10
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer
upon any optionee any right with respect to the continuation of his or her
employment by the Company or interfere in any way with the right of the Company
at any time to terminate such employment or to increase or decrease the
compensation of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts
as compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to
time, modify or amend the Plan in any respect; provided, however, that if at any
time the approval of the stockholders of the Company is required under Section
422 of the Code or any successor provision with respect to Incentive Stock
Options, the Board of Directors may not effect such modification or amendment
without such approval; and provided, further, that the provisions of Section
3(c) hereof shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employer Retirement Income Security Act of
1974, as amended, or the rules thereunder.
(b) The modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected, the
Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments
of any kind otherwise due to the optionee any federal, state or local taxes of
any kind required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to
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<PAGE> 11
the prior approval of the Company, which may be withheld by the Company in its
sole discretion, the optionee may elect to satisfy such obligations, in whole or
in part, (i) by causing the Company to withhold shares of Common Stock otherwise
issuable pursuant to the exercise of an option or (ii) by delivering to the
Company shares of Common Stock already owned by the optionee. The shares so
delivered or withheld shall have a Fair Market Value equal to such withholding
obligation as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of
an Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Company if any or all of such shares are disposed of by the optionee
within two years from the date the option was granted or within one year from
the date the shares were issued to the optionee pursuant to the exercise of the
option, and (ii) if required by law, to remit to the Company, at the time of and
in the case of any such disposition, an amount sufficient to satisfy the
Company's federal, state and local withholding tax obligations with respect to
such disposition, whether or not, as to both (i) and (ii), the optionee is in
the employ of the Company at the time of such disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting
Person whose options have been granted in accordance with the provisions of
Section 3(b) herein, no election to use shares for the payment of withholding
taxes shall be effective unless made in compliance with any applicable
requirements of Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, (i)
the cancellation of any or all outstanding options under the Plan and the grant
in substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when
adopted by the Board of Directors, but no Incentive Stock Option granted under
the Plan shall become exercisable unless and until the Plan shall have been
approved by the Company's stockholders. If such stockholder approval is not
obtained within twelve months after the date of the Board's adoption of the
Plan, no options previously granted under the Plan shall be deemed to be
Incentive Stock Options and no Incentive Stock Options shall be granted
thereafter. Amendments to the Plan not requiring stockholder approval shall
become effective when
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<PAGE> 12
adopted by the Board of Directors; amendments requiring shareholder approval (as
provided in Section 21) shall become effective when adopted by the Board of
Directors, but no Incentive Stock Option granted after the date of such
amendment shall become exercisable (to the extent that such amendment to the
Plan was required to enable the Company to grant such Incentive Stock Option to
a particular optionee) unless and until such amendment shall have been approved
by the Company's stockholders. If such stockholder approval is not obtained
within twelve months of the Board's adoption of such amendment, any Incentive
Stock Options granted on or after the date of such amendment shall terminate to
the extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with
Section 16, the Plan shall terminate upon the earlier of (i) the close of
business on the day next preceding the tenth anniversary of the date of its
adoption by the Board of Directors, or (ii) the date on which all shares
available for issuance under the Plan shall have been issued pursuant to the
exercise or cancellation of options granted under the Plan. If the date of
termination is determined under (i) above, then options outstanding on such date
shall continue to have force and effect in accordance with the provisions of the
instruments evidencing such options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify
awards or options granted to participants who are foreign nationals or employed
outside the United States to recognize differences in laws, rules, regulations
or customs of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.
24. Governing Law.
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.
Adopted by the Board of Directors on November 25, 1996, and
most recently amended on March 11, 1998.
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EXHIBIT 10.42(a)
PHYSICIANS' SPECIALTY CORP.
1997 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
1. Purpose. The Physicians' Specialty Corp. 1997 Employee
Stock Purchase Plan (the "Plan") is established to provide eligible employees of
Physicians' Specialty Corp., a Delaware corporation, and any successor
corporation thereto (collectively, "PSC"), and any current or future parent
corporation or subsidiary corporations of PSC as the Board of Directors of PSC
(the "Board") shall from time to time designate (collectively referred to as the
"Company" and individually referred to as a "Participating Company"), with an
opportunity to acquire a proprietary interest in the Company by the purchase of
common stock of PSC. For purposes of the Plan, a parent corporation and a
subsidiary corporation shall be as defined in sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code").
PSC intends that the Plan shall qualify as an "employee stock
purchase plan" under section 423 of the Code (including any amendments or
replacements of such section), and the Plan shall be so construed. Any term not
expressly defined in the Plan but defined for purposes of section 423 of the
Code shall have the same definition herein.
An employee participating in the Plan (a "Participant") may
withdraw such Participant's accumulated payroll deductions (if any) and
terminate participation in the Plan or any Offering (as defined below) therein
at any time during a Purchase Period (as defined below). Accordingly, each
Participant is, in effect, granted an option pursuant to the Plan (a "Purchase
Right") which may or may not be exercised at the end of a Purchase Period.
2. Administration. The Plan shall be administered by the Board
and/or by a duly appointed committee of the Board having such powers as shall be
specified by the Board. Any subsequent references to the Board shall also mean
the committee if a committee has been appointed. All questions of interpretation
of the Plan or of any Purchase Right shall be determined by the Board and shall
be final and binding upon all persons having an interest in the Plan and/or any
Purchase Right. Subject to the provisions of the Plan, the Board shall determine
all of the relevant terms and conditions of Purchase Rights granted pursuant to
the Plan; provided, however, that all Participants granted Purchase Rights
pursuant to the Plan shall have the same rights and privileges within the
meaning of section 423(b)(5) of the Code. All expenses incurred in connection
with the administration of the Plan shall be paid by the Company.
3. Share Reserve. The maximum number of shares which may be
issued under the Plan shall be Two Hundred and Fifty Thousand (250,000) shares
of PSC's authorized but unissued common stock, $.001 par value (the "Shares").
In the event that any Purchase Right
<PAGE> 2
for any reason expires or is canceled or terminated, the Shares allocable to the
unexercised portion of such Purchase Right may again be subjected to a Purchase
Right.
4. Eligibility. Any employee of a Participating Company is
eligible to participate in the Plan except employees who:
(a) customarily work less than 20 hours per week;
(b) customarily work not more than five months in any
calendar year;
(c) have not been employed for at least 6 months;
(d) as of the start of an Offering, own stock of PSC (or
any parent or subsidiary corporations) and/or own or hold options to purchase or
who, as a result of participation in the Plan, would own or hold options to
purchase, stock of PSC (or any parent or subsidiary corporations), possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of PSC (or any parent or subsidiary corporations) within the
meaning of section 423(b)(3) of the Code.
Notwithstanding anything herein contained to the contrary, any
individual performing services for a Participating Company solely through a
leasing agency or employment agency shall not be deemed an "employee" of such
Participating Company.
5. Offering Dates.
(a) Offering Periods. Except as otherwise set forth below,
the Plan shall be implemented by offerings (individually, an "offering") of
approximately twelve (12) months duration (an "Offering Period"). The "Initial
Offering Date" is April 15, 1998. The Initial Offering shall commence on the
Initial Offering Date and shall end on December 31, 1998 (the "Initial Offering
Period"). Subsequent Offerings shall be of twelve (12) months duration, shall
commence on January 1 of each year and end on the December 31 occurring
thereafter. Notwithstanding the foregoing, the Board may establish a different
term for one or more Offerings and/or different commencing and/or ending dates
for such Offerings. An employee who becomes eligible to participate in the Plan
after an Offering Period has commenced shall not be eligible to participate in
such Offering but may participate in any subsequent Offering provided such
employee is still eligible to participate in the Plan as of the commencement of
any such subsequent Offering. Eligible employees may not participate in more
than one Offering at a time. The first day of an Offering Period shall be the
"Offering Date" for such Offering Period. In the event the first and/or last day
of an Offering Period is not a business day, PSC shall specify the business day
that will be deemed the first or last day, as the case may be, of the Offering
Period.
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(b) Purchase Periods. Each Offering Period, shall generally
consist of two (2) consecutive purchase periods of six (6) months duration
(individually, a "Purchase Period"). The last day of each Purchase Period shall
be the "Purchase Date" for such Purchase Period. The Purchase Period commencing
on the Initial Offering Date of April 15, 1998 shall end on June 30, 1998. Each
Purchase Period commencing on July 1 shall end on the next December 31 and each
Purchase Period commencing on January 1 shall end on the next June 30.
Notwithstanding the foregoing, the Board may establish a different term for one
or more Purchase Periods and/or different commencing dates and/or Purchase Dates
for such Purchase Periods. In the event the first and/or last day of a Purchase
Period is not a business day, PSC shall specify the business day that will be
deemed the first or last day, as the case may be, of the Purchase Period.
(c) Governmental Approval; Stockholder Approval.
Notwithstanding any other provision of the Plan to the contrary, any Purchase
Right granted pursuant to the Plan shall be subject to (i) obtaining all
necessary governmental approvals and/or qualifications of the sale and/or
issuance of the Purchase Rights and/or the Shares, and (ii) obtaining
stockholder approval of the Plan within twelve (12) months of the adoption of
the Plan by the Board of Directors of PSC. Notwithstanding the foregoing,
stockholder approval shall not be necessary in order to grant any Purchase Right
granted in the Plan's Initial Offering Period; provided, however, that the
exercise of any such Purchase Right shall be subject to obtaining stockholder
approval of the Plan within twelve (12) months of the adoption of the Plan by
the Board of Directors of PSC.
6. Participation in the Plan.
(a) Initial Participation. An eligible employee shall
become a Participant on the first Offering Date after satisfying the eligibility
requirements and delivering to the Company's payroll office not later than the
close of business for such payroll office on the last business day before such
Offering Date (the "Subscription Date") a subscription agreement indicating the
employee's election to participate in the Plan and authorizing payroll
deductions. An eligible employee who does not deliver a subscription agreement
to the Company's payroll office on or before the Subscription Date shall not
participate in the Plan for that Offering Period or for any subsequent Offering
Period unless such employee subsequently enrolls in the Plan by filing a
subscription agreement with the Company by the Subscription Date for such
subsequent Offering Period. The Company may, from time to time, change the
Subscription Date as deemed advisable by the Company in its sole discretion for
proper administration of the Plan.
(b) Continued Participation. A Participant shall
automatically participate in the Offering Period commencing immediately after
the final Purchase Date of each Offering Period in which the Participant
participates until such time as such Participant (i) ceases to be eligible as
provided in paragraph 4, (ii) withdraws from the Plan pursuant to paragraph
11(b) or (iii) terminates employment as provided in paragraph 12. If a
Participant is automatically withdrawn from an Offering at the end of a Purchase
Period of such Offering
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<PAGE> 4
pursuant to paragraph 11(d), then the Participant shall automatically
participate in the next Offering Period. If a Participant automatically may
participate in a subsequent Offering Period pursuant to this paragraph 6(b),
then the Participant is not required to file any additional subscription
agreement for such subsequent Offering Period in order to continue participation
in the Plan. However, a Participant may file a subscription agreement with
respect to a subsequent Offering Period if the Participant desires to change any
of the Participant's elections contained in the Participant's then effective
subscription agreement.
7. Right to Purchase Shares. Except as set forth below, during
an Offering Period each Participant in such Offering Period shall have a
Purchase Right consisting of the right to purchase the lesser of:
(a) that number of whole Shares arrived at by dividing
Twenty-Five Thousand Dollars ($25,000.00) by the fair market value of a share of
the common stock of PSC on the initial date of a Purchase Period; and
(b) 2,500 Shares.
The fair market value of Shares shall be determined in
accordance with paragraph 8 below. Shares may only be purchased through a
Participant's payroll withholding pursuant to paragraph 9 below. In no event
shall a Participant's Purchase Right permit such Participant to acquire more
shares in any calendar year than is permitted under Section 10(a) hereof.
8. Purchase Price. The purchase price at which Shares may
be acquired in a given Purchase Period pursuant to the exercise of all or any
portion of a Purchase Right granted under the Plan (the "Offering Exercise
Price") shall be set by the Board; provided, however, that the Offering Exercise
Price shall not be less than eighty-five percent (85%) of the lesser of (i) the
fair market value of the Shares on the initial date of a Purchase Period or (ii)
the fair market value of the Shares on the Purchase Date for such Purchase
Period. Unless otherwise provided by the Board prior to the commencement of an
Offering Period, the Offering Exercise Price for each Purchase Period in that
Offering Period shall be eighty-five percent (85%) of the lesser of (i) the fair
market value of the Shares on the initial date of a Purchase Period or (ii) the
fair market value of the Shares on the given Purchase Date. The fair market
value of the Shares on the applicable dates shall be the closing sales price on
the Nasdaq National Market (or the average of the closing bid and asked prices
if the Shares are so quoted instead) or as reported on such other national or
regional securities exchange or market system if the Shares are traded on such
other exchange or system instead, or as determined by the Board if the Shares
are not so reported. If the relevant date does not fall on a day on which the
common stock of PSC is quoted on the Nasdaq National Market or such other
national or regional securities exchange or market, the date on which the fair
market value per Share shall be established shall be the last day on which the
common stock of PSC was so quoted to such relevant date.
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<PAGE> 5
9. Payment of Purchase Price. Shares which are acquired
pursuant to the exercise of all or any portion of a Purchase Right may be paid
for only by means of payroll deductions from the Participant's Compensation
during the Offering Period. For purposes of the Plan, a Participant's
"Compensation" with respect to an Offering (i) shall include the Participant's
base salary before deduction for any contributions to any plan maintained by a
Participating Company and described in section 401(k) or section 125 of the
Code, commissions, overtime and bonuses and (ii) shall not include annual
awards, other incentive payments, shift premiums, long-term disability, worker's
compensation or any other payments not specifically referenced in (i). Except as
set forth below, the amount of Compensation to be withheld from a Participant's
Compensation during each pay period shall be determined by the Participant's
subscription agreement.
(a) Election to Decrease,Increase or Stop Withholding.
During an Offering Period, a Participant may elect to decrease the amount
withheld, or stop withholding, from his or her Compensation by filing an amended
subscription agreement with the Company on or before the "Change Notice Date."
The "Change Notice Date" shall initially be the seventh (7th) day prior to the
end of the first pay period for which such election is to be effective; however,
the Company may change such Change Notice Date from time to time. A Participant
may elect to increase the amount withheld from the Participant's Compensation
once during a Purchase Period.
(b) Limitations on Payroll Withholding. The amount of
payroll withholding with respect to the Plan for any Participant during any pay
period shall be in one percent (1%) increments not to exceed ten percent (10%)
of the Participant's Compensation for such pay period. Notwithstanding the
foregoing, the Board may change the limits on payroll withholding effective as
of a future Offering Date, as determined by the Board. Amounts withheld shall be
reduced by any amounts applied to the purchase of Company stock pursuant to any
other employee stock purchase plan qualifying under section 423 of the Code.
(c) Payroll Withholding. Payroll deductions shall commence
on the first payday following the Offering Date and shall continue to the end of
the Offering Period unless sooner altered or terminated as provided in the Plan.
(d) Participant Accounts. Individual accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such account and shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
(e) No Interest Paid. Interest shall not be paid on sums
withheld from a Participant's Compensation, unless the Board elects to make such
payments to all Participants on a non-discriminatory basis.
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<PAGE> 6
(f) Exercise of Purchase Right. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Offering or
whose participation in the Offering has not terminated on or before such
Purchase Date shall automatically acquire pursuant to the exercise of the
Participant's Purchase Right the number of whole Shares arrived at by dividing
the total amount of the Participant's accumulated payroll deductions for the
Purchase Period by the Offering Exercise Price; provided, however, in no event
shall the number of Shares purchased by the Participant exceed the number of
Shares subject to the Participant's Purchase Right or the limitations imposed by
Section 10(a) hereof. No Shares shall be purchased on a Purchase Date on behalf
of a Participant whose participation in the Offering or the Plan has terminated
on or before such Purchase Date.
(g) Return of Cash Balance. Any cash balance remaining in
the Participant's account shall be refunded to the Participant as soon as
practicable after the Purchase Date. In the event the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
necessary to purchase a whole Share, the Company may establish procedures
whereby such cash is maintained in the Participant's account and applied toward
the purchase of Shares in the subsequent Purchase Period or Offering Period.
(h) Tax Withholding. At the time the Purchase Right is
exercised, in whole or in part, or at the time some or all of the Shares are
disposed of, the Participant shall make adequate provision for the foreign,
federal and state tax withholding obligations of the Company, if any, which
arise upon exercise of the Purchase Right and/or upon disposition of Shares,
respectively. The Company may, but shall not be obligated to, withhold from the
Participant's Compensation the amount necessary to meet such withholding
obligations.
(i) Company Established Procedures. The Company may,
from time to time, establish or change (i) a minimum required withholding amount
for participation in an Offering, (ii) limitations on the frequency and/or
number of changes in the amount withheld during an Offering, (iii) an exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars, (iv)
payroll withholding in excess of or less than the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
processing of subscription agreements, (v) the date(s) and manner by which the
fair market value of the Shares is determined for purposes of administration of
the Plan and/or (vi) such other limitations or procedures as deemed advisable by
the Company in the Company's sole discretion which are consistent with the Plan
and in accordance with the requirements of section 423 of the Code.
(j) Expiration of Purchase Right. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the Offering
Period to which such Purchase Right relates shall expire immediately upon the
end of such Offering Period.
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<PAGE> 7
10. Limitations on Purchase of Shares; Rights as a
Stockholder.
(a) Fair Market Value Limitation. Notwithstanding any other
provision of the Plan, no Participant shall be entitled to purchase Shares under
the Plan (and under all other employee stock purchase plans which are intended
to meet the requirements of section 423 of the Code sponsored by the Company or
a parent or subsidiary corporation of the Company) at a rate which exceeds
$25,000 in fair market value during a given Offering Period (or such other limit
as may be imposed by the Code), for each calendar year in which such
Participant's Purchase Right with respect to such Offering Period remains
outstanding under the Plan (and under all other employee stock purchase plans
described in this sentence). Such fair market value shall be determined as of
the initial date of each Purchase Period.
(b) Pro Rata Allocation. In the event the number of Shares
which might be purchased by all Participants in the Plan exceeds the number of
Shares available in the Plan, the Company shall make a pro rata allocation of
the remaining Shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable.
(c) Rights as a Stockholder and Employee. A Participant
shall have no rights as a stockholder by virtue of the Participant's
participation in the Plan until the Purchase Date. No adjustment shall be made
for cash dividends or distributions or other rights for which the record date is
prior to the date such stock certificate(s) are issued. Nothing herein shall
confer upon a Participant any right to continue in the employ of the Company or
interfere in any way with any right of the Company to terminate the
Participant's employment at any time.
11. Withdrawal.
(a) Withdrawal From an Offering. A Participant may withdraw
from an Offering by signing and delivering to the Company's payroll office, a
written notice of withdrawal on forms provided by the Company for such purpose.
Such withdrawal may be elected at any time prior to the end of an Offering
Period; provided, however, if a Participant withdraws after the Purchase Date
for a Purchase Period of an Offering, the withdrawal shall not affect Shares
acquired by the Participant in such Purchase Period. Unless otherwise indicated,
withdrawal from an Offering shall not result in a withdrawal from the Plan or
any succeeding Offering therein. By withdrawing from an Offering effective as of
the close of a given Purchase Date, a Participant may have Shares purchased on
such Purchase Date and immediately commence participation in the next Offering
commencing after such Purchase Date. A Participant is prohibited from again
participating in an Offering at any time upon withdrawal from such Offering. The
Company may impose, from time to time, a requirement that the notice of
withdrawal be on file with the Company's payroll office for a reasonable period
prior to the effectiveness of the Participant's withdrawal from an Offering.
(b) Withdrawal from the Plan. A Participant may withdraw
from the Plan by signing a written notice of withdrawal on a form provided by
the Company for such
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<PAGE> 8
purpose and delivering such notice to the Company's payroll office. Withdrawals
made after a Purchase Date for a Purchase Period shall not affect Shares
acquired by the Participant on such Purchase Date. In the event a Participant
voluntarily elects to withdraw from the Plan, the Participant may not resume
participation in the Plan during the same Offering Period, but may participate
in any subsequent Offering under the Plan by again satisfying the requirements
of paragraphs 4 and 6(a) above. The Company may impose, from time to time, a
requirement that the notice of withdrawal be on file with the Company's payroll
office for a reasonable period prior to the effectiveness of the Participant's
withdrawal from the Plan.
(c) Return of Payroll Deductions. Upon withdrawal from an
Offering or the Plan pursuant to paragraphs 11(a) or 11(b), respectively, the
withdrawn Participant's accumulated payroll deductions which have not been
applied toward the purchase of Shares shall be returned as soon as practicable
after the withdrawal, without the payment of any interest (unless the Board
decides otherwise pursuant to paragraph 9(e) above), to the Participant, and the
Participant's interest in the Offering and/or the Plan, as applicable, shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
(d) Participation Following Withdrawal. An employee who is
also an officer or director of the Company subject to section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and who is
deemed to "cease participation" in the Plan within the meaning of Rule 16b-3
promulgated under the Exchange Act as amended from time to time or any successor
rule or regulation ("Rule 16b-3") as a consequence of his or her withdrawal from
an Offering pursuant to paragraph 11(a) above or withdrawal from the Plan
pursuant to paragraph 11(b) above shall not again participate in the Plan for at
least six months after the date of such withdrawal.
(e) Waiver of Withdrawal Right. The Company may, from time
to time, establish a procedure pursuant to which a Participant may elect (an
"Irrevocable Election"), at least six (6) months prior to a Purchase Date, to
have all payroll deductions accumulated in his or her Plan account as of such
Purchase Date applied to purchase Shares under the Plan, and (i) to waive his or
her right to withdraw from the Offering or the Plan and (ii) to waive his or her
right to increase, decrease, or cease payroll deductions under the Plan from his
or her Compensation during the Purchase Period ending on such Purchase Date.
Such election shall be made in writing on a form provided by the Company for
such purpose and must be delivered to the Company not later than the close of
business on the day preceding the date which is six (6) months before the
Purchase Date for which such election is to first be effective.
12. Termination of Employment. Termination of a Participant's
employment with the Company for any reason, including retirement, disability or
death or the failure of a Participant to remain an employee eligible to
participate in the Plan, shall terminate the Participant's participation in the
Plan immediately. In such event, the payroll deductions credited to the
Participant's account since the last Purchase Date shall, as soon as
practicable, be returned to the Participant or, in the case of the Participant's
death, to the Participant's legal
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<PAGE> 9
representative, and all of the Participant's right under the Plan shall
terminate. Interest shall not be paid on sums returned to a Participant pursuant
to this paragraph 12 unless the Board elects otherwise pursuant to paragraph
9(e) above. A Participant whose participation has been so terminated may again
become eligible to participate in the Plan by again satisfying the requirements
of paragraphs 4 and 6(a) above.
13. Transfer of Control. A "Transfer of Control" shall be
deemed to have occurred in the event any of the following occurs with respect to
PSC.
(a) a merger or consolidation in which PSC is not the
surviving corporation;
(b) a merger or consolidation in which PSC is the
surviving corporation where the stockholders of PSC before such merger or
consolidation do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of PSC;
(c) the sale, exchange, or transfer of all or
substantially all of PSC's assets other than a sale, exchange, or transfer to
one (1) or more subsidiary corporations (as defined in section 1, above) of PSC;
(d) the direct or indirect sale or exchange by the
stockholders of PSC of all or substantially all of the stock of PSC where the
stockholders of PSC before such sale or exchange do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of PSC after such sale or exchange; or
(e) the liquidation or dissolution of PSC;
In the event of a Transfer of Control, the Board, in its
sole discretion, may arrange with the surviving, continuing, successor, or
purchasing corporation, as the case may be (the "Acquiring Corporation"), for
the Acquiring Corporation to assume PSC's rights and obligations under the Plan.
All Purchase Rights shall terminate effective as of the date of the Transfer of
Control to the extent that the Purchase Right is neither exercised as of the
date of the Transfer of Control nor assumed by the Acquiring Corporation.
14. Capital Changes. In the event of changes in the common
stock of PSC due to a stock split, reverse stock split, stock dividend,
recapitalization, combination, reclassification, or like change in PSC's
capitalization, or in the event of any merger (including a merger effected for
the purpose of changing PSC's domicile), sale or other reorganization,
appropriate adjustments shall be made by PSC in the securities subject to
purchase under a Purchase Right, the Plan's share reserve, the number of Shares
subject to a Purchase Right, and in the purchase price per Share.
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<PAGE> 10
15. Transferability. A Purchase Right may not be transferred
in any manner otherwise than by will or the laws of descent and distribution and
shall be exercisable during the lifetime of the Participant only by the
Participant. PSC, in its absolute discretion, may impose such restrictions on
the transferability of the Shares purchasable upon the exercise of a Purchase
Right as it deems appropriate, and any such restriction shall be set forth in
the respective subscription agreement and may be referred to on the certificates
evidencing such Shares.
16. Reports. Each Participant who exercised all or part of his
or her Purchase Right for a Purchase Period shall receive, as soon as
practicable after the Purchase Date of such Purchase Period, a report of such
Participant's account setting forth the total payroll deductions accumulated,
the number of Shares purchased, the fair market value of such Shares, the date
of purchase and the remaining cash balance to be refunded or retained in the
Participant's account pursuant to paragraph 9(g) above, if any. In addition,
each Participant shall be provided information concerning PSC equivalent to that
information generally made available to PSC's common stockholders.
17. Plan Term. This Plan shall continue until terminated by
the Board or until all of the Shares reserved for issuance under the Plan have
been issued.
18. Restriction on Issuance of Shares. The issuance of Shares
under the Plan shall be subject to compliance with all applicable requirements
of foreign, federal or state law with respect to such securities. A Purchase
Right may not be exercised if the issuance of Shares upon such exercise would
constitute a violation of any applicable foreign, federal or state securities
laws or other law or regulations. In addition, no Purchase Right may be
exercised unless (i) a registration statement under the Securities Act of 1933,
as amended, shall at the time of exercise of the Purchase Right be in effect
with respect to the Shares issuable upon exercise of the Purchase Right, or (ii)
in the opinion of legal counsel to PSC, the Shares issuable upon exercise of the
Purchase Right may be issued in accordance with the terms of an applicable
exemption from the registration requirements of said Act. As a condition to the
exercise of a Purchase Right, PSC may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation, and to make any representation or warranty
with respect thereto as may be requested by the Company.
19. Legends. The Company may at any time place legends or
other identifying symbols referencing any applicable foreign, federal and/or
state securities restrictions or any provision convenient in the administration
of the Plan on some or all of the certificates representing Shares issued under
the Plan. The Participant shall, at the request of PSC, promptly present to PSC
any and all certificates representing Shares acquired pursuant to a Purchase
Right in the possession of the Participant in order to carry out the provisions
of this subparagraph. Unless otherwise specified by PSC, legends placed on such
certificates may include but shall not be limited to the following:
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<PAGE> 11
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER THE
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
REGISTERED HOLDER HEREOF MADE ON OR BEFORE ______________. THE REGISTERED HOLDER
SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME
(AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE."
20. Notification of Sale of Shares. PSC may require the
Participant to give PSC prompt notice of any disposition of Shares acquired by
exercise of a Purchase Right within two years from the date of granting such
Purchase Right or one year from the date of exercise of such Purchase Right. PSC
may require that until such time as a Participant disposes of Shares acquired
upon exercise of a Purchase Right, the Participant shall hold all such Shares in
the Participant's name (and not in the name of any nominee) until the lapse of
the time periods with respect to such Purchase Right referred to in the
preceding sentence. PSC may direct that the certificates evidencing Shares
acquired by exercise of a Purchase Right refer to such requirement to give
prompt notice of disposition.
21. Amendment or Termination of the Plan. The Board may at any
time amend or terminate the Plan, except that such termination shall not affect
Purchase Rights previously granted under the Plan, nor may any amendment make
any change in a Purchase Right previously granted under the Plan which would
adversely affect the right of any Participant (except to the extent permitted by
the Plan or as may be necessary to qualify the Plan as an employee stock
purchase plan pursuant to section 423 of the Code or to obtain qualification or
registration of the Shares under applicable foreign, federal or state securities
laws). In addition, an amendment to the Plan must be approved by the
stockholders of the Company within twelve (12) months of the adoption of such
amendment if such amendment would change the number of Shares authorized for
issuance under the Plan or would change the definition of the employees (or
class of employees) eligible to participate in the Plan, including the
corporations that may be designated by the Board as Participating Companies.
Furthermore, the approval of the Company's stockholders shall be sought for any
amendment to the Plan for which the Board deems stockholder approval necessary
in order to comply with Rule 16b-3 promulgated under section 16 of the Exchange
Act.
The foregoing Physicians' Specialty Corp. 1997 Employee Stock
Purchase Plan was duly adopted by the Board of Directors of PSC on the 5th day
of November, 1997, and most recently amended on March 11, 1998.
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<PAGE> 1
EXHIBIT 10.46
STOCK PURCHASE AGREEMENT
BY AND AMONG
PHYSICIANS' SPECIALTY CORP.
PSC ACQUISITION CORP.
AND
ANDREW BLANK, M.D.
LEE EISENBERG, M.D.
ROBERT GREEN, M.D.
STEVEN SACKS, M.D.
RICHARD HAMBURG, M.D.
JOHN GROSSO, M.D.
JAY YOUNGERMAN, M.D.
HYMAN RYBACK, M.D.
WAYNE EISMAN, M.D.
DAN MOSKOWITZ, M.D.
RICHARD ROSENBERG, M.D.
GARY FISHMAN, M.D.
MARIE VALDES, M.D.
FRANK SHECHTMAN, M.D.
MICHAEL BERGSTEIN, M.D.
STEVEN KASE, M.D.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SECTION 1. TERMS OF THE SALE AND PURCHASE OF THE STOCK........................................................... 3
1.1 PURCHASE AND SALE OF THE SHARES............................................................................3
1.2 ADDITIONAL PURCHASE PRICE CONSIDERATION....................................................................4
1.3 PAYMENT AND NON-ASSUMPTION OF LIABILITIES..................................................................5
1.4 EMPLOYMENT ARRANGEMENTS....................................................................................5
1.5 MANAGEMENT SERVICES AGREEMENT..............................................................................6
1.6 EACH PARTY TO BEAR COSTS...................................................................................6
1.7 ASSIGNMENT OF CONTRACTS AND ASSETS; CONSENTS...............................................................7
1.8 COOPERATION WITH REGULATORY APPROVALS......................................................................7
1.9 IRREVOCABLE GUARANTY BY PARENT.............................................................................7
1.10 CONSULTING AGREEMENT......................................................................................8
1.11 CLOSING...................................................................................................8
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLERS..............................................................9
2.1 OWNERSHIP OF SHARES.......................................................................................10
2.2 ORGANIZATION..............................................................................................10
2.3 POWER AND AUTHORITY FOR TRANSACTIONS......................................................................10
2.4 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS.........................................................11
2.5 SUBSIDIARIES AND AFFILIATES...............................................................................12
2.6 OUTSTANDING CAPITAL STOCK.................................................................................12
2.7 OPTIONS, WARRANTS AND OTHER RIGHTS........................................................................12
2.8 FINANCIAL INFORMATION.....................................................................................12
2.9 NO UNDISCLOSED LIABILITIES................................................................................12
2.10 LEASES...................................................................................................12
2.11 PERSONAL PROPERTY........................................................................................13
2.12 INVENTORIES..............................................................................................13
2.13 PRINCIPAL PLACE OF BUSINESS..............................................................................13
2.14 [RESERVED]...............................................................................................13
2.15 INTELLECTUAL PROPERTY RIGHTS.............................................................................13
2.16 DIRECTORS AND OFFICERS; PAYROLL INFORMATION..............................................................14
2.17 LEGAL PROCEEDINGS........................................................................................14
2.18 CONTRACTS................................................................................................14
2.19 SUBSEQUENT EVENTS........................................................................................15
2.20 ACCOUNTS RECEIVABLE......................................................................................16
2.21 TAX RETURNS..............................................................................................16
2.22 COMMISSIONS AND FEES.....................................................................................16
2.23 [RESERVED]...............................................................................................16
2.24 INSURANCE POLICIES.......................................................................................16
</TABLE>
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<TABLE>
<S> <C>
2.25 EMPLOYEE BENEFIT PLANS...................................................................................16
2.26 COMPLIANCE WITH LAWS IN GENERAL..........................................................................17
2.27 FRAUD AND ABUSE..........................................................................................17
2.28 MEDICARE, MEDICAID, AND OTHER THIRD-PARTY PAYOR PAYMENT LIABILITIES......................................18
2.29 BILLING PRACTICES AND REFERRAL SOURCES...................................................................18
2.30 PHYSICIAN SELF-REFERRALS.................................................................................19
2.31 INVESTMENT INTENT........................................................................................19
2.32 NO UNTRUE REPRESENTATIONS................................................................................20
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PSC......................................................20
3.1 CORPORATE EXISTENCE; GOOD STANDING; QUALIFICATION.........................................................20
3.2 POWER AND AUTHORITY.......................................................................................20
3.3 COMMISSIONS AND FEES......................................................................................21
3.4 PARENT DOCUMENTS..........................................................................................21
3.5 LEGAL PROCEEDINGS.........................................................................................21
3.6 COMPLIANCE WITH LAWS IN GENERAL...........................................................................21
3.7 BILLING PRACTICES IN GENERAL..............................................................................21
3.8 NO UNTRUE REPRESENTATIONS.................................................................................21
SECTION 4. ACCESS TO INFORMATION AND DOCUMENTS PRIOR TO CLOSING..................................................22
4.1 ACCESS TO SELLERS' INFORMATION............................................................................22
4.2 ACCESS TO INFORMATION OF PARENT...........................................................................22
4.3 RETENTION OF RECORDS......................................................................................22
SECTION 5. CONDITIONS TO OBLIGATION OF PARENT AND PSC TO CLOSE.................................................22
5.1 REPRESENTATIONS AND WARRANTIES TRUE.......................................................................22
5.2 COVENANTS.................................................................................................22
5.3 NO SUIT OR PROCEEDING.....................................................................................22
5.4 ABSENCE OF MATERIAL ADVERSE CHANGE........................................................................23
5.5 CERTIFICATE...............................................................................................23
5.6 APPROVAL OF PARENT'S SENIOR LENDER........................................................................23
5.7 RECEIPT OF FINANCIAL INFORMATION..........................................................................23
5.8 CONSENTS AND APPROVALS....................................................................................23
5.9 COUNSEL OPINION...........................................................................................23
5.10 OTHER AGREEMENTS EXECUTED................................................................................23
5.11 PURCHASE OF FIXED ASSETS, EQUIPMENT, AND TRADE NAME OF PHYSICIANS DOMAIN, INC............................24
5.12 RELEASE OF LIENS.........................................................................................24
5.13 NEW YORK NEWCO STOCK OPTIONS.............................................................................24
5.14 NEW JERSEY NEWCO STOCK OPTIONS...........................................................................24
5.15 CLOSING DATE FINANCIAL CERTIFICATE.......................................................................24
5.16 CLOSING NET WORTH AND ACCOUNTS RECEIVABLE................................................................24
5.17 CORPORATE DOCUMENTS......................................................................................24
5.18 ASSIGNMENT OF ASSUMPTION AGREEMENTS......................................................................25
5.19 FORMATION OF NEW YORK NEWCO AND NEW JERSEY NEWCO.........................................................25
</TABLE>
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<TABLE>
<S> <C>
5.20 TERMINATION OF CORPORATION PLANS.........................................................................25
5.21 RESIGNATIONS.............................................................................................25
5.22 DUE DILIGENCE............................................................................................25
SECTION 6. CONDITIONS TO OBLIGATION OF SELLERS...................................................................25
6.1 REPRESENTATIONS AND WARRANTIES TRUE......................................................................25
6.2 COVENANTS................................................................................................25
6.3 NO SUIT OR PROCEEDING....................................................................................25
6.4 CERTIFICATE..............................................................................................26
6.5 GOVERNMENT APPROVALS.....................................................................................26
6.6 OTHER AGREEMENTS EXECUTED................................................................................26
6.7 PURCHASE PRICE...........................................................................................26
6.8 FINANCIAL CONDITION OF PARENT............................................................................26
6.9 CONSENT OF NATIONSBANK...................................................................................26
6.10 COUNSEL OPINION..........................................................................................26
6.11 PSC DEBENTURE............................................................................................26
6.12 SECURITY AGREEMENT.......................................................................................26
6.13 ASSIGNMENT AND ASSUMPTION AGREEMENT......................................................................26
SECTION 7. CERTAIN ADDITIONAL COVENANTS..........................................................................26
7.1 CONDUCT OF PRACTICE PRIOR TO CLOSING.....................................................................26
7.2 FUNDING OF ACCRUED EMPLOYEE BENEFITS.....................................................................27
7.3 [RESERVED]...............................................................................................27
7.4 COVENANT NOT TO COMPETE..................................................................................27
7.5 CONFIDENTIALITY..........................................................................................28
7.6 PREPARATION OF TAX RETURNS AND PAYMENT OF TAXES..........................................................29
7.7 COLLECTIONS OF ACCOUNTS..................................................................................30
7.8 TERMINATION OF CORPORATION PLANS.........................................................................30
7.9 REORGANIZATIONS PRIOR TO CLOSING.........................................................................30
7.10 SELLER'S NOMINATION OF DIRECTOR TO PARENT BOARD OF DIRECTORS.............................................31
7.11 PDI OFFICE LEASE DEPOSIT.................................................................................31
7.12 CERTAIN PRE-CLOSING CLAIMS...............................................................................31
7.13 REFUND OF MALPRACTICE PREMIUMS...........................................................................31
SECTION 8. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION................................31
8.1 NATURE AND SURVIVAL......................................................................................31
8.2 INDEMNIFICATION BY PSC AND PARENT........................................................................32
8.3 INDEMNIFICATION BY SELLERS...............................................................................32
8.4 INDEMNIFICATION PROCEDURE................................................................................36
8.5 LIMITATIONS UPON OBLIGATIONS.............................................................................37
8.6 RIGHT TO OFFSET..........................................................................................37
SECTION 9. TERMINATION...........................................................................................39
</TABLE>
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<TABLE>
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9.1 RIGHT TO TERMINATE......................................................................................39
9.2 EFFECT OF TERMINATION...................................................................................40
SECTION 10. MISCELLANEOUS........................................................................................40
10.1 NOTICES.................................................................................................40
10.2 FURTHER ASSURANCES......................................................................................42
10.3 PUBLIC DISCLOSURES......................................................................................42
10.4 GOVERNING LAW...........................................................................................42
10.5 "INCLUDING".............................................................................................42
10.6 "KNOWLEDGE".............................................................................................42
10.7 "MATERIAL"..............................................................................................42
10.8 "MATERIAL ADVERSE CHANGE" OR "MATERIAL ADVERSE EFFECT"..................................................43
10.9 "HAZARDOUS MATERIALS"...................................................................................43
10.10 "ENVIRONMENTAL LAWS"....................................................................................43
10.11 CAPTIONS................................................................................................43
10.12 INTEGRATION OF EXHIBITS.................................................................................43
10.13 ENTIRE AGREEMENT........................................................................................43
10.14 COUNTERPARTS............................................................................................44
10.15 BINDING EFFECT..........................................................................................44
10.16 NO RULE OF CONSTRUCTION.................................................................................44
10.17 COSTS OF ENFORCEMENT....................................................................................44
10.18 ASSIGNMENT..............................................................................................44
10.19 PERIOD PRIOR TO CLOSING.................................................................................44
10.20 ARBITRATION.............................................................................................45
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of May 1,
1998, by and among PHYSICIANS' SPECIALTY CORP., a Delaware corporation
("PARENT"); PSC ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of Parent ("PSC"); HYMAN RYBACK, M.D., WAYNE EISMAN, M.D., DAN
MOSKOWITZ, M.D., RICHARD ROSENBERG, M.D., GARY FISHMAN, M.D., MARIE VALDEZ,
M.D., FRANK SHECHTMAN, M.D., MICHAEL BERGSTEIN, M.D. AND STEVEN KASE, M.D.,
(individually an "ENT SELLER" and collectively the "ENT SELLERS"); ANDREW L.
BLANK, M.D. ("ALB SELLER"); LEE EISENBERG, M.D. ("CEA SELLER"); ROBERT GREEN,
M.D. and STEVEN SACKS, M.D. (individually a "RGSS SELLER" and collectively the
"RGSS SELLERS"); RICHARD HAMBURG, M.D. ("RH SELLER") and JOHN GROSSO, M.D. AND
JAY YOUNGERMAN, M.D. (individually an "LIA SELLER" and collectively the "LIA
SELLERS") (ENT Sellers, ALB Seller, CEA Seller, RGSS Sellers, RHI Seller and LIA
Sellers are sometimes referred to herein individually as a "SELLER" and
collectively as the "SELLERS");
W I T N E S S E T H:
WHEREAS, the ENT Sellers are the shareholders of Ear Nose & Throat
Associates, P.C., a New York professional corporation ("ENT Medical Practice"),
and operate a medical practice with locations at 79 East Post Road, White
Plains, New York; 170 Maple Avenue, Suite 101, White Plains, New York;
Stoneleigh Avenue, Suite 116, Carmel, New York; 1983 Crompond Road, Suite 4,
Peekskill, New York; 200 South Broadway, Suite 201, Tarrytown, New York; 984
North Broadway, Suite 400, Yonkers, New York; 1 Peekskill Hollow Road, Putnam
Valley, New York; 2 Stowe Road, Suite 11, Peekskill, New York, One Old
Mamaroneck Road, White Plains, New York; and 100 Executive Drive, Brewster, New
York;
WHEREAS, ALB Seller is the sole shareholder of Andrew L. Blank, M.D.,
P.C., a New York professional corporation ("ALB Medical Practice"), and operates
a medical practice located at 212-45 26th Avenue, Suite 100, Bayside, New York;
WHEREAS, CEA Seller is the sole shareholder of Chestnut ENT Associates,
P.A., a New Jersey professional association ("CEA Medical Practice"), and
operates a medical practice located at 177 North Dean Street, Englewood, New
Jersey;
WHEREAS, the RGSS Sellers are the shareholders of Robert Green, M.D.
and Steven Sacks, M.D., P.C., a New York professional corporation ("RGSS Medical
Practice"), and operate a medical practice located at 1035 5th Avenue, New York,
New York;
WHEREAS, RH Seller is the sole shareholder of Branch Surgical, M.D.,
P.C., a New York corporation ("RH-1 Corporation"), and operates as a sole
proprietorship a medical practice located at 257 Middle Country Road, Smithtown,
New York ("RH Medical Practice");
WHEREAS, the LIA Sellers are the shareholders of Long Island ENT
Associates, P.C., a New York professional corporation ("LIA Medical Practice"),
and operate a medical practice
<PAGE> 7
located at 875 Old Country Road, Suite 100, Plainview, New York (ENT Medical
Practice, ALB Medical Practice, CEA Medical Practice, RGSS Medical Practice, RH
Medical Practice, and LIA Medical Practice are referred to individually as a
"Practice" and collectively as the "Practices".);
WHEREAS, Parent through its wholly-owned subsidiaries is engaged in the
business of acquiring and managing medical practices and PSC is a wholly-owned
subsidiary of Parent;
WHEREAS, the ENT Sellers wish to transfer, pursuant to a tax-free
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), substantially all of the assets of ENT Medical Practice to
a Delaware corporation to be named ENT Associates Acquisition Corp. ("ENT
Corporation") subject to the liabilities of ENT Medical Practice; ALB Seller
wishes to transfer, pursuant to a tax-free reorganization under Section 368 of
the Code, substantially all of the assets of ALB Medical Practice to a Delaware
corporation to be named Andrew M. Blank Acquisition Corp. ("ALB Corporation")
subject to the liabilities of ALB Medical Practice; CEA Seller wishes to
transfer, pursuant to a tax-free reorganization under Section 368 of the Code,
substantially all of the assets of CEA Medical Practice to a Delaware
corporation to be named Chestnut ENT Acquisition Corp. ("CEA Corporation")
subject to the liabilities of CEA Medical Practice; the RGSS Sellers wish to
transfer, pursuant to a tax-free reorganization under 368 of the Code,
substantially all of the assets of RGSS Medical Practice to a Delaware
corporation to be named Green & Sacks Acquisition Corp. ("RGSS Corporation")
subject to the liabilities of RGSS Medical Practice; RH Seller wishes to
transfer, pursuant to a tax-free reorganization under Section 368 of the Code,
substantially all of the assets of RH-1 Corporation to a Delaware corporation to
be named Richard Hamburg Acquisition Corp. ("RH Corporation") subject to the
liabilities of RH-1 Corporation; and the LIA Sellers wish to transfer, pursuant
to a tax-free reorganization under Section 368 of the Code, substantially all of
the assets of LIA Medical Practice to a Delaware corporation to be named Long
Island ENT Acquisition Corp. ("LIA Corporation") subject to the liabilities of
LIA Medical Practice (ENT Corporation, ALB Corporation, CEA Corporation, RGSS
Corporation, RH Corporation, and LIA Corporation are referred to herein
individually as a "Corporation" and collectively as the "Corporations"); and
WHEREAS, the ENT Sellers wish to sell and convey to PSC and PSC wishes
to acquire from the ENT Sellers all of the issued and outstanding shares of
capital stock of ENT Corporation (the "ENT Shares"); ALB Seller wishes to sell
and convey to PSC and PSC wishes to acquire from ALB Seller all of the issued
and outstanding shares of capital stock of ALB Corporation (the "ALB Shares");
CEA Seller wishes to sell and convey to PSC and PSC wishes to acquire from CEA
Seller all of the issued and outstanding shares of capital stock of CEA
Corporation (the "CEA Shares"); the RGSS Sellers wish to sell and convey to PSC
and PSC wishes to acquire from the RGSS Sellers all of the issued and
outstanding shares of capital stock of RGSS Corporation (the "RGSS Shares"); RH
Seller wishes to sell and convey to PSC and PSC wishes to acquire from RH Seller
all of the issued and outstanding shares of capital stock of RH Corporation (the
"RH Shares"); and the LIA Sellers wish to sell and convey to PSC and PSC wishes
to acquire from the LIA Sellers all of the issued and outstanding shares of
capital stock of LIA Corporation (the "LIA Shares") (the ENT Shares, ALB Shares,
CEA Shares, RGSS Shares, RH Shares, and LIA Shares are referred to herein
collectively as the "Shares"), upon the terms and conditions set forth herein;
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<PAGE> 8
NOW THEREFORE, in consideration of the premises, the mutual promises
and covenants hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby agree as follows:
SECTION 1. TERMS OF THE SALE AND PURCHASE OF THE STOCK. The sale of the Shares
by Sellers and the purchase thereof by PSC shall be made at the "Closing" (as
defined in Section 1.11) based on the respective representations, warranties and
agreements of the parties hereto and subject to the terms and conditions herein
stated.
1.1 PURCHASE AND SALE OF THE SHARES At the Closing, Sellers shall sell
all the Shares, which shall be free and clear of all liens, security interests,
claims or encumbrances, to PSC, and PSC shall purchase the Shares from the
Sellers, for the aggregate purchase price (the "Purchase Price") of $22,500,000,
as adjusted, which Purchase Price shall be payable as set forth in this Section
1.1.
(a) Cash. At Closing, Parent or PSC shall pay Sellers collectively
an aggregate cash payment in the amount of $2,075,000, which amount
shall be subject to adjustment as set forth in Section 1.1(d)
hereinbelow.
(b) PSC Debenture. At Closing, PSC and PSC Management Corp., a
wholly-owned subsidiary of Parent ("PSC Management"), shall issue to a
paying and collateral agent (the "Paying Agent") on behalf of the
Sellers collectively a sixty (60) month debenture (the "PSC Debenture")
in the aggregate principal amount of $16,225,000.00, or such lesser
amount as provided in Section 1.1(d)(ii) hereinbelow. The PSC Debenture
shall bear simple interest at a rate of 6% per annum, payable
quarterly, shall be in substantially the same form as attached hereto
as Exhibit 1.1A. Contemporaneously with the Closing, PSC will cause
each Corporation to convey its furniture, fixtures and equipment to PSC
Management for good consideration, and PSC Management shall cause the
Debenture to be secured by a security interest in favor of the Paying
Agent for the benefit of the Sellers, in the furniture, fixtures, and
equipment so acquired by PSC Management from the Corporations at the
time of Closing, but not any after acquired property, all pursuant to a
security agreement to be entered into at Closing in substantially the
same form as attached hereto as Exhibit 1.1B (the "Security
Agreement"), and such security interest will be released by the Paying
Agent upon request of PSC or PSC Management with respect to items
replaced in the ordinary course of business. In the event of an
adjustment to the amount of the PSC Debenture pursuant to Section
1.1(d)(ii), the entire principal amount of the PSC Debenture shall be
due and payable on the fifth anniversary of the Closing Date.
(c) Liabilities to Be Discharged. At Closing, Parent or PSC shall
retire or discharge the debt set forth on Exhibit 1.1C (the "Discharged
Debt") on behalf of Sellers and the Corporations.
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(d) Adjustment of Cash Payment. At the Closing, the cash
payment set forth in Section 1.1(a) shall be adjusted, if applicable,
as follows:
(i) In the event the aggregate amount of the
liabilities to be discharged under Section 1.1(c) or otherwise
by PSC pursuant to this Agreement is less than $4,200,000 at
Closing, the amount of the cash payment under Section 1.1(a)
shall be increased by the difference between $4,200,000 and
the actual amount of the liabilities retired or discharged at
Closing, and if the amount of the liabilities to be discharged
under Section 1.1(c) or otherwise by PSC pursuant to this
Agreement is more than $4,200,000 at Closing, the amount of
the cash payment under Section 1.1(a) shall be decreased by
the difference between the actual amount of the liabilities
retired or discharged at Closing and $4,200,000.
(ii) The amount of the cash payment under Section
1.1(a) shall be increased, and the principal amount of the PSC
Debenture decreased, by $7,000,000 in the event that prior to
the Closing Date, Parent shall have consummated the public
equity financing of its common stock contemplated by its
registration statement on Form S-1 filed with the Securities
and Exchange Commission on April 17, 1998.
(iii) The amount of the cash payment under Section
1.1(a) shall be reduced by any shortfall in the amount of
aggregate accounts receivable of the Corporations at Closing
below the requirement of $5,425,000 set forth in Section 5.16
hereinbelow.
(e) Allocation of Purchase Price Among Sellers. The
Purchase Price shall be allocated among the individual Sellers as set
forth in Exhibit 1.1E.
1.2 ADDITIONAL PURCHASE PRICE CONSIDERATION. If within twenty-four
(24) months following the Closing, "New York NewCo" and "New Jersey NewCo" (as
hereinafter defined) collectively add ten (10) full-time physician-employees and
have an aggregate of thirty-five (35) full-time physician-employees who are
employed by New York NewCo or New Jersey NewCo pursuant to valid employment
agreements as required by the "MSAs" (as hereinafter defined in Section 1.5) or
other employment agreements consented to by PSC in writing hereunder, Parent
will pay to the Paying Agent for the benefit of Sellers bonus purchase price
consideration in the aggregate amount of $500,000, payable, at Parent's
election, in the form of cash or shares of Parent common stock. If Parent elects
to pay the bonus consideration in the form of Parent common stock, all shares of
stock issued shall be restricted stock under the Securities Act of 1933, as
amended, and shall be valued based on the average closing price of Parent common
stock on NASDAQ for the twenty (20) trading days ending on the trading day
preceding the date of delivery. Any such bonus consideration will be delivered
to the Paying Agent for the benefit of Sellers on the tenth business day
following the date that the condition giving rise to bonus consideration has
been achieved. For purposes of this Agreement, a full-time physician-employee
shall mean a physician whose sole employment as a practicing physician consists
of practicing medicine at least thirty (30) hours per week and at least 45 weeks
per year (to allow
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for 7 weeks of vacation and/or continuing medical education) with New York NewCo
or New Jersey NewCo. Such bonus consideration shall be divided among the Sellers
in the same proportions as the allocations set forth on Exhibit 1.1E. In
connection with and at the time of delivery of any shares of Parent common stock
pursuant to this Section 1.2, Sellers shall provide such investment
representations or investment letters as Parent may determine to be reasonably
necessary or appropriate under applicable securities laws. Parent shall deliver
any such common stock free and clear of all liens, claims, encumbrances or
restrictions (other than restrictions on transferability arising under
applicable securities laws and any liens, claims or encumbrances arising from
any Seller's actions). Parent represents and warrants to Sellers that any common
stock delivered as bonus consideration hereunder shall be duly and validly
authorized and issued, fully paid and nonassessable.
1.3 PAYMENT AND NON-ASSUMPTION OF LIABILITIES. Each Seller
covenants and agrees that such Seller's Shares shall be free and clear of all
security interests, liens, claims, encumbrances and restrictions at Closing.
Each Seller covenants and agrees that all of the creditors with respect to such
Seller's Practice or Corporation will be paid in full by such Seller or such
Seller's Practice or Corporation prior to the Closing Date, other than the
Discharged Debt to be discharged at Closing. Without limiting the generality of
the foregoing, any amounts owed to a Seller by any Corporation, whether or not
shown on the Balance Sheet of such Corporation, shall be (i) satisfied prior to
Closing, or (ii) deemed a contribution to capital of such Corporation and shall
be deemed discharged prior to Closing. If required by Parent or PSC, Sellers
shall furnish Parent with proof of payment of all other known creditors of each
Seller's respective Practice or Corporation. Sellers further acknowledge and
agree that Parent, PSC Management and PSC shall have no liability whatsoever now
or at any time in the future with respect to (1) any "Corporation Plan" (as
defined in Section 2.25) or (2) services performed prior to the Closing Date by
any employees or agents or similar persons or entities of such Seller, his
Corporation or Practice. The parties acknowledge that Sellers may direct a
portion of the Purchase Price to fund payment of any such liabilities
contemporaneously with the Closing. Except for the office and equipment leases
identified on Exhibits 2.10A through 2.10G and Exhibits 2.11A through 2.11G, and
subject to the condition precedent set forth in Section 5.18, neither Parent,
PSC Management nor PSC will assume pursuant to the transactions contemplated by
this Agreement, any liabilities or obligations of Sellers, the Corporations,
Physicians Domain, Inc. ("PDI") or the Practices, whether known or unknown,
liquidated or unliquidated, contingent or fixed, and whether or not disclosed in
this Agreement or any schedule or exhibit hereto.
1.4 EMPLOYMENT ARRANGEMENTS.
(a) At the Closing all Sellers practicing medicine at a New
York office listed on Exhibit 7.4 shall enter into full-time employment
agreements with ENT Associates, LLP ("New York NewCo"), and CEA Seller
shall enter into a full-time employment agreement with ENT Associates
of New Jersey, P.C. ("New Jersey NewCo"), in each case such employment
agreement to be in the form required by the applicable "MSA" (as
defined in Section 1.5). Sellers shall use best efforts to cause the
other employee physicians of the Practices identified on Exhibit 1.4 to
enter into prior to Closing employment agreements with New York NewCo
or New Jersey NewCo, as the case may
5
<PAGE> 11
be, in the form required by the applicable MSA, other than those
physician employees identified on Exhibit 1.4 whose current contracts
Seller may elect to let expire or who are expected by Sellers to become
partners of New York NewCo or New Jersey NewCo within six (6) months of
Closing. Sellers agree that any employee physician whose employment
will continue beyond the Closing Date will either sign such new
employment agreement or have a valid written employment agreement in
form reasonably acceptable to PSC Management properly assigned to New
York NewCo or New Jersey NewCo.
(b) Prior to the Closing Date, the Sellers will cause the
Corporations, the Practices, and PDI to: (i) terminate any employment
agreements with all physicians, including Sellers, and all other
employees except for assignment by the Practices of certain physician
employment contracts pursuant to Section 1.4(a) above, (ii) terminate
or, if termination is not reasonably achievable prior to Closing,
freeze all "Corporation Plans" (as defined hereinafter) such
termination to be effected in accordance with and to the extent
permitted by applicable provisions of the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all
other applicable laws, rules, governmental orders, statutes, decrees,
and regulations (collectively, "Laws") and (iii) cause the Corporation
Plans to make timely and appropriate distributions, to the extent
required, to such employees in accordance with, and to the extent
permitted by the terms and conditions of such Corporation Plans, ERISA,
and the Code. Sellers will provide to PSC such copies of documents and
other information related to the termination or freezing of the
Corporation Plans as PSC may reasonably request. All costs and expenses
associated with administration, termination or freezing of the
Corporation Plans, whether incurred before or after Closing, shall be
the responsibility of Sellers, the Practices and PDI respectively.
1.5 MANAGEMENT SERVICES AGREEMENT. At Closing, New York NewCo, New
Jersey NewCo, Parent and PSC Management shall execute and deliver Management
Services Agreements (collectively the "MSAs" and individually an "MSA")
substantially in the same forms as attached hereto as Exhibit 1.5A ("New York
MSA") and Exhibit 1.5B ("New Jersey MSA") pursuant to which PSC Management will
provide management services to New York NewCo and New Jersey NewCo from and
after the Closing Date.
1.6 EACH PARTY TO BEAR COSTS. Each of the parties to this
Agreement shall pay all of the costs and expenses incurred by such party in
connection with the transactions contemplated by this Agreement, except as
otherwise provided herein. Without limiting the generality of the foregoing, and
whether or not such liabilities may be deemed to have been incurred in the
ordinary course of business, except as provided in Section 9.2(b) and (c),
neither party shall be liable for or required to pay, either directly or
indirectly, any of the following liabilities or expenses incurred by the other
party: (a) fees and expenses of any person for services as a finder, or for fees
and expenses of any persons for financial services rendered to such other party
in connection with negotiating and closing the sale contemplated by this
Agreement; (b) fees and expenses of legal counsel retained by such other party
for services rendered to such party in connection with negotiating and closing
the transactions contemplated by this Agreement; (c)
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<PAGE> 12
fees and expenses of any auditors and accountants retained by such other party
for services rendered to such party in connection with negotiating and closing
the sale contemplated by this Agreement; (d) state and federal income taxes or
other similar charges on income incurred by such other party on any gain from
the purchase and sale of the Shares hereunder; and (e) expenses and fees
relating to feasibility studies, appraisals and similar valuation services
performed on behalf of such other party in connection with the transactions
contemplated hereby.
1.7 ASSIGNMENT OF CONTRACTS AND ASSETS; CONSENTS. Nothing in this
Agreement or delivered pursuant to this Agreement shall be construed as an
attempt to agree to assign any contract, certificate, license or other asset
which is in law or by agreement nonassignable without the consent of the other
party or parties thereto, or of any governmental authority, as the case may be,
unless such consent shall be given. Sellers will use their reasonable good faith
efforts to obtain all such necessary consents of the parties to any such
contracts prior to the Closing. In order, however, that the full value of every
such contract, certificate, license or other asset and all claims and demands in
such contracts may be realized, Sellers hereby covenant to PSC and Parent that
Sellers, or their agents, will, at the request and under the direction of PSC,
in the individual names of Sellers or otherwise, as PSC shall specify and as
shall be permitted by law, take all such reasonable actions and do or cause to
be done all such reasonable things as shall, in the opinion of PSC, be necessary
or proper (a) in order that the rights and obligations of Sellers under such
contracts, certificates, licenses and other assets shall be preserved, and (b)
for, and to facilitate, from and after the Closing, the collection of the moneys
due and payable, and to become due and payable, to Sellers in and under every
such contract and in respect of every such claim and demand, from and after the
Closing, and Sellers shall hold the same for the benefit of, and shall pay the
same over to, PSC.
1.8 COOPERATION WITH REGULATORY APPROVALS. Sellers shall cooperate
with and assist PSC, as PSC shall reasonably request, at no cost to Sellers, in
obtaining the approval of all regulatory agencies and officials whose approval
is required for the transfer of all licenses and other regulatory approvals
required to enable PSC to acquire the Shares.
1.9 IRREVOCABLE GUARANTY BY PARENT. To induce Sellers to execute
and deliver this Agreement, Parent hereby unconditionally and irrevocably
guarantees to Sellers the full, prompt and faithful performance by PSC of all
covenants and obligations to be performed by PSC under this Agreement,
including, but not limited to, the payment of all sums by PSC pursuant to this
Agreement and the PSC Debenture and PSC's obligation to indemnify the Sellers
pursuant to Section 8.2. This guaranty shall be a guaranty of payment, not
merely of collection, and shall be unaffected by any subsequent modification or
amendment of this Agreement whether or not Parent has knowledge of or consented
to such modification or amendment. In the event that PSC fails to fully perform
any such covenants or obligations in accordance with their terms or pay all or
any part of such sums when due, Parent will perform all such covenants and
obligations in accordance with their terms or immediately pay or deliver to
Sellers (or such other payee or transferee as may be provided in any such
agreement) the amount due and unpaid, as the case may be, by PSC. In the event
of bankruptcy, termination, liquidation or dissolution of PSC, this
unconditional guaranty shall continue in full force and effect. In the event of
any extension of time for payment or performance or other modification of any
guaranteed obligation or covenant,
7
<PAGE> 13
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. Parent hereby waives (i) promptness and diligence in collection; (ii)
notice of acceptance and notice of the incurrence of any obligation by PSC;
(iii) all other notices, demands and protests of every kind in connection with
the enforcement of the obligations of Parent pursuant to this Section 1.9, the
omission of or delay of which, but for the provisions of this Section 1.9, might
constitute grounds for relieving Parent of its obligations under this Section
1.9; (v) the right to a trial by jury of any dispute arising under, or relating
to, the guaranty set forth in this Section 1.9; (vi) any right or claim of right
to cause a marshaling of PSC's assets or to cause the Sellers to proceed against
any security for the PSC Debenture before proceeding against Parent hereunder;
and (vii) any requirement that the Sellers protect, secure, perfect or insure
any security interest or lien in or on any property subject thereto or exhaust
any right or take any action against PSC or any other person or any collateral
as a precondition to the Sellers' right to enforce the guaranty set forth in
this Section 1.9 in accordance with its terms. Without limiting the generality
of the foregoing, Parent hereby waives any defense to the guaranty set forth in
this Section 1.9 which may arise by reason of (A) the incapacity, lack of
authority, death or disability of, or revocation hereof by, any person or
entity, (B) the failure of the Sellers to file or enforce any claim against the
estate (in probate, bankruptcy or any other proceedings) of any person or
entity, or (C) any defense based upon an election of remedies by Sellers.
1.10 CONSULTING AGREEMENT. At Closing the Sellers and Parent shall
execute and deliver a letter agreement regarding consulting services
substantially in the form set forth on Exhibit 1.10 attached hereto.
1.11 CLOSING.
(a) Closing. Subject to the fulfillment of the conditions
precedent specified in Sections 5 and 6 of this Agreement, the
transactions contemplated by this Agreement shall be consummated at a
closing (the "Closing") to be held at the offices of Kurzman &
Eisenberg, LLP, One North Broadway, White Plains, New York, or at such
other location as is mutually agreed upon by Parent and the Sellers, on
May 22, 1998 or such other date as the parties may agree. The date on
which the Closing occurs or is effective shall be referred to as the
"Closing Date."
(b) Documents to be Delivered by Sellers. At the Closing,
Sellers shall deliver, or cause to be delivered, to PSC the following:
(i) The certificates representing all of the Shares
of each of the Corporations, duly endorsed for transfer or
accompanied by duly executed stock powers, which certificates
or stock powers shall either be physically executed and
delivered by Sellers at Closing or shall have the signatures
of Sellers guaranteed or notarized;
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(ii) The other agreements, documents, certificates
and instruments required by Sections 5.7, 5.13, 5.14, 5.15,
5.17, 5.20(c) and 5.21;
(iii) Insurance policies providing professional
liability coverage for New York NewCo and New Jersey NewCo,
all Sellers and the Practices in amounts of not less than
$1,000,000 per occurrence and $3,000,000 aggregate on a claims
made basis and prior acts coverage ("tail coverage") if
required for the Practices and Sellers providing continuity of
coverage until the expiration of applicable statutes of
limitations; and
(iv) Any other documentation required to be
delivered under this Agreement or otherwise reasonably
requested by PSC as necessary or appropriate to consummate the
transactions contemplated hereby.
(c) Documents and Other Items to be Delivered by PSC. At
the Closing, PSC shall deliver or cause to be delivered to Sellers the
following:
(i) The cash portion of the Purchase Price
determined in accordance with the provisions of Section 1.1 by
wire transfer in accordance with the written instructions of
Sellers;
(ii) The executed PSC Debenture and Guaranty,
Security Agreement, and any UCC-1 Financing Statement
reasonably required by the Paying Agent to perfect the
security interest granted in the Security Agreement;
(iii) Certified copies of the resolutions of the
boards of directors of Parent, PSC and PSC Management
authorizing the transactions contemplated hereby; and
(iv) Any other documentation required to be
delivered under this Agreement or otherwise reasonably
requested by Sellers as necessary or appropriate to consummate
the transactions contemplated hereby.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLERS.
Except as set forth in the next sentence of this preamble to
Section 2, for purposes of the representations and warranties set forth in this
Section 2, ENT Sellers are jointly and severally representing and warranting
solely with respect to ENT Sellers, ENT Medical Practice and ENT Corporation;
ALB Seller is representing and warranting solely with respect to ALB Seller, ALB
Medical Practice and ALB Corporation; CEA Seller is representing and warranting
solely with respect to CEA Seller, CEA Medical Practice and CEA Corporation;
RGSS Sellers are jointly and severally representing and warranting solely with
respect to RGSS Sellers, RGSS Medical Practice and RGSS Corporation; RH Seller
is representing and warranting solely with respect to RH Seller, RH Medical
Practice, RH-1 Corporation and RH Corporation; and LIA Sellers are jointly and
severally representing and warranting solely with respect to LIA Sellers,
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LIA Medical Practice and LIA Corporation; and any references in this Agreement
to the Seller(s), the Corporation(s), the Practice(s) or the Shares and any
information set forth on the Exhibits hereto shall be construed in accordance
with the foregoing. Notwithstanding the foregoing, the representations and
warranties set forth in this Section 2 with respect to PDI are made jointly and
severally by all Sellers, and with regard to the representations and warranties
set forth in Sections 2.3(a), 2.3(c), 2.4(b), 2.4(d) and 2.4(e), each Seller is
representing and warranting severally but not jointly, with respect to such
Seller. In accordance with the foregoing, Sellers hereby represent and warrant
to Parent and PSC as follows:
2.1 OWNERSHIP OF SHARES. Sellers are the record and beneficial
owners of the Shares of their respective Corporation, free and clear of all
liens, claims, and encumbrances. Exhibits 2.1A through 2.1F set forth a true and
accurate list of the names and addresses of the shareholders of the Corporation,
together with the number of shares that each Seller owns in such Corporation.
The Shares constitute all of the issued and outstanding shares of capital stock
of any class of the Corporation. Upon delivery to PSC at Closing of the
certificates representing the Shares, duly endorsed by Sellers for transfer to
PSC, PSC shall be the lawful owner of the Shares, free and clear of all liens,
security interests, claims or encumbrances (other than those arising from PSC's
actions). There are no shareholders agreements, voting trusts, agreements, or
proxies with respect to the Shares.
2.2 ORGANIZATION. The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is qualified to transact business and is in good standing in all states in
which the failure to so qualify would have a Material Adverse Effect on such
Corporation. The Corporation owns, leases or operates real property, maintains
an office or employees or otherwise transacts business only in the state of New
York or New Jersey. The Corporation has the corporate power and authority to
own, lease and operate its assets, property and business. Certified copies of
the Corporation's articles/certificate of incorporation and bylaws, and all
amendments thereto, all of which are true, correct and complete, are attached
hereto on Exhibit 2.2.
2.3 POWER AND AUTHORITY FOR TRANSACTIONS.
(a) Seller has the power to execute, deliver and perform his
or her obligations under this Agreement and all agreements and other
documents executed and delivered by Seller pursuant to this Agreement,
and has taken all action required by law, to authorize the execution,
delivery and performance of this Agreement and such related documents.
(b) The execution and delivery of this Agreement, and the
agreements related hereto to be executed and delivered pursuant to this
Agreement, do not, and (subject to obtaining all necessary consents
from landlords or lessors to assignment of leases and contracts) the
consummation of the transactions contemplated hereby will not, violate
any provisions of the Articles of Incorporation or Bylaws of the
Corporation or any provisions of, or result in the acceleration of, any
obligation under any material mortgage, lien, lease, agreement,
instrument, order, arbitration award, judgment or decree to which the
Practice, Corporation,
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PDI or Seller is a party or by which the Practice, Corporation, PDI or
Seller is bound, or violate any material restrictions of any kind to
which the Practice, Corporation, PDI or Seller is subject.
(c) This Agreement has been duly and validly executed and
delivered by Seller and constitutes the valid and binding agreement of
Seller enforceable against Seller in accordance with its terms (subject
to applicable bankruptcy, insolvency, moratorium and similar laws
affecting creditors' rights generally and general principles of
equity), and each other agreement to be executed and delivered at the
Closing by Seller will, upon such execution and delivery, constitute
the valid and binding agreement of Seller enforceable against Seller in
accordance with its terms (subject to applicable bankruptcy,
insolvency, moratorium and similar laws affecting creditors' rights
generally and general principles of equity).
2.4 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS.
(a) All material building or other permits, certificates of
occupancy, concessions, grants, franchises, licenses, certificates of
need and other material governmental authorizations and approvals
necessary for the conduct of the business of the Practice and
Corporation, or waivers thereof, have been duly obtained and are in
full force and effect. Except as set forth on Exhibits 2.4A through
2.4F, there are no proceedings pending or, to the knowledge of Sellers,
threatened which may result in the revocation, cancellation or
suspension, or any adverse modification, of any of the foregoing.
(b) Approvals. Seller holds in full force and effect all
approvals, authorizations, licenses, and certifications required by law
(the "Approvals") to practice medicine in New York or New Jersey, as
applicable. Evidence of such Approvals has been delivered to Parent.
Except as set forth on Exhibits 2.4A through 2.4F, no revocation or
suspension of any Approval is now in effect, and no formal allegation
(including any complaint, indictment or initiation of proceedings) is
pending before a court of law, licensing or regulatory authority,
professional organization, or the medical staff or committee of a
hospital, regarding Seller's practice or fitness to practice medicine,
including any allegation of the following: alcohol abuse, a violation
of any law or regulation relating to controlled substances,
professional malpractice or misconduct, improper billing practices, or
a crime involving moral turpitude. The foregoing does not include any
action taken as a result of failure to timely complete medical records.
(c) Provider Numbers. The Practice and Seller holds a valid
Medicare provider number, and Seller has a valid uniform physician
identification number. Evidence of such numbers has been delivered to
Parent.
(d) Board Certification. Seller is certified by the American
Board of Otolaryngology and evidence of such board certification(s) has
been delivered to Parent.
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(e) No Conviction. Seller has never been convicted of a
criminal offense relating to Medicare or any federally-funded state
health care program. For purposes of this Agreement, the term
"conviction" includes the entry of a plea of guilty or nolo contendere
or participation in a first offender, deferred adjudication, or other
arrangement or program whereby a judgment of conviction has been
withheld.
2.5 SUBSIDIARIES AND AFFILIATES. The Corporation has no
subsidiaries.
2.6 OUTSTANDING CAPITAL STOCK. The Corporation is authorized to
issue the number of shares of common stock, at the par values set forth on
Exhibits 2.1A through 2.1F. The Shares listed in Exhibits 2.1A through 2.1F are
the only shares issued and outstanding. No other class of capital stock of the
Corporation is authorized or outstanding. All of the Shares of the Corporation
are duly authorized, validly issued, fully paid and nonassessable.
2.7 OPTIONS, WARRANTS AND OTHER RIGHTS. There are no authorized or
outstanding options, warrants, convertible securities, subscriptions or other
agreements or rights of any nature (other than pursuant to this Agreement) under
which the Corporation may be obligated to issue or transfer any shares of its
capital stock.
2.8 FINANCIAL INFORMATION. Seller has furnished Parent and PSC
with copies of financial information about the Practice for the years ending
December 31, 1997, 1996 and 1995, as included in Exhibits 2.8A through 2.8F
including, but not limited to, (as to the ENT Sellers) the audited balance
sheets of the ENT Medical Practice and (as to the other Sellers) the unaudited
balance sheets of all of the other Practices (collectively the "Balance Sheets")
as of December 31, 1997 (the "Balance Sheet Date"). Except with respect to the
ENT Medical Practice, all such financial statements of Seller's respective
Practice have been prepared on the cash basis of accounting consistently
followed throughout the periods indicated, reflect all assets and all known
liabilities of the Practice as of their respective dates, and present fairly the
cash basis financial position of the Practice as of such dates and the results
of operations for the period or periods reflected therein. In the case of ENT
Medical Practice, all such financial statements have been prepared on the
accrual basis of accounting consistently followed throughout the period or
periods indicated, reflect all assets and liabilities of the ENT Medical
Practice, as of their respective dates, and present fairly the financial
position of ENT Medical Practice as of such dates and the results of operation
for the period or periods reflected therein in accordance with generally
accepted accounting principles ("GAAP").
2.9 NO UNDISCLOSED LIABILITIES. Except as disclosed in Section 1.3
or as set forth in Exhibits 2.9A through 2.9F, Exhibits 2.10A through 2.10F and
Exhibits 2.11A through 2.11F, to Seller's knowledge the Practice did not have,
as of the Balance Sheet Date, and has not incurred since that date, and the
Corporation does not have any uninsured liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, and whether due or
to become due which have not been or will not be satisfied or extinguished prior
to the Closing Date.
2.10 LEASES. Exhibits 2.10A through 2.10G list all leases, if any,
pursuant to which the Practice leases, as lessor or lessee, real property.
Except as indicated on Exhibits 2.10A
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through 2.10G, all such leases are valid and effective in accordance with their
respective terms, and there is not under any such lease any existing default and
there is no condition or event of which the Practice or the Sellers have
knowledge which with notice or lapse of time, or both, would constitute a
material default, in respect of which the Practice has not taken adequate steps
to cure such default or to prevent a default from occurring.
2.11 PERSONAL PROPERTY. Except the cash items retained by Seller
(subject nevertheless to the requirements of Section 5.16 below), as of the
Closing the Corporation will own substantially all of the personal property
reflected on the Balance Sheet of its predecessor, including, but not limited
to, all items of personal property identified on Exhibits 2.11A through 2.11G,
free and clear of any liens, claims, charges, exceptions or encumbrances, except
for those set forth in Exhibits 2.11A through 2.11F, including, without
limitation, in the case of RH-1 Corporation the assets of RH Medical Practice
identified on Exhibit 2.11E. As of the Closing ENT Corporation will own
substantially all of the personal property assets and trade name of PDI
(excluding the office leases, lease security deposits and leasehold
improvements) including, but not limited to, those items identified on Exhibit
2.11G, free and clear of any liens, charges, exceptions or encumbrances, except
for those set forth on Exhibit 2.11G. Exhibits 2.11A through 2.11G list all
leases, if any, pursuant to which the Practice, the Corporation or PDI leases,
as lessor or lessee, personal property. Except as indicated on Exhibits 2.11A
through 2.11G, all such leases are valid and effective in accordance with their
respective terms, and there is not under any such lease any existing default and
there is no condition or event of which the Practice or the Sellers have
knowledge (except any failure to obtain a required consent to assignment in
connection with this transaction) which with notice or lapse of time, or both,
would constitute a material default, in respect of which the Practice or PDI has
not taken adequate steps to cure such default or to prevent a default from
occurring.
2.12 INVENTORIES. The items of the Practice's (non-pharmaceutical)
inventory of medical supplies have been acquired in the ordinary course of
business and maintained at levels consistent with past practices and are in all
material respects adequate for the reasonable requirements of the Practice, and
will be transferred to the Corporation prior to the Closing, other than
pharmaceutical inventory and patient charts and records which will be
transferred to either New York NewCo or New Jersey NewCo, as appropriate, prior
to Closing.
2.13 PRINCIPAL PLACE OF BUSINESS. The locations of the Practice
are at those addresses and those counties listed in Exhibits 2.13A through
2.13G. The assets of the Corporation are located in those counties listed in
Exhibits 2.13A through 2.13G.
2.14 [RESERVED].
2.15 INTELLECTUAL PROPERTY RIGHTS. Except as set forth in Exhibits
2.15A through 2.15G, neither the Corporation nor the Practice has any right,
title or interest in or to any patents, patent rights, manufacturing processes,
trade names, trademarks, service marks, inventions, specialized treatment
protocols, copyrights, formulas or trade secrets. Except for off-the-shelf
software licenses, neither the Practice nor the Corporation is a licensee in
respect of any patents, trademarks, service marks, trade names, copyrights or
applications therefor, or manufacturing
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processes, formulas or trade secrets. The Corporation will as of Closing own and
possess adequate licenses or other rights to use all such patents, trademarks,
service marks, trade names, copyrights, manufacturing processes, inventions,
formulas and trade secrets necessary to conduct its business. There is no claim
pending to the effect that the operations of the Practice infringe upon or
conflict with the asserted rights of others to such patents, patent rights,
manufacturing processes, trade names, trademarks, service marks, inventions,
copyrights, formulas or trade secrets.
2.16 DIRECTORS AND OFFICERS; PAYROLL INFORMATION. Set forth on
Exhibits 2.16A through 2.16G are true and complete lists, as of the date of this
Agreement, of: (a) the name of each director and officer of the Corporation and
Practice; and (b) a list of all current employees of the Practice, Corporation
and PDI and their current levels of compensation other than bonuses and other
extraordinary compensation.
2.17 LEGAL PROCEEDINGS. Except as set forth in Exhibits 2.17A
through 2.17G, Seller has no knowledge of any pending, and has not received
written notice within 18 months of threatened, litigation, governmental
investigation, condemnation or other proceeding against or relating to or
affecting the Sellers, the Practice, the Corporation, PDI, the Shares or the
transactions contemplated by this Agreement, including, but not limited to,
claims for medical malpractice or negligence, and, to the knowledge of Sellers,
no basis for any such action exists, nor is there any legal impediment of which
Seller has knowledge to the continued operation of the Practice and Corporation
in the ordinary course other than the consent of landlords and lessors to the
leases described on Exhibits 2.10A through 2.10G and Exhibits 2.11A through
2.11G.
2.18 CONTRACTS. To the best of Seller's knowledge, Seller has
delivered to Parent true copies of all written, and disclosed to Parent all
material oral, outstanding contracts, obligations and commitments of Seller, the
Practice and the Corporation, all of which are listed on Exhibits 2.10A through
2.10G (in the case of real property leases), Exhibits 2.11A through 2.11G (in
the case of personal property leases), Exhibits 2.18A through 2.18G (in the case
of managed care contracts, third party payor contracts and contracts other than
leases) and Exhibits 2.25A through 2.25G (in the case of Corporation Plans).
Except as otherwise indicated on such Exhibits, all of such contracts,
obligations and commitments are, to Seller's best knowledge, valid, binding and
enforceable in accordance with their terms and are in full force and effect,
subject to limitations on enforceability imposed by, bankruptcy, moratorium,
creditors' rights or similar laws and general equitable principles. Except as
set forth on such Exhibits, to Seller's knowledge, no default or alleged default
by the Seller or the Practice or Corporation exists thereunder. Except as listed
on Exhibits 2.10A through 2.10G, Exhibits 2.11A through 2.11G, Exhibits 2.18A
through 2.18G and Exhibits 2.25A through 2.25G, neither the Corporation,
Practice, or Seller is, or will be at Closing, a party to any material written
or oral agreement, contract, lease or plan of a type described as follows:
(a) Contract not made in the ordinary course of business,
other than this Agreement, the Partnership Agreement among Sellers and
documents executed pursuant to this Agreement.
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(b) Employment contract which is not terminable without cost
or other liability (except for salary and benefits accrued as of the
date of termination) to the Corporation or Practice, or any successors
or assigns thereof, upon notice of 30 days or less.
(c) Contract with any labor union.
(d) Bonus, pension, profit-sharing, retirement, stock
acquisition, hospitalization, insurance or similar plan providing for
employee benefits.
(e) Lease with respect to any property, real or personal,
whether as lessor or lessee.
(f) Contract for the future acquisition of materials, supplies
or equipment (i) which is in excess of the requirements of the Practice
now booked or for normal operating inventories, or (ii) which is not
terminable without material cost or liability to the Corporation or
Practice, or any successors or assigns thereof, upon notice of 30 days
or less.
(g) Insurance contract.
(h) Contract continuing for a period of more than six months
from the Closing Date.
(i) Loan agreement or other contract for money borrowed.
2.19 SUBSEQUENT EVENTS. Except as set forth on Exhibits 2.19A
through 2.19F, neither the Practice nor the Corporation has since the Balance
Sheet Date:
(a) Increased or established any reserve for taxes or any
other liability on its books or otherwise provided therefor, except as
may have been required due to income or operations of the Practice.
(b) Sold or transferred any of the Shares except to another
Seller.
(c) Granted any general or uniform increase in the rates of
pay of employees or any substantial increase in salary payable or to
become payable by the Corporation or Practice to any of its officers or
employees (other than normal merit increases), or by means of any bonus
or pension plan, contract or other commitment, materially increased the
compensation of any of its officers or employees.
(d) Issued any stock, bonds or other securities except to a
Seller.
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(e) Experienced damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting any of its
material properties, assets or business, or experienced any other
material adverse change in its financial condition, assets, liabilities
or business.
2.20 ACCOUNTS RECEIVABLE. Exhibits 2.20A through 2.20F reflect
the Practice's accounts receivable as of the Balance Sheet Date, net of
allowances for uncollectible and doubtful accounts. The Practice maintains its
accounting records in sufficient detail to substantiate its respective accounts
receivable reflected on Exhibits 2.20A through 2.20F. Except with the written
consent of PSC, or as needed to restate ENT Corporation's balance sheet on a
GAAP basis, since the Balance Sheet Date, the Practice has not changed any
principle or practice with respect to the recordation of accounts receivable or
the calculation of reserves therefor, or any material collection, discount or
write-off policy or procedure. To the best knowledge of the Seller, the Practice
is in substantial compliance with the terms and conditions of its third-party
payor arrangements, and to Seller's knowledge the reserves established by the
Practice are adequate to cover any liability resulting from lack of compliance.
2.21 TAX RETURNS. The Practice has filed all tax returns (or
has obtained appropriate extensions), required to be filed by it, and made all
payments required to be made by it, with respect to income taxes, real property
taxes, sales taxes, use taxes, employment taxes and similar taxes due and
payable on or before the date of this Agreement. The Practice has no tax
liability or pending tax audits, except as set forth on Exhibits 2.21A through
2.21F, and sales, use, employment and similar taxes for periods as to which such
taxes have not yet become due and payable. True and correct copies of the
Practice's respective 1997, 1996 and 1995 federal and state income tax returns
have been attached hereto on Exhibits 2.21A through 2.21F or, as to 1997 returns
will be delivered as required by Section 7.6.
2.22 COMMISSIONS AND FEES. There are no valid claims, including
but not limited to, any claim or claims by CIBC Oppenheimer & Co., for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
PSC, Parent or the Corporation resulting from any action taken by Sellers, the
Practice, PDI, New Jersey NewCo or New York NewCo or their respective agents or
employees.
2.23 [RESERVED].
2.24 INSURANCE POLICIES. The Seller and/or the Practice
maintain policies of comprehensive general liability and professional liability
insurance in amounts of not less than $1,000,000 per occurrence and $3,000,000
aggregate on a claims made basis and property damage insurance on the assets of
the Practice, and as of Closing, the Corporation. A description of all such
policies are attached on Exhibits 2.24A through 2.24G.
2.25 EMPLOYEE BENEFIT PLANS. Except as set forth on Exhibits
2.25A through 2.25G or Exhibits 2.16A through 2.16G and except for employment
arrangements terminated prior to Closing, neither PDI nor the Practice or the
Corporation has established, or maintains, or is
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obligated to make contributions to or under or otherwise participate in, (a) any
bonus or other type of incentive compensation plan, program, agreement, policy,
commitment, contract or arrangement (whether or not set forth in a written
document); (b) any pension, profit sharing, retirement or other plan, program or
arrangement; or (c) any other employee benefit plan, fund or program, including,
but not limited to, those described in Section 3(3) of ERISA. All such plans
listed on Exhibits 2.25A through 2.25G (individually "Corporation Plan," and
collectively "Corporation Plans") have been (i) furnished to Parent along with a
copy of each material document prepared in connection with such Corporation
Plans and (ii) operated and administered in all material respects in accordance
with, as applicable, ERISA, the Code and any other applicable laws, and the
related rules and regulations adopted by those federal agencies responsible for
the administration of such laws. To the best of Seller's knowledge, no act or
failure to act by PDI or the Practice, Seller, or the Corporation has resulted
in a "prohibited transaction" (as defined in ERISA) with respect to the
Corporation Plans. No "reportable event" (as defined in ERISA) has occurred with
respect to the Corporation Plans. Neither PDI nor the Practice or Corporation
has made, is currently making, or is obligated in any way to make, any
contributions to any multi-employer plan within the meaning of Section 3(37) of
ERISA. None of the Corporation Plans are multiple employer welfare arrangements
within the meaning of Section 3(40) of ERISA. The Corporation Plans do not
provide for the payment of separation, severance, termination or similar-type
benefits to any person or obligate PDI or the Practice or Corporation to pay
such benefits solely as a result of any transaction contemplated by this
Agreement, or as a result of a "change of control" within the meaning of Section
280G of the Code. None of the Corporation Plans provides for or promises retiree
medical, retiree disability or retiree life insurance benefits to any current or
former employee of PDI or the Practice or Corporation. Each Corporation Plan
which is intended to be qualified under Section 401(a) of the Code has received
a favorable determination letter from the IRS dated on or after January 1, 1995
that it is so qualified and no fact or event has occurred since the date of such
determination letter to adversely affect the qualified status of any such
Corporation Plan.
2.26 COMPLIANCE WITH LAWS IN GENERAL. The Seller has no knowledge of
material violations of any federal, state or local laws, regulations or
ordinances relating to the operations of the Practice or PDI, including, without
limitation, the Federal Environmental Protection Act, the Occupational Safety
and Health Act, the Americans with Disabilities Act or any Environmental Laws.
2.27 FRAUD AND ABUSE. To Seller's knowledge, none of PDI, Seller, or
any persons or entities providing professional services for the Practice have
engaged in any activities which are prohibited under Section 1320a-7b of Title
42 of the United States Code or the regulations promulgated thereunder, or
related state or local statutes or regulations, or which are prohibited by rules
of professional conduct, including, but not limited to, the following: (a)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (b) knowingly and willfully making or causing to be made any false
statement or representations of a material fact for use in determining rights to
any benefit or payment; (c) any failure by a claimant to disclose knowledge of
the occurrence of any event affecting the initial or continued right to any
benefit or payment on its own behalf or on behalf of another, with the intent to
fraudulently secure such benefit or
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payment; (d) knowingly and willfully soliciting or receiving any remuneration
(including any kickback, bribe or rebate) directly or indirectly, overtly or
covertly, in cash or in kind, or offering to pay or receive such remuneration
(i) in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (ii) in return for
purchasing, leasing or ordering or arranging for, or recommending, purchasing,
leasing or ordering any good, facility, service or item for which payment may be
made in whole or in part by Medicare or Medicaid; (e) engaging in any activity
which is a basis for exclusion from the Medicare, Medicaid and other
federally-funded programs under Section 1320a-7a of Title 42 of the United
States Code; (f) any violation of the Medicare or Medicaid requirements,
including and fraud and abuse provisions, except where such circumstances would
not have a Material Adverse Effect.
2.28 MEDICARE, MEDICAID, AND OTHER THIRD-PARTY PAYOR PAYMENT
LIABILITIES. To Seller's knowledge, except as described in Exhibits 2.28A
through 2.28F, none of PDI, Seller, the Practice or the Corporation has any
liabilities to any third party fiscal intermediary or carrier administering any
state Medicaid program or the federal Medicare program, or to any other third
party payor for the recoupment of any amounts previously paid to PDI, Seller,
the Practice (or any predecessor corporation) or the Corporation by any such
third-party fiscal intermediary, carrier, Medicaid program, Medicare program, or
third party payor. There are no pending or, to Seller's knowledge, threatened
actions by any third party fiscal intermediary or carrier administering any
state Medicaid or the federal Medicare program, by the Department of Health and
Human Services, any state Medicaid agency, or any third party payor to suspend
payments to the Practice, the Corporation or Seller.
2.29 BILLING PRACTICES AND REFERRAL SOURCES.
(a) Billing Practices Generally. All billing practices by PDI,
the Practice and Seller to all third party payors, including, but not
limited to, the federal Medicare program, state Medicaid programs and
private insurance companies, have been, to Seller's knowledge, true,
fair and correct and in material compliance with all applicable laws,
regulations and policies of all such third party payors, and, to
Seller's knowledge, none of PDI, Seller or the Practice have billed for
or received any payment or reimbursement in excess of amounts allowed
by law which have not been appropriately adjusted or refunded.
(b) Gratuitous Payments. Neither PDI, Seller nor any
shareholder, director, or officer of the Practice or Corporation, or
any employee or agent acting on behalf of or for the benefit of PDI,
the Practice or Seller, has, directly or indirectly, in violation of
applicable Laws: (i) offered or paid any remuneration, in cash or in
kind, to, or made any financial arrangements with, any past or present
customers, past or present patients, past or present suppliers,
contractors or third party payors of the Practice in order to obtain
business or payments from such persons; (ii) given or agreed to give,
or is aware that there has been made or that there is any agreement to
make, any gift or gratuitous payment of any kind, nature or description
(whether in money, property or services) to any customer or potential
customer, patient or potential patient, supplier or potential
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supplier, contractors, third party payor or any other person; (iii)
made or agreed to make, or is aware that there has been made or that
there is any agreement to make, any contribution, payment or gift of
funds or property to, or for the private use of, any governmental
official, employee or agent; (iv) established or maintained any
unrecorded fund or asset for any purpose or made any false or
artificial entries on any of its books or records for any reason; or
(v) made, or agreed to make, or is aware that there has been made or
that there is any agreement to make, any payment to any person with the
intention or understanding that any part of such payment would be used
for any purpose other than that described in the documents supporting
such payment.
(c) Transactions with Referral Sources. None of PDI, the
Seller, the Practice, nor to the knowledge of Seller, any officers,
directors or employees thereof, is a party to any contract, lease,
agreement or arrangement in violation of applicable Laws, including,
but not limited to, any joint venture or consulting agreement with any
physician, hospital, nursing facility, home health agency or other
person who makes or influences referrals to or otherwise generates
business for any Practice or any Seller in violation of applicable
Laws.
2.30 PHYSICIAN SELF-REFERRALS. Neither PDI nor the Practice or
Seller has submitted any claims in connection with any referrals which violated
any applicable self-referral law, including the Stark Law (42 U.S.C. ss. 1395nn)
or any applicable state self-referral law as those laws were interpreted at the
time the claim was submitted.
2.31 INVESTMENT INTENT.
(a) The Seller is acquiring the PSC Debenture pursuant to this
Agreement for investment purposes only and not with a view to the sale
or distribution thereof. The Seller has such knowledge and expertise in
financial matters that Seller is capable of evaluating the merits and
risks of an investment in the PSC Debenture.
(b) The Seller acknowledges that since the PSC Debenture has
not been registered under the Securities Act of 1933, as amended (the
"1933 Act"), the PSC Debenture must be held indefinitely unless
subsequently registered under the 1933 Act or exemptions from such
registration under the 1933 Act are available. The Seller acknowledges
that PSC is under no obligation to register under the 1933 Act the
issuance of the PSC Debenture or to comply with any provision which
would entitle any such sale pursuant to any exemption from registration
under the 1993 Act.
(c) The Seller is an "accredited investor" within the meaning
of Regulation D under the 1993 Act.
(d) The PSC Debenture shall bear a legend in substantially the
following form and any other legend required by any other applicable
state securities or Blue Sky laws:
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This Debenture has not been registered or qualified
pursuant to the Securities Act of 1933, as amended (the "1933
Act"), or any other state securities law, and may not be sold,
pledged, transferred or otherwise disposed of unless the same
is registered and qualified in accordance with the 1933 Act
and any other applicable state securities laws, or after
receipt of an opinion of counsel satisfactory to the company
that an exemption from registration under the 1933 Act, and
any applicable state securities laws is then available."
2.32 NO UNTRUE REPRESENTATIONS. To the knowledge of Seller, no
representation or warranty by Seller in this Agreement, and no Exhibit or
certificate furnished or to be furnished to PSC or Parent pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained therein not
misleading. All information provided by the Seller in writing for valuation of
the Practices by PSC and Parent is true, accurate and complete in all material
respects, as the same may have been modified by the Exhibits and Schedules
hereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PSC.
Parent and PSC hereby, jointly and severally, represent and warrant to
Sellers as follows:
3.1 CORPORATE EXISTENCE; GOOD STANDING; QUALIFICATION. Each of
PSC, PSC Management and Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each of PSC, PSC
Management and Parent has all necessary corporate power and authority to own,
lease or operate its properties and assets and to carry on its business as
presently conducted and as contemplated by this Agreement and is duly qualified
to do business and is in good standing in all jurisdictions in which the
character of the property owned, leased or operated or the nature of the
business transacted by it makes qualification necessary, except where failure to
qualify would not have Material Adverse Effect on Parent, PSC or PSC Management.
3.2 POWER AND AUTHORITY. Each of PSC and Parent has corporate
power and authority to execute and deliver and perform its obligations under
this Agreement and all agreements and other documents to be executed and
delivered by it pursuant to this Agreement, and has taken all actions required
by law, its Certificate of Incorporation and its By-laws, to authorize the
execution, delivery and performance of this Agreement and such related
documents. PSC Management has the corporate power and authority to execute and
deliver and perform its obligations under the Debenture and Security Agreement
and has taken all action required by law, its Certificate of Incorporation and
By-laws to authorize the execution, delivery and performance of such
instruments. The execution and delivery of this Agreement, and the agreements
related hereto executed and delivered pursuant to this Agreement do not and,
subject to the receipt of consents to assignments of leases and other contracts
where required and the receipt of regulatory approvals where required, the
consummation of the transactions contemplated hereby will not, violate any
provision of the Certificate of Incorporation or Bylaws
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of either PSC, PSC Management or Parent or any provisions of, or result in the
acceleration of, any obligation under any mortgage, lien, lease, agreement,
instrument, order, arbitration award, judgment or decree to which PSC, PSC
Management or Parent is a party or by which either of them is bound, or violate
any restrictions of any kind to which PSC, PSC Management or Parent is subject.
The execution and delivery of this Agreement have been approved by the
respective Boards of Directors of PSC and Parent.
3.3 COMMISSIONS AND FEES. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
any Seller, Practice, or Corporation or PDI, New York NewCo or New Jersey NewCo
resulting from any brokers or agents engaged by PSC or Parent or their
respective agents or employees.
3.4 PARENT DOCUMENTS. Parent has heretofore made available to
Sellers or their representative its Prospectus dated March 20, 1997 with respect
to the offer and sale of 2,200,000 shares of Parent common stock; SEC Forms 10Q
of Parent for the quarters ended March 31, 1997, June 30, 1997, and September
30, 1997, filed with the Securities and Exchange Commission ("S.E.C."), and Form
10K of Parent for the year ended December 31, 1997 filed with the S.E.C. The
foregoing SEC filings were true and correct in all material respects as of their
respective dates and fairly present the financial position of Parent as of such
dates. There has been no material adverse change with respect to Parent since
December 31, 1997.
3.5 LEGAL PROCEEDINGS. There is no material litigation, governmental
investigation or other proceeding pending or, so far as is known to Parent or
PSC, threatened against or relating to or affecting PSC or Parent or PSC
Management or medical practices managed by Parent that would have a Material
Adverse Effect on Parent or PSC or the transactions contemplated hereby.
3.6 COMPLIANCE WITH LAWS IN GENERAL. Parent and PSC have no
knowledge of material violations of any federal, state or local laws,
regulations or ordinances relating to the operations of Parent, PSC and PSC
Management, including, without limitation, the Federal Environmental Protection
Act, the Occupational Safety and Health Act, the Americans with Disabilities Act
and any Environmental Laws.
3.7 BILLING PRACTICES IN GENERAL. All billing practices by Parent
and PSC Management to all third party payors, including, but not limited to, the
federal Medicare program, state Medicaid programs and private insurance
companies, have been, to Parent's knowledge, true, fair and correct and in
material compliance with all applicable laws, regulations and policies of all
such third party payors, and, to Parent's knowledge, neither Parent nor PSC
Management has billed for or received any payment or reimbursement in excess of
amounts allowed by law which have not been appropriately adjusted or refunded.
3.8 NO UNTRUE REPRESENTATIONS. To the knowledge of Parent and PSC,
no representation or warranty by Parent or PSC in this Agreement, and no Exhibit
or certificate furnished or to be furnished by Parent or PSC pursuant hereto, or
in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material
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fact, or omits or will omit to state a material fact necessary to make the
statements or facts contained therein not misleading.
SECTION 4. ACCESS TO INFORMATION AND DOCUMENTS PRIOR TO CLOSING.
4.1 ACCESS TO SELLERS' INFORMATION. Each Seller shall give to
Parent and PSC and its counsel, accountants, engineers and other representatives
full access to all the requested properties, documents, contracts, personnel
files and other records of such Seller's Corporation and Practice and shall
furnish Parent and PSC with copies of such requested documents and with such
information with respect to the affairs of Seller, the Practice and the
Corporation as Parent and PSC shall from time to time reasonably request. Seller
shall disclose and make available to Parent, PSC, and their representatives all
requested books, contracts, accounts, personnel records, letters of intent
papers, records, communications with regulatory authorities and other documents
relating to the Shares and to the Practice.
4.2 ACCESS TO INFORMATION OF PARENT. Prior to Closing, Parent
shall give to Sellers and their respective counsel, accountants and other
representatives such access to the documents, contracts and other records of
Parent as Sellers shall from time to time reasonably request and shall furnish
copies of such documents as reasonably requested.
4.3 RETENTION OF RECORDS. PSC shall retain all books and records
of the Corporations ("Records") for the greater of four years from the Closing
Date or such longer periods of time as required by applicable statutes, rules
and regulations. For a period of four years after the Closing Date, and for such
longer period as the Records are maintained, each party will, during normal
business hours and so as not to unreasonably disrupt normal business, afford any
other party, its counsel, its accountants or other parties who have a reasonable
need for such access full access (and copying at the expense of the requesting
party, if desired) to the books and records in the possession of such party as
such other party may reasonably request.
SECTION 5. CONDITIONS TO OBLIGATION OF PARENT AND PSC TO CLOSE.
The obligation of PSC and Parent to consummate the transactions
contemplated by this Agreement is subject to satisfaction of the following
conditions precedent (any of which may be waived in writing by Parent at or
prior to the Closing):
5.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Sellers set forth in Article 2 shall be true and correct in all
material respects as of the date made and at and as of the Closing, except as a
result of changes expressly permitted by this Agreement.
5.2 COVENANTS. The Sellers shall have performed and complied with
all of their covenants and agreements under this Agreement in all material
respects through the Closing.
5.3 NO SUIT OR PROCEEDING. No action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction in which an unfavorable
injunction, judgment, order, decree, ruling, or charge would
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(i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, or (iii) affect adversely PSC's receipt of
the Shares free of all liabilities, liens, mortgages, encumbrances, debts,
obligations or other third-party interests of whatever nature (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect).
5.4 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall have been no
change in the condition (financial or otherwise), business, assets, or prospects
of any Corporation or Practice from the Balance Sheet Date which has had or
could reasonably be expected to have a Material Adverse Effect on any
Corporation or the business to be conducted by New York NewCo or New Jersey
NewCo.
5.5 CERTIFICATE. Each Seller shall have delivered to PSC a
certificate to the effect that each of the conditions specified in Sections
5.1-5.4 is satisfied in all respects as to such Seller's respective Corporation
and Practice.
5.6 APPROVAL OF PARENT'S SENIOR LENDER. Parent shall have received
written approval from Parent's senior lender, NationsBank, N.A., of the
transactions contemplated by this Agreement including, without limitation, the
issuance of the PSC Debenture and Guaranty and the grant of the first lien
security interest provided for in the Security Agreement; provided, however,
that such consent is not conditioned on the Sellers signing a subordination
agreement that contains a standstill period in excess of that provided in the
PSC Debenture.
5.7 RECEIPT OF FINANCIAL INFORMATION. ENT Medical Practice shall
have delivered to Parent accrual basis financial statements and work papers
suitable for audit for the years ended December 31, 1997, and December 31, 1996.
The Practices shall have delivered to Parent unaudited financial statements and
federal income tax returns for the years ended December 31, 1997, December 31,
1996, and December 1995, and the Practices shall have delivered to Parent
unaudited financial statements for the quarter ended March 31, 1998.
Notwithstanding the foregoing, the Practices' returns for the year ended
December 31, 1997 may be delivered in accordance with Section 7.6.
5.8 CONSENTS AND APPROVALS. PSC and Parent shall have received all
authorizations, consents, and approvals of third parties and of governments and
governmental agencies, if any, that may be required for the purchase of the
Shares by PSC.
5.9 COUNSEL OPINION. Parent and PSC shall have received from
counsel to the Sellers and the Corporations an opinion dated as of the Closing
Date, in substantially the form attached hereto as Exhibit 5.9.
5.10 OTHER AGREEMENTS EXECUTED. The employment agreements required
by Section 1.4(a) shall have been executed and delivered or, in the case of
certain physician employees, assigned in accordance with Section 1.4, and each
of New York NewCo and New Jersey NewCo shall have executed and delivered the
respective MSA with PSC Management and Parent; provided that notwithstanding the
foregoing, each of the ten associate physicians at the Practices
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shall have either (1) been admitted as a partner of New York NewCo, (2) signed a
new employment agreement with New York NewCo in accordance with the New York
MSA, or (3) consented in writing to assignment of his existing employment
agreement to New York NewCo.
5.11 PURCHASE OF FIXED ASSETS, EQUIPMENT, AND TRADE NAME OF
PHYSICIANS DOMAIN, INC. ENT Corporation shall have acquired the furniture,
fixtures, equipment and trade name of PDI as set forth on Exhibit 2.11G and any
applicable equipment leases of PDI assumed by ENT Corporation as set forth on
Exhibit 2.11G.
5.12 RELEASE OF LIENS. Except as set forth on Exhibits 5.12A-5.12F,
all liens encumbering the assets of any Practice or Corporation shall be duly
released at Closing by the secured parties and other lien holders.
5.13 NEW YORK NEWCO STOCK OPTIONS. Parent or its designee shall
receive an option to acquire the shares of New York NewCo from the Sellers who
are shareholders in New York NewCo substantially in the form attached hereto as
Exhibit 5.13.
5.14 NEW JERSEY NEWCO STOCK OPTIONS. Parent or its designee shall
receive an option to acquire the shares of New Jersey NewCo from the Sellers who
are shareholders in New Jersey NewCo substantially in the form attached hereto
as Exhibit 5.14.
5.15 CLOSING DATE FINANCIAL CERTIFICATE. Each Seller shall have
delivered to Parent and PSC a closing date financial certificate which shall
certify the March 31, 1998 unaudited balance sheets of each such Seller's
Practice and for the period ended as of such date statements of operations of
the Practice, along with detailed accounts receivable aging analysis of the
Practice as of the close of business on the date prior to Closing acceptable to
Parent, all prepared in accordance with prior practice, provided that goodwill
and capitalized intangible assets may be written off such balance sheets as
provided in Section 7.1(a) below. Each Seller shall have delivered to Parent a
computation of each such Seller's Corporation's net worth (as defined in Section
5.16 below) as of the Closing.
5.16 CLOSING NET WORTH AND ACCOUNTS RECEIVABLE. The Corporations'
combined net worth at Closing (defined as GAAP basis of assets acquired in
excess of liabilities existing or to be discharged or to which assets are
subject, including assets acquired from PDI) shall equal or exceed $3,625,000
and the net realizable value (measured in accordance with GAAP) of the
Corporations' aggregate accounts receivable at Closing (the "Closing Accounts
Receivable") shall equal or exceed $5,425,000, provided, however, that if the
aggregate accounts receivables at Closing are at least 90% of such amount the
condition of this Section 5.16 with respect to the amount of accounts receivable
will be deemed satisfied. Any known Medicare/Medicaid or other patient or third
party payor refunds due at Closing shall reduce the amount of Closing Accounts
Receivable (and correspondingly the Corporations' net worth at Closing).
5.17 CORPORATE DOCUMENTS. Sellers shall have furnished PSC with
copies of the following documents: the Articles of Incorporation and all
amendments thereto of each Corporation, duly certified by the Secretary of State
of the State of Delaware; and certificates,
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executed by the proper officials of the State of Delaware, as to the valid
existence and good standing of each Corporation in the State of Delaware.
5.18 ASSIGNMENT OF ASSUMPTION AGREEMENTS. Each of the landlords and
tenants under the leases for the medical offices listed on Exhibits 5.18-5.18F
shall have executed and delivered an assignment and assumption agreement
substantially in the form of Exhibit 5.18 (each a "Lease Assignment") with
respect to each such lease, or other arrangements satisfactory to PSC Management
with respect thereto shall have been made.
5.19 FORMATION OF NEW YORK NEWCO AND NEW JERSEY NEWCO. Sellers who
practice at the New York offices listed in Exhibits 2.13A through 2.13G shall
have formed ENT Associates, LLP, and Seller who practices at the New Jersey
office listed in Exhibits 2.13A through 2.13G shall have formed ENT Associates
of New Jersey, P.C.
5.20 TERMINATION OF CORPORATION PLANS. The Sellers and Corporations
shall have (a) terminated or frozen all Corporation Plans as required under
Section 1.4(b); (b) performed and complied with all of their other covenants
contained in Section 1.4; and (c) furnished Parent or PSC with documentation
sufficient to evidence such termination or freezing of the Corporation Plans.
5.21 RESIGNATIONS. There shall have been delivered to Parent and
PSC the signed resignations of the officers and directors of each of the
Corporations.
5.22 DUE DILIGENCE. PSC shall have been satisfied with its due
diligence of Sellers, Practices and the Corporations and shall have such
information related thereto as it shall have in good faith requested.
SECTION 6. CONDITIONS TO OBLIGATION OF SELLERS
The obligation of Sellers to consummate the transactions contemplated
by this Agreement is subject to satisfaction of the following conditions (any
one of which may be waived in writing by Sellers at or prior to the Closing):
6.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Parent and PSC set forth in Article 3 above shall be true and
correct in all material respects on the date of this Agreement and at and as of
the Closing.
6.2 COVENANTS. Parent and PSC shall have performed and complied
with all of their covenants and agreements under this Agreement in all material
respects through the Closing.
6.3 NO SUIT OR PROCEEDING. No action, suit or proceeding shall be
pending before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (a) prevent
consummation of any of the transactions contemplated by this Agreement or (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect), or (c) have a Material Adverse Effect on Parent
or PSC.
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6.4 CERTIFICATE. Parent and PSC shall have delivered to Sellers a
certificate to the effect that each of the conditions specified in Sections 6.1,
6.2, 6.3 and 6.8 is satisfied in all respects.
6.5 GOVERNMENT APPROVALS. Sellers shall have received all
authorizations, consents, and approvals of governments and governmental
agencies, if any, that may be required.
6.6 OTHER AGREEMENTS EXECUTED. PSC Management, PSC and Parent
shall have executed and delivered the MSAs.
6.7 PURCHASE PRICE. At the Closing, the cash consideration
required under Section 1.1 shall be delivered by wire transfer in accordance
with the written instructions of Sellers.
6.8 FINANCIAL CONDITION OF PARENT. There shall not have occurred
any Material Adverse Change with respect to Parent from the date of Parent's
Form 10K filed with the S.E.C. for the year ended December 31, 1997.
6.9 CONSENT OF NATIONSBANK. Seller shall have received a copy of
the written approval from Parent's senior lender, NationsBank, N.A. to the
transactions contemplated by this Agreement including, without limitation, the
issuance of the PSC Debenture and Guaranty and the grant of the first lien
security interest provided for in the Security Agreement; provided, however,
that such consent shall not be conditioned on the Sellers signing a
subordination agreement that contains a standstill period in excess of that
provided in the PSC Debenture.
6.10 COUNSEL OPINION. Sellers shall have received from counsel to
Parent, PSC Management and PSC an opinion dated as of the Closing Date, in
substantially the form attached hereto as Exhibit 6.10.
6.11 PSC DEBENTURE. PSC, PSC Management and Parent shall have
delivered the PSC Debenture and Guaranty to the Paying Agent for Sellers.
6.12 SECURITY AGREEMENT. PSC Management shall have executed and
delivered the Security Agreement.
6.13 ASSIGNMENT AND ASSUMPTION AGREEMENT. PSC Management shall have
executed and delivered a Lease Assignment with respect to each of the real
property leases for the medical offices listed on Exhibits 5.18A-5.18F.
SECTION 7. CERTAIN ADDITIONAL COVENANTS
7.1 CONDUCT OF PRACTICE PRIOR TO CLOSING. During the period from
and after the date of this Agreement and until the Closing Date:
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(a) Sellers will each carry on their respective Practice in
substantially the same manner as heretofore carried on and will not
make any purchase or sale, incur any indebtedness or liens, or
introduce any method of management or operation in respect to such
Practice or otherwise engage in any transaction except in the ordinary
course of business and in the manner not inconsistent with prior
practice and the terms of this Agreement, other than with the prior
written consent of PSC and, subject to the requirements of Section
5.16, the write-off of goodwill and certain capitalized intangibles
from their respective balance sheets.
(b) Sellers shall cause their respective Practice to transfer
the physician employment agreements, patient charts and records and
pharmaceutical inventory of such Practice to New York NewCo or New
Jersey NewCo as appropriate.
(c) No Practice or Corporation will acquire or dispose of any
capital assets having a current value in excess of $1,000 other than
with the prior written consent of PSC, or except in connection with the
replacement or elimination of obsolete or damaged equipment in the
ordinary course of business.
7.2 FUNDING OF ACCRUED EMPLOYEE BENEFITS. Other than with respect
to salaries or bonuses payable to physician employees of the Practices based on
the amount of collected accounts receivable, all of which will be paid by
Sellers or the Practices when due and payable consistent with past practice,
Sellers hereby covenant and agree that Sellers will take whatever steps are
necessary to pay or fund completely at or prior to Closing any accrued benefits,
where applicable, or vested accrued benefits for which such Sellers, PDI or such
Sellers' Practice or Corporation might have any liability whatsoever arising
from any salary, wage, benefit, bonus, vacation pay, sick leave, insurance,
employment tax or similar liability to any employee or other person or entity
(including, without limitation, any Corporation Plan and any liability under
employment contracts with PDI, Sellers, Practice or Corporation) attributable to
services performed prior to the Closing Date.
7.3 [RESERVED].
7.4 COVENANT NOT TO COMPETE.
(a) Except as provided in Section 7.4(b) below, for a period
of five (5) years from and after the Closing Date, each of the Sellers
agrees that, he or she will not (i) directly or indirectly, engage in,
manage, operate, control, conduct, consult for or be employed in a
management capacity by, provide services to or invest in any business
or venture in competition (as of the Closing Date) with the Practices,
the Corporations, PSC, PSC Management, Parent, or either NewCo in his
or her Restricted Territory (as defined below); provided however, that
ownership of less than 1% of the outstanding stock of any publicly
traded corporation shall not be deemed to violate this clause, (ii)
within his or her Restricted Territory, directly or indirectly, solicit
or attempt to solicit any customer or client of PSC, PSC Management,
Parent or patient of either NewCo other than in the
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course of a Seller's performance of services and duties for the
applicable NewCo as a physician-shareholder thereof; or (iii) solicit
or employ or attempt to solicit or hire away or employ any employee of
PSC, PSC Management, Parent, any Corporation or NewCo. Notwithstanding
the foregoing, general advertising by a Seller in newspapers,
magazines, radio, television or similar media that is not directly
targeted at patients, customers or employees of any Corporation, NewCo,
Practice, PSC, PSC Management or Parent shall not, by itself, be deemed
a violation of this Section 7.4(a). If the final judgment of a court of
competent jurisdiction declares that any term or provision of this
Section is invalid or unenforceable, the Sellers and PSC agree that the
court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area, to delete
specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified. As used herein, the "Restricted Territory"
for each of the Sellers is set forth in Exhibit 7.4. The parties agree
that the restraints set forth above in this Section 7.4(a) and Exhibit
7.4 are reasonable in respect to subject matter, length of time and
geographic area. Each of the Sellers agrees that the restrictions on
their activities contained in this Section are reasonable and necessary
to protect the goodwill and relationships, economic advantage and other
legitimate interests of PSC, PSC Management, Parent and each NewCo, and
that, were it, he or she to breach any of the covenants contained in
this Section 7.4(a), PSC, PSC Management, Parent and each NewCo would
be harmed and the damage to PSC, PSC Management, Parent and each NewCo
would be irreparable. Accordingly, Sellers acknowledge and agree that,
as PSC's, PSC Management's, Parent's and each NewCo's and Corporation's
legal remedies would be inadequate in the event of a breach of the
covenants in this Section 7.4(a), in addition to damages and other
remedies available, such covenants may be enforced by injunction or
other equitable remedies.
(b) Parent and PSC agree that the Sellers who are partners in
the New York NewCo shall be released from the restrictive covenants set
forth in Section 7.4(a) in the event of termination of the New York MSA
by New York NewCo due to the occurrence of a "Manager Event of Default"
thereunder (as such term is defined therein), and Parent and PSC agree
that CEA Seller shall be released from the restrictive covenants set
forth in Section 7.4(a) in the event of termination of the New Jersey
MSA by New Jersey NewCo due to the occurrence of a "Manager Event of
Default" thereunder (as such term is defined therein).
7.5 CONFIDENTIALITY.
(a) Sellers shall, for a period of three (3) years after the
Closing, hold in confidence all financial information about the
Corporation, Practice and Shares, except such disclosure as may be
required by law or governmental order or regulation, or by subpoena or
other legal process (provided Parent will be provided advance notice of
such disclosure in order to afford it the opportunity to seek an
appropriate protective order). Sellers further agree to keep
confidential for a period of three (3) years after the Closing,
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any and all information relating to services, products, marketing
information, sources of supply, pricing and patients of the Practice on
the date hereof or developed by or for the Practice, except such
disclosure as may be required by law or governmental order or
regulation, or by subpoena or other legal process (provided Parent will
be provided advance notice of such disclosure in order to seek an
appropriate protective order). The restrictions in this Section 7.5(a)
shall not apply to any information that comes into the public domain
through no fault of Sellers. Nothing in this Section 7.5(a) shall
prohibit Sellers from (i) producing information compelled to be
produced by law, governmental regulation, or in a legal proceeding or
investigation provided that Parent is provided advance notice of such
disclosure to provide an opportunity to seek a protective order to
prevent such disclosure, or (ii) providing information to their
accountants, consultants or attorneys in connection with a tax audit,
third party payor audit, governmental agency review or malpractice
suits, or (iii) in a legal proceeding between any Seller and PSC,
Parent or PSC Management.
(b) Regardless of whether the Closing shall occur, Parent and
PSC shall, for a period of three (3) years from the date hereof, hold
in confidence all financial information about the Sellers and the
Practices, except such disclosure as may be required by law or
governmental order or regulation, or by subpoena or other legal process
(provided the Sellers will be provided advance notice of such
disclosure in order to afford Sellers the opportunity to seek an
appropriate protective order), except that no such advance notice shall
be required with respect to Parent's disclosure requirements under
applicable securities laws. Regardless of whether the Closing shall
occur, Parent and PSC further agree to keep confidential for a period
of three (3) years from the date hereof, any and all information
relating to services, products, marketing information, sources of
supply, pricing and patients of the Practices disclosed to Parent and
PSC hereunder, except such disclosure as may be required by law or
governmental order or regulation, or by subpoena or other legal process
(provided the Sellers will be provided advance notice of such
disclosure in order to afford Sellers the opportunity to seek an
appropriate protective order), except that no such advance notice shall
be required with respect to Parent's disclosure requirements under
applicable securities laws. The restrictions in this Section 7.5(b)
shall not apply to any information that comes into the public domain
through no fault of Parent or PSC. Nothing in this Section 7.5(b) shall
prohibit Parent or PSC from (i) producing information compelled to be
produced by law, governmental regulation or in a legal proceeding or
investigation provided that Sellers' counsel is provided advance notice
of such disclosure in order that Sellers are provided an opportunity to
seek a protective order to prevent such disclosure, or (ii) providing
information to their accountants, consultants or attorneys in
connection with a tax audit, third party payor audit, governmental
agency review, or malpractice suits, or (iii) in a legal proceeding
between any Seller and PSC, Parent or PSC Management.
7.6 PREPARATION OF TAX RETURNS AND PAYMENT OF TAXES. Sellers shall
file all tax returns for their respective Practices and Corporations and make
all payments required to be made by their respective Practices and Corporations,
with respect to income taxes, real estate taxes, sales taxes, use taxes,
employment taxes for the period ending with the Closing Date and
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prior periods. Each Seller shall provide Parent and/or PSC with copies of such
tax returns within ninety (90) days of Closing, including specifically the
Practice's tax returns for 1997 and 1998 (short-period) federal and state income
taxes. Sellers shall be entitled to any tax refunds of the Corporations for tax
periods ending on or prior to the Closing Date, and subject to the right of
offset hereinafter provided, the Corporations shall remit any such refunds
received by them to the Paying Agent promptly after receipt.
7.7 COLLECTIONS OF ACCOUNTS. In the event that at the end of the
six-month period following the Closing the aggregate amount realized from
collection of the Closing Accounts Receivable is less than $5,425,000,
notwithstanding reasonable diligence consistent with industry practice to
collect such accounts by PSC Management under the MSAs, Sellers (jointly and
severally) shall pay Parent upon delivery to the Paying Agent of notice of the
amount of such shortfall and a reconciliation with respect thereto, cash in an
amount equal to the shortfall. If not paid within one (1) day of delivery, at
PSC's election any such shortfall may be offset (without regard to the
limitations set forth in Section 8.5(a) or 8.6) against the amounts payable by
Parent, PSC, or PSC Management to the Sellers under (i) any MSA and/or (ii) the
PSC Debenture. Following any such payment or offset, Parent, PSC and PSC
Management shall assign to the Paying Agent for the benefit of the Sellers the
remaining uncollected Closing Accounts Receivable. Following any such offset
pursuant to Section 7.7, in the event the Sellers dispute such offset, the
dispute shall be resolved in accordance with Section 10.20 hereof.
7.8 TERMINATION OF CORPORATION PLANS. For those Corporation Plans
being terminated, within thirty (30) days after the Closing Date, Sellers
terminating such Corporation Plans shall provide to Parent a copy of Form 5310
as filed with the Internal Revenue Service ("IRS"). Sellers shall provide to
Parent a copy of any correspondence between Sellers and the IRS regarding such
filing or freezing of Corporation Plans upon receipt of any such correspondence.
7.9 REORGANIZATIONS PRIOR TO CLOSING. ENT Sellers will cause ENT
Medical Practice to transfer substantially all its assets subject to its
liabilities to ENT Corporation pursuant to a tax-free reorganization under the
Code; ALB Seller will cause ALB Medical Practice to transfer substantially all
its assets subject to its liabilities to ALB Corporation pursuant to a tax-free
reorganization under the Code; CEA Seller will cause CEA Medical Practice to
transfer substantially all its assets subject to its liabilities to CEA
Corporation pursuant to a tax-free reorganization under the Code; RGSS Sellers
will cause RGSS Medical Practice to transfer substantially all its assets
subject to its liabilities to RGSS Corporation pursuant to a tax-free
reorganization under the Code; RH Seller will cause RH Medical Practice to
transfer substantially all its assets subject to its liabilities to RH-1
Corporation pursuant to a tax-free reorganization under the Code; and LIA
Sellers will cause LIA Medical Practice to transfer substantially all of its
assets subject to its liabilities to LIA Corporation pursuant to a tax-free
reorganization under the Code. In connection with such reorganizations, each
Corporation will assume the contractual obligations and liabilities of the
respective Practice transferring its assets to such Corporation.
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7.10 SELLERS' NOMINATION OF DIRECTOR TO PARENT BOARD OF DIRECTORS.
Sellers shall have the right to nominate one director to Parent's Board of
Directors to serve for the same term as existing Parent directors.
7.11 PDI OFFICE LEASE DEPOSIT. Prior to Closing, Sellers shall
determine whether to assign to PSC Management the office lease of PDI at White
Plains, New York (the "PDI Office Lease") or to request PSC Management to find
other office space for the central billing office of the manager under the MSAs.
In the event that Sellers determine to assign the PDI Office Lease to PSC
Management, and the landlord and tenant consent thereto, PSC Management shall
assume such lease pursuant to a Lease Assignment, and PSC Management shall also
agree to pay to the Paying Agent on behalf of Sellers an amount equal to the
security deposit for such PDI Office Lease when and if such security deposit is
released or surrendered to PSC Management by the landlord at or prior to
expiration of the PDI Office Lease or any extension or renewal thereof, or in
the event the security deposit is applied by the landlord to pay rent that
arises from and after the date of the Lease Assignment that is not paid by PSC
Management in default of its obligations thereunder.
7.12 CERTAIN PRE-CLOSING CLAIMS. From time to time following
Closing, as and when reasonably requested by Sellers, PSC agrees to permit such
Sellers to assert on behalf of the Corporations and one or more Sellers, at the
Sellers' expense, any counterclaims in any litigation brought by a third party
against a Seller, Practice or Corporation, provided that such Sellers provide
indemnification of such Corporation and other "Indemnified Persons" in respect
thereof in accordance with the provisions of Section 8 hereinbelow. In such
event, the Corporation will assign any recovery (net of expenses) on such
counterclaim to such Seller.
7.13 REFUND OF MALPRACTICE PREMIUMS In the event that following
Closing any Corporation shall receive a refund of a malpractice insurance
premium paid by a Practice prior to Closing for a period after Closing, such
Corporation shall return to the appropriate Seller such refund provided that if
the prepaid premium were not treated as an asset for the purpose of the net
worth requirement of Section 5.16 the test would have been satisfied.
SECTION 8. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
8.1 NATURE AND SURVIVAL. All statements contained in this
Agreement or in any Exhibit attached hereto, any agreement executed pursuant
hereto, and any certificate executed and delivered by any party pursuant to the
terms of this Agreement, shall constitute representations and warranties: (a) of
all Sellers, jointly and severally, as they relate to PDI; (b) of all ENT
Sellers, jointly and severally, as they relate to ENT Sellers, ENT Medical
Practice or ENT Corporation; (c) of ALB Seller, as they relate to ALB Seller,
ALB Medical Practice or ALB Corporation; (d) of CEA Seller, as they relate to
CEA Seller, CEA Medical Practice or CEA Corporation; (e) of all RGSS Sellers,
jointly and severally, as they relate to RGSS Sellers, RGSS Medical Practice or
RGSS Corporation; (f) of RH Seller, as they relate to RH Seller, RH Medical
Practice RH-1 Corporation or RH Corporation; (g) of all LIA Sellers, jointly and
severally, as they relate to LIA Sellers, LIA Medical Practice or LIA
Corporation; or (h) of PSC and Parent, jointly and severally, as they relate to
PSC or Parent. All such representations and warranties
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and all representations and warranties expressly labeled as such in this
Agreement shall survive the date of this Agreement and the Closing Date for a
period of five (5) years. Notwithstanding the foregoing, the representations and
warranties set forth in Sections 2.21, 2.25, 2.26, 2.27, 2.28, 2.29 and 2.30 and
3.6 and 3.7 shall survive the date of this Agreement and the Closing Date for
the greater of (i) a period of five (5) years, or (ii) until the expiration of
all applicable statutory periods of limitation with respect to the subject
matter of such respective Sections (after giving effect to any waiver,
mitigation or extension of any such statutory periods of limitations). Any claim
for indemnification for breach of a representation or warranty shall be deemed
waived if not asserted within the applicable survival period.
8.2 INDEMNIFICATION BY PSC AND PARENT. PSC and Parent, jointly and
severally, (for purposes of this Section 8.2 and, to the extent applicable,
Section 8.4, "Indemnitor"), shall indemnify and hold Sellers, and their
respective agents, employees, legal representatives, successors and assigns
(each of the foregoing, including Sellers, for purposes of this Section 8.2 and,
to the extent applicable, Section 8.4, an "Indemnified Person"), harmless from
and against any and all liabilities, losses, claims, damages, actions, suits,
costs, deficiencies and expenses (including, but not limited to, reasonable fees
and disbursements of counsel through appeal) arising from or by reason of or
resulting from any breach by Indemnitor of any representation, warranty,
agreement or covenant made by Indemnitor contained in this Agreement (including
the Exhibits hereto).
8.3 INDEMNIFICATION BY SELLERS.
(a) Indemnification with respect to PDI. Sellers (for purposes
of this Section 8.3(a) and, to the extent applicable, Section 8.4,
"Indemnitor"), shall jointly and severally indemnify and hold Parent,
PSC, PSC Management and their respective officers, directors,
shareholders, affiliates, agents, employees, legal representatives,
successors and assigns (each of the foregoing, for purposes of this
Section 8.3 and, to the extent applicable, Section 8.4, an "Indemnified
Person") harmless from and against any and all liabilities, losses,
claims, damages, actions, suits, costs, deficiencies and expenses
(including, but not limited to, reasonable fees and disbursements of
counsel through appeal), (i) arising from or by reason of or resulting
from any breach by Indemnitor (or any of them) of any representation,
warranty or covenant contained in this Agreement (including the
Exhibits hereto) with respect to PDI, it being understood and agreed
that for purposes of this Section 8.3(a) and, to the extent applicable,
Section 8.4, all representations and warranties of the Indemnitor shall
be construed by disregarding and giving no effect whatsoever to any and
all knowledge qualifications or limitations (such as "to Sellers' best
knowledge" or "to their knowledge") as if such knowledge qualifications
or limitations were stricken from such representations and warranties,
and (ii) arising out of or with respect to all liabilities of PDI,
known or unknown, fixed or contingent, other than the PDI Bank Debt to
be discharged at Closing, whether now existing or hereafter arising,
and any and all taxes at any time owed by PDI.
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(b) Indemnification with respect to the ENT Medical Practice.
The ENT Sellers (for purposes of this Section 8.3(b) and, to the extent
applicable, Section 8.4, "Indemnitor") shall jointly and severally
indemnify and hold PSC, Parent, ENT Corporation and any other
Indemnified Person harmless from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies, and
expenses (including, but not limited to, reasonable fees and
disbursements of counsel through appeal) (i) arising from or by reason
of or resulting from any breach by Indemnitor (or any of them) of any
representation, warranty or covenant contained in this Agreement
(including the Exhibits hereto) with respect to the Indemnitor, ENT
Medical Practice or ENT Corporation, it being understood and agreed
that for the purposes of this Section 8.3(b) and, to the extent
applicable, 8.4, all representations and warranties of the Indemnitor
shall be construed by disregarding and giving no effect whatsoever to
any and all knowledge qualifications or limitations (such as "to
Sellers' best knowledge" or "to their knowledge") as if such knowledge
qualifications or limitations were stricken from such representations
and warranties, and (ii) arising out of or with respect to any
liabilities of the Indemnitor, ENT Medical Practice or ENT Corporation,
known or unknown, fixed or contingent (other than the ENT Bank Debt to
be discharged at Closing pursuant to Section 1.1) whatsoever existing
at or prior to Closing, and (iii) for or with respect to taxes of ENT
Medical Practice for any period or periods ending on or prior to the
Closing Date, and (iv) arising out of or resulting from any events or
acts occurring on or prior to the Closing Date in the ENT Medical
Practice, including, but not limited to, any alleged act of negligence
of Indemnitor (or any of them) or any employees, agents, and
independent contractors, of the ENT Practice or the ENT Corporation.
(c) Indemnification with respect to the ALB Medical Practice.
The ALB Seller (for purposes of this Section 8.3(c) and, to the extent
applicable, Section 8.4, "Indemnitor") shall jointly and severally
indemnify and hold PSC, Parent, ALB Corporation and any other
Indemnified Person harmless from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies, and
expenses (including, but not limited to, reasonable fees and
disbursements of counsel through appeal) (i) arising from or by reason
of or resulting from any breach by Indemnitor of any representation,
warranty or covenant contained in this Agreement (including the
Exhibits hereto) with respect to the Indemnitor, ALB Medical Practice
or ALB Corporation, it being understood and agreed that for the
purposes of this Section 8.3(c) and, to the extent applicable, 8.4, all
representations and warranties of the Indemnitor shall be construed by
disregarding and giving no effect whatsoever to any and all knowledge
qualifications or limitations (such as "to Seller's best knowledge" or
"to his knowledge") as if such knowledge qualifications or limitations
were stricken from such representations and warranties, and (ii)
arising out of or with respect to any liabilities of the Indemnitor,
ALB Medical Practice or ALB Corporation, known or unknown, fixed or
contingent, whatsoever existing at or prior to Closing, and (iii) for
or with respect to taxes of ALB Medical Practice for any period or
periods ending on or prior to the Closing Date, and (iv) arising out of
or resulting from any events or acts occurring on or prior to the
Closing Date in the ALB Medical Practice, including, but not limited
to, any alleged act of negligence of the Indemnitor or any employees,
agents, and independent contractors, of the ALB Medical Practice or the
ALB Corporation.
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(d) Indemnification with respect to the CEA Medical Practice.
The CEA Seller (for purposes of this Section 8.3(d) and, to the extent
applicable, Section 8.4, "Indemnitor") shall jointly and severally
indemnify and hold PSC, Parent, CEA Corporation and any other
Indemnified Person harmless from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies, and
expenses (including, but not limited to, reasonable fees and
disbursements of counsel through appeal) (i) arising from or by reason
of or resulting from any breach by Indemnitor of any representation,
warranty or covenant contained in this Agreement (including the
Exhibits hereto) with respect to the Indemnitor, CEA Medical Practice
or CEA Corporation, it being understood and agreed that for the
purposes of this Section 8.3(d) and, to the extent applicable, 8.4, all
representations and warranties of the Indemnitor shall be construed by
disregarding and giving no effect whatsoever to any and all knowledge
qualifications or limitations (such as "to Seller's best knowledge" or
"to his knowledge") as if such knowledge qualifications or limitations
were stricken from such representations and warranties, and (ii)
arising out of or with respect to any liabilities of the Indemnitor,
CEA Medical Practice or CEA Corporation, known or unknown, fixed or
contingent, whatsoever existing at or prior to Closing, and (iii) for
or with respect to taxes of CEA Medical Practice for any period or
periods ending on or prior to the Closing Date, and (iv) arising out of
or resulting from any events or acts occurring on or prior to the
Closing Date in the CEA Medical Practice, including, but not limited
to, any alleged act of negligence of the Indemnitor or any employees,
agents, and independent contractors, of the CEA Practice or the CEA
Corporation.
(e) Indemnification with respect to the RGSS Medical Practice.
The RGSS Sellers (for purposes of this Section 8.3(e) and, to the
extent applicable, Section 8.4, "Indemnitor") shall jointly and
severally indemnify and hold PSC, Parent, RGSS Corporation and any
other Indemnified Person harmless from and against any and all
liabilities, losses, claims, damages, actions, suits, costs,
deficiencies, and expenses (including, but not limited to, reasonable
fees and disbursements of counsel through appeal) (i) arising from or
by reason of or resulting from any breach by Indemnitor (or any of
them) of any representation, warranty or covenant contained in this
Agreement (including the Exhibits hereto) with respect to the
Indemnitor, RGSS Medical Practice or RGSS Corporation, it being
understood and agreed that for the purposes of this Section 8.3(e) and,
to the extent applicable, 8.4, all representations and warranties of
the Indemnitor shall be construed by disregarding and giving no effect
whatsoever to any and all knowledge qualifications or limitations (such
as "to Sellers' best knowledge" or "to their knowledge") as if such
knowledge qualifications or limitations were stricken from such
representations and warranties, and (ii) arising out of or with respect
to any liabilities of the Indemnitor, RGSS Medical Practice or RGSS
Corporation, known or unknown, fixed or contingent, whatsoever existing
at or prior to Closing, and (iii) for or with respect to taxes of RGSS
Medical Practice for any period or periods ending on or prior to the
Closing Date and (iv) arising out of or resulting from any events or
acts occurring on or prior to the Closing Date in the RGSS Medical
Practice, including, but not limited to, any alleged act of negligence
of Indemnitor (or any of them) or any employees, agents, and
independent contractors, of the RGSS Practice or the RGSS Corporation.
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(f) Indemnification with respect to the RH Medical Practice.
The RH Seller (for purposes of this Section 8.3(f) and, to the extent
applicable, Section 8.4, "Indemnitor") shall jointly and severally
indemnify and hold PSC, Parent, RH Corporation and any other
Indemnified Person harmless from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies, and
expenses (including, but not limited to, reasonable fees and
disbursements of counsel through appeal) (i) arising from or by reason
of or resulting from any breach by Indemnitor of any representation,
warranty or covenant contained in this Agreement (including the
Exhibits hereto) with respect to the Indemnitor, RH Medical Practice or
RH Corporation, it being understood and agreed that for the purposes of
this Section 8.3(f) and, to the extent applicable, 8.4, all
representations and warranties of the Indemnitor shall be construed by
disregarding and giving no effect whatsoever to any and all knowledge
qualifications or limitations (such as "to Seller's best knowledge" or
"to his knowledge") as if such knowledge qualifications or limitations
were stricken from such representations and warranties, and (ii)
arising out of or with respect to any liabilities of the Indemnitor, RH
Medical Practice or RH Corporation, known or unknown, fixed or
contingent, whatsoever existing at or prior to Closing, and (iii) for
or with respect to taxes of RH Medical Practice for any period or
periods ending on or prior to the Closing Date and (iv) arising out of
or resulting from any events or acts occurring on or prior to the
Closing Date in the RH Medical Practice, including, but not limited to,
any alleged act of negligence of the Indemnitor or any employees,
agents, and independent contractors, of the RH Practice or the RH
Corporation.
(g) Indemnification with respect to the LIA Medical Practice.
The LIA Sellers (for purposes of this Section 8.3(g) and, to the extent
applicable, Section 8.4, "Indemnitor") shall jointly and severally
indemnify and hold PSC, Parent, LIA Corporation and any other
Indemnified Person harmless from and against any and all liabilities,
losses, claims, damages, actions, suits, costs, deficiencies, and
expenses (including, but not limited to, reasonable fees and
disbursements of counsel through appeal) (i) arising from or by reason
of or resulting from any breach by Indemnitor (or any of them) of any
representation, warranty or covenant contained in this Agreement
(including the Exhibits hereto) with respect to the Indemnitor, LIA
Medical Practice or LIA Corporation, it being understood and agreed
that for the purposes of this Section 8.3(g) and, to the extent
applicable, 8.4, all representations and warranties of the Indemnitor
shall be construed by disregarding and giving no effect whatsoever to
any and all knowledge qualifications or limitations (such as "to
Sellers' best knowledge" or "to their knowledge") as if such knowledge
qualifications or limitations were stricken from such representations
and warranties, and (ii) arising out of or with respect to any
liabilities of the Indemnitor, LIA Medical Practice or LIA Corporation,
known or unknown, fixed or contingent, whatsoever existing at or prior
to Closing, and (iii) for or with respect to taxes of LIA Medical
Practice for any period or periods ending on or prior to the Closing
Date and (iv) arising out of or resulting from any events or acts
occurring
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on or prior to the Closing Date in the LIA Medical Practice, including,
but not limited to, any alleged act of negligence of Indemnitor (or any
of them) or any employees, agents, and independent contractors, of the
LIA Practice or the LIA Corporation.
8.4 INDEMNIFICATION PROCEDURE.
(a) Within 30 days after Indemnified Person receives written
notice of the commencement of any action or other proceeding, or
otherwise becomes aware of any claim or other circumstance, in respect
of which indemnification or reimbursement may be sought under Section
8.2 or Section 8.3, such Indemnified Person shall notify Indemnitor
thereof in a writing which encloses a copy of any relevant pleadings or
written notice of claim served upon the Indemnified Person. Any failure
to provide such notice shall not affect an Indemnitor's obligation to
provide indemnification hereunder except to the extent of actual
prejudice suffered from such failure to provide notice. If any such
action or other proceeding shall be brought against any Indemnified
Person, Indemnitor shall 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
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, or (c) injunctive or criminal relief is
sought, or (d) such action or proceeding threatens loss of or adverse
effect on the Indemnified Person's license to practice medicine or to
participate in government or third party payor reimbursement programs
or loss of hospital privileges; 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 and does not provide for any
non-monetary relief or remedy against such Indemnified Person.
(b) If the Indemnitor fails to defend any action or proceeding
hereunder, or having commenced to defend such action or proceeding
hereunder, fails to continue such defense, the Indemnified Person may
conduct the defense of any such action or proceeding, subject to its
right of indemnification hereunder, and any settlement, compromise or
final judgment made or entered into in connection with such action or
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proceeding shall be binding upon the Indemnitor as fully as though such
Indemnitor had conducted such defense as required hereby.
(c) The Indemnified Person shall cooperate fully with the
Indemnitor in connection with the litigation, arbitration, contest,
compromise and settlement of all actions and proceedings hereunder and
shall make available to Indemnitor and its agents all books, records
and other information reasonably necessary to defend, settle and
investigate such actions and proceedings, provided that at the expense
of Indemnitor an appropriate protective order for any confidential or
proprietary information shall be sought in any such proceeding at the
request of Indemnified Person.
(d) The procedure set within this Section 8.4 shall be
applicable to third party claims against an Indemnified Person if such
Indemnified Person seeks indemnification hereunder or asserts a claim
for damages based on breach of covenant, representation or warranty
hereunder with respect to the underlying event.
8.5 LIMITATIONS UPON OBLIGATIONS.
(a) Anything in this Section 8 to the contrary
notwithstanding, it is expressly acknowledged and agreed that no
payment shall be made hereunder by PSC, PSC Management or Parent
(individually and collectively a "Parent Party") to Sellers or any
other Indemnified Person described in Section 8.2 or, by a Seller or
Sellers to a Parent Party or any other Indemnified Person described in
Section 8.3, on claims for indemnification under Sections 8.2 or 8.3 or
based on breach of any covenant, representation or warranty, until the
aggregate of all such claims against Sellers under Section 8.3, or
against a Parent Party under Section 8.2, shall exceed $10,000, in
which event the Indemnified Person or Persons holding such claim shall
be entitled to indemnification or to damages with respect to all
amounts in excess of such $10,000.
(b) The amount of the Indemnitor's liability under this
Article 8 or for breach of representation or warranty shall be
determined taking into account any applicable insurance proceeds
actually received by the Indemnified Person with respect to the
underlying event that triggers the indemnification obligation.
(c) OTHER THAN FOR CLAIMS BASED ON FRAUD, WILLFUL MISCONDUCT
OR BAD FAITH, NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY UNDER ANY
PROVISION OF THIS AGREEMENT FOR INDIRECT, PUNITIVE OR CONSEQUENTIAL
LOSSES OR DAMAGES (INCLUDING ANY LOSS OF REVENUE OR PROFIT) ARISING OUT
OF THIS AGREEMENT.
8.6 RIGHT TO OFFSET.
(a) Subject to the limitations set forth in Section 8.5 and
this Section 8.6, in the event that following the Closing a Parent
Party (or an Indemnified Person defined in
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Section 8.3) has a claim for indemnification against a Seller under
Section 8.3 (a "PSC Claim"), which either (A) remains unpaid for more
than ten (10) days after it has been "finally resolved" (as defined
below), or (B) results from damage suffered by a Parent Party (or an
Indemnified Person defined in Section 8.3) without a claim being
asserted by a third party, then such Parent Party may, upon not less
than ten (10) days written notice (an "Offset Notice") to such Seller,
elect to offset an amount equal to the damages suffered by such Parent
Party (or an Indemnified Person defined in Section 8.3) as a result of
such PSC Claim, against
(i) the portion of any amounts payable under the
PSC Debenture or Guaranty to the Paying Agent on behalf of
such Seller, as determined by multiplying (1) the percentage
set forth next to such Seller's name on Exhibit 8.6 by (2) the
amount of the payment then due and payable under the PSC
Debenture or Guaranty;
(ii) any other amounts owed to such Seller pursuant
to this Agreement; and/or
(iii) the portion of any amounts due or owing by
Parent or PSC Management to New York NewCo or New Jersey NewCo
pursuant to Section 5.1(a) of the applicable MSA that is
attributable to such Seller, as determined by multiplying (1)
the percentage set forth next to such Seller's name on Exhibit
8.6 by (2) the "Amounts Available for Offset" (as defined in
Section 5.1(b) of each MSA) of the MSA with the NewCo which
employs such Seller, subject to the limitations contained in
Section 5.1(b) of the MSA with the NewCo which employs such
Seller;
(b) Notwithstanding anything contained in this Section
8.6 to the contrary, if a PSC Claim arises from the claim of a third
party and such claim has not been "finally resolved" (as defined
below), and Seller notifies the Parent Party (or an Indemnified Person
defined in Section 8.3) asserting the claim for indemnification and
offset within ten (10) days after receipt of the Offset Notice that
such Seller objects to the exercise of such right of offset and elects
to undertake the defense of such PSC Claim in accordance with the
provisions of Article 8.4 (including payment of attorney's fees, court
costs and the cost of posting any bond required during the litigation,
arbitration or other adjudication of the claim and any appeal thereof),
then no Parent Party or other Person shall be entitled to offset any
amount with respect to such PSC Claim against any moneys owing to any
Seller under the PSC Debenture, Guaranty, either MSA or any other
agreement until such PSC Claim is "finally resolved".
If the Seller against whom the PSC Claim is asserted does not
notify the Parent Party who sent the Offset Notice that he objects to
the right of offset within such ten (10) day period, or having assumed
the defense of the PSC Claim, fails to continue such defense in
accordance with this Article 8, Seller shall be deemed to have waived
any
38
<PAGE> 44
objection thereto and the Parent Party shall be free to exercise such
offset as provided in Section 8.6(a).
(c) For purposes hereof, a PSC Claim shall be deemed to be
"finally resolved" upon (1) the final determination of a court,
arbitrator or regulatory or other governmental authority having
jurisdiction which is subject to no further appeal, or (2) the
settlement or compromise of the PSC Claim, or consent thereto, by such
Seller.
(d) Each "Offset Notice" (other than pursuant to Section 7.7)
shall specify (i) the basis for asserting the offset, (ii) the amount
of the offset and the method used to calculate such amount, and (iii) a
copy of any pleadings, or written notice of claim served upon the
Parent Party or other Indemnified Person evidencing the factual dispute
underlying such PSC Claim.
(e) Any dispute as to the exercise of a right of offset by a
Parent Party with respect to a PSC Claim shall be determined in
accordance with Section 10.20 hereinbelow.
SECTION 9. TERMINATION.
9.1 RIGHT TO TERMINATE. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by the mutual written consent of Parent, PSC and Sellers;
(b) by either PSC, Parent or Sellers upon prior written notice
to the other party
(i) if any court or governmental or regulatory agency,
authority or body shall have enacted, promulgated or issued
any statute, rule, regulation, ruling, writ or injunction, or
taken any other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and all
appeals and means of appeal therefrom have been exhausted; or
(ii) if the Closing shall not have occurred on or before
May 31, 1998 or such later date as the parties may agree to;
provided, however, that the right to terminate this Agreement
pursuant to this Section 9.1(b)(ii) shall not be available to
any party whose breach of any representation or warranty or
failure to perform or comply with any obligation or condition
under this Agreement has been the cause of, or resulted in,
the failure of the Closing to occur on or before such date;
(c) by PSC or Parent, upon prior written notice to Sellers, if
any of the conditions specified in Section 5 have not been met, or
waived in writing by Parent, prior to June 1, 1998 (or any extension
thereof agreed upon by the parties in writing);
39
<PAGE> 45
(d) by Sellers, upon prior written notice to Parent, if any of
the conditions specified in Section 6 shall not have been met, or
waived in writing by Sellers, prior to June 1, 1998 (or any extension
thereof agreed upon by the parties in writing).
9.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement pursuant to
this Section 9, this Agreement shall forthwith become null and void and
there shall be no liability on the part of any of the parties hereto or
their respective officers, directors or affiliates with respect to this
Agreement, except as provided in 9.2(b) and 9.2(c) below, and except as
may arise under Sections 1.6, 2.22, 3.3, and 7.5 which shall remain in
full force and effect in accordance with their terms after any such
termination of this Agreement.
(b) If the transactions contemplated by this Agreement are not
consummated on or before June 1, 1998, for any reason other than (i)
the Sellers' decision not to proceed with the transactions due to a
Material Adverse Change in the financial condition of Parent since
December 31, 1997, (ii) Parent's decision not to proceed with the
transactions as a result of its due diligence unless such decision is
due to the current per annum revenue "run rate" from all Practices
being less than $23,350,000 in the aggregate measured on an accrual
basis, or (iii) the inability of Parent to obtain the consent of its
senior lender, NationsBank, to this Agreement, in accordance with the
provisions of Section 6.9, Sellers, jointly and severally, agree to pay
Parent upon demand a "break-up" fee equal to $250,000, which shall
constitute Sellers' total liability to PSC and Parent for damages and
PSC and Parent shall have no right to other damages, specific
performance or equitable relief as a result of any breach by Sellers of
their obligations under this Agreement, which rights are hereby
expressly waived. Notwithstanding the foregoing, no break-up fee shall
be payable by Sellers to PSC or Parent if an alternative transaction,
as contemplated by that certain letter agreement between Parent and
certain of the Sellers dated March 26, 1998 (the terms of which are
hereby incorporated by reference), is consummated on or before June 1,
1998.
(c) In the event that all conditions precedent specified in
Section 5 to PSC's and Parent's obligation to consummate the
transactions contemplated by this Agreement have been satisfied in
full, and Parent and PSC nevertheless refuse to consummate the
transactions contemplated by this Agreement in breach hereof, PSC and
Parent jointly and severally agree to pay Sellers a break-up fee of
$250,000 which break-up fee shall constitute PSC's, PSC Management's
and Parent's total liability to Sellers for damages for breach of this
Agreement, and Sellers shall have no rights to other damages, specific
performance or equitable relief, which are hereby waived.
40
<PAGE> 46
SECTION 10. MISCELLANEOUS.
10.1 NOTICES. Any communications required or desired to be given
hereunder shall be deemed to have been properly given if sent by hand delivery,
or by facsimile and reputable overnight courier, to the parties hereto at the
following addresses, or at such other address as either party may advise the
other in writing from time to time:
If to Parent or PSC:
PHYSICIANS SPECIALTY CORP.
1150 Lake Hearn Drive, Suite 640
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 256-1078
Telephone: (404) 256-7535
with a copy of each notice directed to PSC or Parent to:
Richard H. Brody, Esq.
Troutman Sanders LLP
5200 NationsBank Plaza
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Facsimile: (404) 885-3995
Telephone: (404) 885-3109
If to any Seller:
To Such Seller
c/o Steven Sacks, M.D.
1035 5th Avenue
New York, N.Y. 10028
with a copy to:
Joel Lever, Esq.
Kurzman & Eisenberg, LLP
One North Broadway, 10th Floor
White Plains, New York 10601
Facsimile: (914) 285-9855
Telephone: (914) 285-9800
If to the Paying Agent:
[address to be provided
by Sellers in writing
prior to the Closing]
41
<PAGE> 47
All such communications shall be deemed to have been delivered on the date of
delivery or on the next business day following the deposit of such
communications with the overnight courier. Any party may change the address to
which notices are to be sent to such party by delivering written notice of such
change in accordance with the provisions of this Section 10.1.
10.2 FURTHER ASSURANCES. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement. Sellers and the
Corporations will execute and deliver from time to time thereafter, at the
request of PSC, all such further instruments of conveyance, assignment and
further assurance as may reasonably be required in order to vest in and confirm
to PSC each of Seller's right, title and interest in and to the Shares.
10.3 PUBLIC DISCLOSURES. Except as otherwise required by law, no
party to this Agreement shall make any public or other disclosure of this
Agreement or the transactions contemplated hereby without the prior consent of
the other parties. The parties to this Agreement shall cooperate with respect to
the form and content of any such disclosures.
10.4 GOVERNING LAW. This Agreement shall be interpreted, construed
and enforced in accordance with the laws of the State of New York, applied
without giving effect to any conflict-of-laws principles.
10.5 "INCLUDING". The word "including," when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation," "but not limited to" or words of similar
import) is used with reference to the word "including" or the similar items or
matters, but rather shall be deemed to refer to all other items or matters that
could reasonably fall with the broadest possible scope of the general statement,
term or matter.
10.6 "KNOWLEDGE". "To the knowledge," "to the best knowledge,
information and belief" or any similar phrase, shall be deemed to include the
actual knowledge of the party making the representation and any information that
such party should have known after reasonable investigation, unless otherwise
expressly provided. Unless otherwise expressly provided herein, each Seller
shall be deemed to have knowledge of any facts known to the other Sellers of
such Sellers' respective Corporation or Practice. PSC and Parent shall be deemed
to have knowledge of each other and of PSC Management. Unless otherwise
expressly provided herein, any entity shall be deemed to have knowledge of any
facts known to its officers and directors.
10.7 "MATERIAL". An individual claim, obligation or liability shall
be deemed to be "material" if the amount thereof exceeds $5,000 or involves the
violation of any applicable federal, state or local statute, rule or regulation.
A contract or lease shall be deemed to be material if it requires a single
payment in excess of $5,000 or payment for any future 12-month period in excess
of $5,000, except that no contract for the acquisition of inventory items or
consumable supplies shall be deemed material unless such contract cannot be
terminated without
42
<PAGE> 48
cause by a Seller on not more than 30 days notice, or has, as of the Closing
Date, an amount payable with respect thereto of more than $5,000.
10.8 "MATERIAL ADVERSE CHANGE" OR "MATERIAL ADVERSE EFFECT".
"Material Adverse Change" or "Material Adverse Effect" means, when used in
connection with the parties to this Agreement, any change, effect, event or
occurrence that has, or is reasonably likely to have individually or in the
aggregate, a material adverse impact on the business or financial position of
such party and its subsidiaries taken as a whole; provided, however, that
"Material Adverse Change" and "Material Adverse Effect" shall be deemed to
exclude the impact of (i) changes in generally accepted accounting principles,
(ii) changes in law generally applicable to the industry, unless same materially
adversely affects reimbursement rules, and (iii) any changes resulting from any
restructuring or other similar charges or write-offs taken by Sellers or the
Corporations with the consent of PSC.
10.9 "HAZARDOUS MATERIALS". The term "Hazardous Materials" means any
material which is or may potentially be hazardous to the health or safety of
human or animal life or vegetation, regardless of whether such material is found
on or below the surface of the ground, in any surface or underground water,
airborne in ambient air or in the air inside any structure built or located upon
or below the surface of the ground or in building materials or in improvements
of any structures, or in any personal property located or used in any such
structure, including, but not limited to, all hazardous substances, imminently
hazardous substances, hazardous wastes, toxic substances, infectious wastes,
pollutants and contaminants from time to time defined, listed, identified,
designated or classified as such under any Environmental Laws (as defined in
Section 10.10) regardless of the quantity of any such material.
10.10 "ENVIRONMENTAL LAWS". The term "Environmental Laws" means any
federal, state or local statute, regulation, rule or ordinance, and any judicial
or administrative interpretation thereof, regulating the use, generation,
handling, storage, transportation, discharge, emission, spillage or other
release of Hazardous Materials or medical waste or relating to the protection of
the environment or the disposal of medical waste.
10.11 CAPTIONS. The captions or headings in this Agreement are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this
Agreement.
10.12 INTEGRATION OF EXHIBITS. All Exhibits attached to this
Agreement are integral parts of this Agreement as if fully set forth herein, and
all statements appearing therein shall be deemed disclosed for all purposes and
not only in connection with the specific representation in which they are
explicitly referenced.
10.13 ENTIRE AGREEMENT. This instrument, including all Exhibits
attached hereto, contains the entire agreement of the parties and supersedes any
and all prior or contemporaneous agreements between the parties, written or
oral, with respect to the transactions contemplated hereby. It may not be
changed or terminated orally, but may only be changed by an agreement in
43
<PAGE> 49
writing signed by the party or parties against whom enforcement of any waiver,
change, modification, extension, discharge or termination is sought.
10.14 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute and be one and the same
instrument.
10.15 BINDING EFFECT. This Agreement shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement.
10.16 NO RULE OF CONSTRUCTION. The parties acknowledge that this
Agreement was initially prepared by PSC and that all parties have read and
negotiated the language used in this Agreement. The parties agree that, because
all parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language in
favor of or against any party by reason of that party's role in drafting this
Agreement.
10.17 COSTS OF ENFORCEMENT. In the event that PSC, PSC Management or
Parent on the one hand, or Sellers, on the other hand, file suit in any court
against any other party to enforce the terms of this Agreement against the other
party or to obtain performance by it hereunder, the prevailing party will be
entitled to recover all reasonable out of pocket costs, including reasonable
attorneys' fees and court costs, 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" include those attorneys' fees
reasonably incurred in obtaining a judgment in favor of the prevailing party and
all appeals.
10.18 ASSIGNMENT. The parties also hereby agree that this Agreement
shall not be assigned or transferred by either party without the prior written
consent of the other; provided, however, that this Agreement may be assigned, by
PSC or Parent, in its sole discretion, to any parent or subsidiary of PSC or
Parent or to any party acquiring all or substantially all PSC's or Parent's
assets so long as such assignee assumes in writing all of the obligations of the
assigning party hereunder. Any such assignment shall not affect Parent's or
PSC's obligations hereunder or under any documents executed by Parent or PSC
pursuant to this Agreement. Notwithstanding the foregoing, all Sellers agree and
consent to each of Parent, PSC and PSC Management granting to their factor(s) or
lender(s) who provide senior debt financing to Parent or any of its affiliates
for their general corporate needs (whether one or more, the "Lender") a security
interest in all of their respective right, title, and interest in and under this
Agreement and the other documents, instruments and agreements executed by the
parties in connection with this Agreement as security for each of Parent's and
such affiliate's indebtedness and other obligations owing to the Lender, whether
now existing or hereafter arising or incurred.
10.19 PERIOD PRIOR TO CLOSING. In consideration of the substantial
expenditures of time, effort and expense to be undertaken by Parent and PSC in
connection with the negotiation of the
44
<PAGE> 50
Agreement, and the related due diligence investigations and reviews, each of the
Sellers severally undertakes and agrees that he or she shall not, and shall not
permit such Seller's Practice to, between the date of the execution of this
Agreement and prior to termination of this Agreement, directly or indirectly,
provide any information to, or enter into or conduct any discussions,
negotiations or transactions of a similar subject matter as the transactions
contemplated by this Agreement with, any other prospective purchaser or other
party, including without limitation any negotiations for a transaction relating
to any sale of any of the capital stock or substantially all the assets of the
Practices or Corporations, or for the entering into by the Practices or the
Sellers, or any of them, of a management services agreement with a physician
practice management company, other than as contemplated by this Agreement.
10.20 ARBITRATION. All disputes, controversies, differences or claims
arising out of, relating to or in connection with the exercise by Parent, PSC or
PSC Management of a right of offset pursuant to Section 7.7 or 8.6 of this
Agreement shall be finally settled by binding arbitration in New York, New York
pursuant to the arbitration rules of the American Arbitration Association.
Arbitration shall take place before one arbitrator appointed in accordance with
such rules. The governing law of the arbitration shall be the law of the State
of New York. Any award or decision rendered by the arbitrator shall clearly set
forth the factual and legal basis for such award or decision. Judgment on the
award or decision rendered by the arbitrator shall be nonappealable and
enforceable in any court having jurisdiction thereof. The costs of the
arbitration, including administrative, legal and arbitrator fees, shall be borne
by the losing party or according to the discretion of the arbitrator if the
parties disagree as to which party is the losing party under the award or
decision. Parent, PSC and PSC Management shall not be in breach or default of
their respective obligations under this Agreement, the PSC Debenture, Guaranty,
Security Agreement or either MSA by virtue of exercising any right of offset in
accordance with the procedure set forth in Section 7.7 or 8.6 of this Agreement
so long as any amounts that are offset but are found by the arbitrator to be due
and owing by Parent, PSC or PSC Management are paid to the Paying Agent not more
than ten (10) days after the rendering of the arbitration award or decision. Any
such arbitration award shall include interest at 6% per annum from the date of
any such wrongful offset on the amount which was wrongfully offset until the
date of the arbitration award. Any amounts not paid within such ten (10) day
period shall bear interest at the rate of interest announced or published from
time to time by NationsBank, N.A., plus four percent (4%) per annum from the
date of the award.
45
<PAGE> 51
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"PSC"
PSC ACQUISITION CORP.
By /s/ RICHARD D. BALLARD
--------------------------------
Title: Chief Executive Officer
--------------------------------
"PARENT"
PHYSICIANS' SPECIALTY CORP.
By: /s/ RICHARD D. BALLARD
--------------------------------
Title: Chief Executive Officer
--------------------------------
"SELLERS"
/s/ ANDREW BLANK, M.D.
--------------------------------------
ANDREW BLANK, M.D.
/s/ LEE EISENBERG, M.D.
--------------------------------------
LEE EISENBERG, M.D.
/s/ ROBERT GREEN, M.D.
--------------------------------------
ROBERT GREEN, M.D.
/s/ STEVEN SACKS, M.D.
--------------------------------------
STEVEN SACKS, M.D.
--------------------------------------
/s/ RICHARD HALBURG, M.D.
--------------------------------------
RICHARD HALBURG, M.D.
/s/ JOHN GROSSO, M.D.
--------------------------------------
JOHN GROSSO, M.D.
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
46
<PAGE> 52
\
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
/s/ JAY YOUNGERMAN, M.D.
--------------------------------------
JAY YOUNGERMAN, M.D.
/s/ HYMAN RYBACK, M.D.
--------------------------------------
HYMAN RYBACK, M.D.
/s/ WAYNE EISMAN, M.D.
--------------------------------------
WAYNE EISMAN, M.D.
/s/ DAN MOSKOWITZ, M.D.
--------------------------------------
DAN MOSKOWITZ, M.D.
/s/ RICHARD ROSENBERG, M.D.
--------------------------------------
RICHARD ROSENBERG, M.D.
/s/ GARY FISHMAN, M.D.
--------------------------------------
GARY FISHMAN, M.D.
/s/ MARIE VALDES, M.D.
--------------------------------------
MARIE VALDES, M.D.
/s/ FRANK SHECHTMAN, M.D.
--------------------------------------
FRANK SHECHTMAN, M.D.
/s/ MICHAEL BERGSTEIN, M.D.
--------------------------------------
MICHAEL BERGSTEIN, M.D.
/s/ STEVEN KASE, M.D.
--------------------------------------
STEVEN KASE, M.D.
47
<PAGE> 53
EXHIBIT 7.4 RESTRICTED TERRITORIES
<TABLE>
<CAPTION>
========================================================================================================================
SELLER PRACTICE LOCATION RESTRICTED TERRITORY
========================================================================================================================
<S> <C> <C>
Hyman Ryback, M.D. 79 East Post Road Territory within a ten (10) mile radius
Wayne Eisman, M.D. White Plains, NY 10601 of Practice Location
Dan Moskowitz, M.D.
Richard Rosenberg, M.D.
========================================================================================================================
Gary Fishman, M.D. The Barnes Information Center Territory within a ten (10) mile radius
Marie Valdez, M.D. Stoneleigh Avenue of Practice Location
Suite 116
Carmel, NY 10566
========================================================================================================================
Frank Shechtman, M.D. 170 Maple Avenue Territory within a ten (10) mile radius
White Plains, NY 10601 of Practice Location
========================================================================================================================
Michael Bergstein, M.D. _ 1983 Crompound Road Territory within a ten (10) mile radius
Suite 4 of Practice Location
Peekskill, NY 10566
, 220 South Broadway Territory within a ten (10) mile radius
Tarrytown, NY 10591 of Practice Location
========================================================================================================================
Steven Kase, M.D. 1 Old Mamaroneck Road Territory within a ten (10) mile radius
Suite 1B of Practice Location
White Plains, NY 10605
========================================================================================================================
Andrew Blank, M.D. 212-45 26th Avenue Territory within a six (6) mile radius
Suite 100 of Practice Location
Bayside, NY 11360
========================================================================================================================
Lee Eisenberg, M.D. 177 North Dean Street Territory within a ten (10) mile radius
Englewood, NJ 07631 of Practice Location
========================================================================================================================
Robert Green, M.D. 1035 5th Avenue Territory within a radius five avenues
Steven Sacks, M.D. New York, NY 10028 east and west and thirty blocks north
and south of Practice location
========================================================================================================================
Richard Hamburg, M.D. 257 Middle Country Road Territory within a ten (10) mile radius
Smithtown, NY 11707 of Practice Location
========================================================================================================================
John Grosso, M.D. 875 Old Country Road Territory within a ten (10) mile radius
Jay Youngerman, M.D. Suite 100 of Practice Location
Plainview, NY 11803
========================================================================================================================
</TABLE>
<PAGE> 54
EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.1A Form of Debenture
Exhibit 1.1B Form of Security Agreement
Exhibit 1.1C Discharged Debt
Exhibit 1.1E Allocation of Purchase Price Among Sellers
Exhibit 1.4 Employment Arrangements
Exhibit 1.5A Form of New York Management Services Agreement
Exhibit 1.5B Form of New Jersey Management Services Agreement
Exhibit 1.10 Consulting Agreement
Exhibit 2.1A-2.1F Addresses and Share Ownership of Seller and
Authorized and Issued Capital Stock of Corporations
Exhibit 2.2A-2.1F Certified Articles/Certificates of Incorporation and Bylaws
Exhibit 2.4A-2.4F Permits, Licenses and Governmental Authorizations
Exhibit 2.8A-2.8G December 31, 1997, 1996 and 1995 Financial Statements of Practices
Exhibit 2.9A-2.9F Liabilities not Disclosed in Financial Statements of Practices
Exhibit 2.10A-2.10G Leases
Exhibit 2.11A-2.11G Personal Property of Practices
Exhibit 2.13A-2.13F Principal Places of Business of Practices and PDI
Exhibit 2.15A-2.15G Intellectual Property Rights
Exhibit 2.16A-2.16G Directors and Officers of Practices; Payroll Information
Exhibit 2.17A-2.17G Legal Proceedings
Exhibit 2.18A-2.18G Contracts (Other than Leases)
Exhibit 2.19A-2.19G Subsequent Events
Exhibit 2.20A-2.20F Accounts Receivable of Practices
Exhibit 2.21A-2.21F Tax Returns of Practices for 1997, 1996 and 1995
Exhibit 2.24A-2.24F Insurance Policies of Practices
Exhibit 2.25A-2.25G Employee Benefit Plans
Exhibit 2.28A-2.28G Medicare, Medicaid and Other Third Party Payor Payment Liabilities
Exhibit 5.9 Form of Legal Opinion for Seller's Counsel
Exhibit 5.12A-5.18F Release of Liens
Exhibit 5.13 Option for Shares of New York NewCo
Exhibit 5.14 Option for Shares of New Jersey NewCo
Exhibit 5.18A-5.18F Form of Lease Assignment
Exhibit 6.10 Form of Legal Opinion of Parent's Counsel
Exhibit 7.4 Practice's Office Locations and Restricted Territory for Covenant Not to
Compete
Exhibit 8.6 Sellers' Respective Percentage Amounts for Purposes of Offset
</TABLE>
<PAGE> 1
EXHIBIT 10.47
MANAGEMENT SERVICES AGREEMENT
by and among
ENT Associates, LLP
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 PARTNERS.........................................................................................2
1.5 PRACTICE EMPLOYEES.........................................................................................2
1.6 PRACTICE EXPENSES..........................................................................................2
1.7 STATE......................................................................................................4
1.8 STOCK PURCHASE AGREEMENT...................................................................................4
SECTION 2. ADVISORY BOARD.........................................................................................4
2.1 FORMATION AND OPERATION OF THE ADVISORY BOARD..............................................................4
2.2 FUNCTIONS OF THE ADVISORY BOARD............................................................................5
SECTION 3. OBLIGATIONS OF MANAGER.................................................................................6
3.1 PROVISION OF SERVICES......................................................................................6
3.2 MEDICAL OFFICES............................................................................................6
3.3 FURNITURE, FIXTURES AND EQUIPMENT..........................................................................7
3.4 FINANCIAL PLANNING AND GOALS...............................................................................7
3.5 BUSINESS OFFICE SERVICES...................................................................................7
3.6 BILLING AND COLLECTIONS....................................................................................8
3.7 DEPOSIT OF NET PRACTICE REVENUES...........................................................................9
3.8 FINANCIAL REPORTS.........................................................................................10
3.9 SUPPORT SERVICES..........................................................................................10
3.10 ADMINISTRATOR............................................................................................10
3.11 PERSONNEL................................................................................................11
3.12 PROFESSIONAL SERVICES....................................................................................12
3.13 PATIENT AND FINANCIAL RECORDS............................................................................12
3.14 PHYSICIAN RECRUITMENT....................................................................................12
3.15 EXPANSION OF PRACTICE....................................................................................13
3.16 PERFORMANCE OF BUSINESS OFFICE SERVICES..................................................................13
3.17 FORCE MAJEURE............................................................................................13
3.18 PAYMENT OF PRACTICE EXPENSES AND MANAGEMENT FEE..........................................................13
3.19 BUDGETS..................................................................................................14
3.20 OTHER MANAGEMENT AGREEMENTS..............................................................................15
3.21 CONFIDENTIAL INFORMATION.................................................................................16
SECTION 4. OBLIGATIONS OF PRACTICE...............................................................................16
4.1 PHYSICIAN EXPENSES........................................................................................16
4.2 PROFESSIONAL STANDARDS....................................................................................16
4.3 PROVIDER AND PAYOR RELATIONSHIPS..........................................................................18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.4 PHYSICIAN CONTRACTS AND POWERS OF ATTORNEY................................................................18
4.5 RESTRICTIVE COVENANTS.....................................................................................19
4.6 PROFESSIONAL DUES AND EDUCATION EXPENSES..................................................................21
4.7 PROVISION OF SERVICES BY PRACTICE.........................................................................21
4.8 PHYSICIAN PARTNERSHIP AND EMPLOYMENT AGREEMENTS...........................................................22
SECTION 5. FINANCING MATTERS.....................................................................................22
5.1 MECHANICS OF TRANSFERS....................................................................................22
5.2 ASSIGNMENT OF SECURITY INTEREST...........................................................................23
5.3 MANAGEMENT FEES...........................................................................................24
SECTION 6. TERM AND TERMINATION..................................................................................25
6.1 TERM......................................................................................................25
6.2 TERMINATION...............................................................................................25
6.3 REMEDIES UPON TERMINATION.................................................................................28
6.4 REPURCHASE OF ASSETS......................................................................................28
6.5 EARLY TERMINATION OF AGREEMENT............................................................................29
SECTION 7. REPRESENTATIONS AND WARRANTIES........................................................................29
7.1 REPRESENTATIONS AND WARRANTIES OF PRACTICE................................................................29
7.2 REPRESENTATIONS AND WARRANTIES OF MANAGER.................................................................30
SECTION 8. INSURANCE AND INDEMNITY...............................................................................30
8.1 INSURANCE TO BE MAINTAINED BY PRACTICE....................................................................30
8.2 INDEMNIFICATION BY MANAGER................................................................................31
8.3 INDEMNIFICATION BY PRACTICE...............................................................................31
8.4 INDEMNIFICATION PROCEDURE.................................................................................31
8.5 KEY MAN INSURANCE.........................................................................................32
8.6 NO PUNITIVE OR CONSEQUENTIAL DAMAGES......................................................................32
SECTION 9. ASSIGNMENT............................................................................................32
SECTION 10. COMPLIANCE WITH REGULATIONS..........................................................................33
10.1 PRACTICE OF MEDICINE.....................................................................................33
10.2 SUBCONTRACTS.............................................................................................33
SECTION 11. INDEPENDENT RELATIONSHIP.............................................................................34
11.1 INDEPENDENT CONTRACTOR STATUS............................................................................34
11.2 REFERRAL ARRANGEMENTS....................................................................................35
SECTION 12. GUARANTEES...........................................................................................35
</TABLE>
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<TABLE>
<S> <C>
SECTION 13. NAME; LICENSE........................................................................................37
SECTION 14. MISCELLANEOUS........................................................................................37
14.1 NOTICES..................................................................................................37
14.2 ADDITIONAL ACTS..........................................................................................38
14.3 GOVERNING LAW............................................................................................38
14.4 CAPTIONS, ETC............................................................................................38
14.5 SEVERABILITY.............................................................................................38
14.6 MODIFICATIONS............................................................................................38
14.7 NO RULE OF CONSTRUCTION..................................................................................38
14.8 COUNTERPARTS.............................................................................................39
14.9 BINDING EFFECT...........................................................................................39
14.10 ENFORCEMENT RIGHTS......................................................................................39
14.11 ARBITRATION.............................................................................................39
14.12 COSTS OF ENFORCEMENT....................................................................................40
</TABLE>
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MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT, effective as of ____________, 1998 (the
"Effective Date"), by and among ENT ASSOCIATES, LLP, a New York professional
limited liability partnership (the "Practice"); PSC MANAGEMENT CORP., a Delaware
corporation ("Manager"); PHYSICIANS' SPECIALTY CORP., a Delaware corporation
("Parent"); and the PHYSICIAN PARTNERS who are signatories hereto for purposes
of Section 12(b) hereof.
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, Practices, 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 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> 6
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,
contractual allowances, 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 Partners, 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 or risk withhold
arrangements. The term "Net Practice Revenues" shall also include any ancillary
services (e.g., hearing aids) 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 PARTNERS. The term "Physician Partners" shall mean
those individuals who are duly licensed to practice medicine in the State and
who are partners 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 Partners), 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
direct expenses incurred in the operation of the medical practice of Practice at
the local central billing office serving the Practice (the "CBO") and at the
"Medical Offices" (as defined in Section 3.1), whether by Manager or by
Practice, including, but not limited to: (a) depreciation and amortization (as
hereinbelow provided), 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 Partners" (as defined in Section 1.4)); (b) rent and other
obligations under leases or subleases for the Medical Offices, CBO, off-site
storage and equipment used by Practice (including, but not limited to, all
leases acquired or assigned in connection with the acquisition of the shares
under the "Stock Purchase Agreement", as defined in Section 1.8); (c) personal
property taxes, use taxes and intangible taxes assessed against assets used by
Practice at a Medical Office or CBO; (d) charitable contributions budgeted and
approved by Manager and Practice; (e) interest expense on indebtedness of or
specifically related to the medical practice and/or expansion of Practice,
including, without limitation, interest expense in connection with capital
expenditures, provided
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if funded by Manager such interest charge will be at the same rate as Manager's
senior borrowing rate, (f) utility expenses relating to the CBO and Medical
Offices; (g) management fees as provided in Section 5.3 in payment for its
services and non-allocable costs incurred by Manager attributable to the
provision of management services; (h) expenses associated with the termination,
freezing or other administration of the "Corporation Plans" as defined in the
Stock Purchase Agreement; (i) other expenses incurred by Practice or Manager in
carrying out their respective obligations under this Agreement, except as
otherwise provided herein; (j) 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); (k) costs of employees and agents
providing personal services to particular Physician Partners or Practice
Employees; (l) any reserves reasonably deemed prudent by Advisory Board for
anticipated costs or expenses of the medical practice of Practice; (m) the cost
of the "Mediator" to the extent provided in Section 11.1(b) below; and (n)
50% of travel and travel related expenses for a period not to exceed six (6)
months following the commencement of service under this Agreement (the
"TransitionalPeriod") for employees of Manager's corporate office for work at
the CBO and Medical Offices in connection with the integration of Practice's
operational systems with and into Manager's operational systems.
For purposes of calculating the depreciation component of Practice
Expenses under subsection (a) above, the parties agree that (i) depreciation
shall be charged on a straight-line basis in accordance with GAAP over a
seven-year period in the amount of $2,250,000 [2,400,000-150,000 for New Jersey
MSA] with respect to the depreciable personal property on the books of the
"Corporations" when acquired under the Stock Purchase Agreement (including,
without limitation, assets acquired by any such Corporation from Physicians
Domain, Inc.), and (ii) depreciation with respect to capitalized items acquired
by Manager after the date of this Agreement pursuant to Section 3.3(b) and
depreciable property acquired pursuant to acquisition of assets of other
practices which merge into or with Practice after the date of this Agreement
shall be charged as Practice Expenses on a straight-line basis in accordance
with GAAP. For purposes of calculating the amortization component of Practice
Expenses under subsection (a) above, the parties agree that amortization shall
be charged on a straight-line basis in accordance with GAAP over a 25-year
period with respect to goodwill on the books of the Corporations when acquired
under the Stock Purchase Agreement, or on the books of any other corporations or
entities acquired after the date of this Agreement with respect to other
practices which merge into or with Practice.
The term "Practice Expenses" shall not include, among other things: (1)
any federal, state or local income or corporate franchise taxes of Manager, or
the costs of preparing federal, state or local tax returns; (2) any salaries or
benefits payable to Practice Employees or Physician Partners, 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 Partners; (4) costs of continuing professional education for
Practice Employees and Physician Partners; (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 Partners and Practice
Employees, and any liability judgments assessed against Practice, Practice
Employees or Physician Partners in excess of policy limits; (7) direct personal
expenses of Physician Partners
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<PAGE> 8
or Practice Employees of a kind which are customarily charged to Physician
Partners and Practice Employees (including, but not limited to, cellular phone
expenses, car allowances and like expenses); (8) capital expenditures except to
the extent of depreciation and amortization (computed as provided above); (9)
interest expense on or amortization of acquisition costs incurred by Parent or
its affiliates in connection with the acquisition of the Corporations pursuant
to the Stock Purchase Agreement; (10) interest expense on or amortization of
acquisition costs incurred by Parent or its affiliates in connection with the
acquisition of the non-medical assets of additional medical practices which are
subsequently merged with and into the Practice; (11) salaries and benefits of
CBO personnel (and related overhead) when performing services other than for
Practice as described in Section 3.10(d); (12) transition costs incurred by
Manager associated with the integration of Practice's operational systems with
and into Manager's operational systems during the Transition Period (with the
exception of 50% of travel and travel related expenses as described in
subsection (n) above; or (13) 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 annual budget period in excess of
120% of budgeted amounts (measured on an aggregate, not line item, basis) shall
be the sole obligation of Manager, unless incurrence of such expenses is
pursuant to an acquisition, expansion, addition or other item or service
approved by the Advisory Board described in Section 2.1 below or otherwise
approved or requested by Practice, in which event such expenses shall be deemed
proper. Approval of the Advisory Board or Practice of expenses in excess of
budgeted amounts shall not 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 New York,
which is where the medical practice of Practice is located.
1.8 STOCK PURCHASE AGREEMENT. The term "Stock Purchase Agreement"
shall mean that certain Stock Purchase Agreement dated ___________, 1998 by and
among Parent, PSC Acquisition Corp., and the Physician Partners.
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:
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(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 may recommend 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. Before any binding 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 subject to the Advisory
Board's approval and shall be based, in the reasonable judgment of Manager, upon
economic feasibility, physician support, productivity and then-current market
conditions.
(f) Provider and Payor Relationships. The Advisory Board shall
review and advise Manager and Practice with respect to the establishment or
maintenance of relationships with institutional healthcare providers and payors.
(g) Ancillary Services. The Advisory Board shall review and
make recommendations to Manager and Practice regarding the provision of
ancillary services based upon the pricing, access to and quality of such
services.
(h) Collection Policies. At least annually, the Advisory Board
shall, based upon recommendations by Manager and Practice, review and adopt
collection policies for the Practice.
(i) Advertising. The Advisory Board shall advise Practice with
respect to advertising and other marketing of services including design of
signage, logo and letterhead. All such advertising and marketing shall be in
accordance with Title 8 of Article 131 of the New York Education Law and Title
IIA of Article Two of the New York Public Health Law.
(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
5
<PAGE> 10
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 preparing, reviewing, revising and 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 Agreement (collectively "Management Services"). Manager
shall provide the Management Services at the medical offices leased by Manager
or its affiliate located at those locations set forth on Exhibit 3.1, as amended
from time to time to reflect such other place or places for offices as may be
agreed upon by Manager and Practice. 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 or its affiliate shall, subject to
Practice obtaining necessary consents, take assignment of and assume leases for
Medical Offices and facilities located at the locations described on Exhibit 3.1
and shall pay out of Net Practice Revenues or other sources 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 be responsible
for maintenance of the Medical Offices and FFE, as defined hereinafter, in good
repair, normal wear and tear excepted. Subject to Advisory Board approval of
subleases, if any, Practice shall be entitled to be the exclusive medical
provider at the Medical Offices. 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
6
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by the Practice and by the Manager in providing its services under this
Agreement to such Medical Office.
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 customarily required for the Practice and as are
determined by Manager, and approved by Practice, to be necessary and/or
appropriate for Practice's proper and effective 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 except as otherwise provided herein.
(b) Manager shall be responsible for, and pay for out of Net
Practice Revenues or other sources, all repairs, maintenance and replacement of
the FFE. However, repairs, replacements and new equipment, each of which costing
more than $500 will be capitalized, such that Manager shall fund same from its
own capital and charge to Practice as a Practice Expense depreciation of the
capital item on a straight line basis in accordance with GAAP and interest
expense related thereto at the interest rate charged by Manager's "Credit
Facility Lender".
3.4 FINANCIAL PLANNING AND GOALS. As provided in Section 3.19,
Manager will prepare, in consultation with Practice, annual capital and
operating budgets reflecting, in reasonable detail anticipated revenues,
expenses 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; provided that acceptance to participate in any or all
managed care contracts shall be decided by Practice.
(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 and subject to the capital budget, equipment and
FFE 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.
3.6 BILLING AND COLLECTIONS.
(a) Subject to the provisions of Section 3.6(b) below, Manager
shall, on behalf of Practice, bill and collect from third party 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 Partners and
Practice Employees, provided that Practice shall establish the fee schedule for
all physician and ancillary services and pharmaceutical and other (e.g., hearing
aids) items provided by Practice. Manager shall use reasonable diligence in its
efforts to collect professional fees consistent with industry practice. At its
sole cost and expense, the Practice shall have the right to periodically review
such billing procedures, and in accordance with the policies approved by the
Advisory Board, Manager will use reasonable judgment to settle and discount fees
in consultation with the Advisory Board. 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 third party payors, fiscal
intermediaries and 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 Partners' 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 Partners 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 Partners and
Practice Employees;
(iii) To place such accounts for collection, settle
and compromise claims, and institute legal action for the recovery of accounts
in accordance with policies adopted by the Advisory Board;
(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
Partners and Practice Employees, and Practice hereby covenants to forward such
payments to Manager for deposit;
(v) To receive payments from Medicare and Medicaid,
subject to the provisions of Section 3.6(b) below;
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(vi) To take possession of and endorse in the name
of Practice, or any Physician Partner or Practice Employee, any notes, checks,
money orders, insurance payments and any other instruments received by Practice
as payment of such accounts receivable (except Medicare and Medicaid accounts
receivable, which shall be received and accounted for in accordance with Section
3.6(b) below);
(vii) 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 encumbering
accounts receivable involving Medicare or Medicaid shall not be inconsistent
with applicable laws and regulations relating thereto); and
(viii) If requested, to sign checks on behalf of
Practice and make withdrawals from bank accounts maintained by Manager for
payments specified in this Agreement.
(b) All amounts received in payment of Medicare, Medicaid, and
CHAMPUS accounts receivable shall be deposited into an account in the name of
and controlled by Practice (the "Physician Deposit Account") with a bank whose
deposits are insured by the Federal Deposit Insurance Corporation. The Physician
Deposit Account shall at all times be maintained and funds withdrawn in
accordance with the provisions in the Billing Agreement for Governmental
Receivables of even date herewith between Manager, Practice and Physician
Partners in the form attached hereto as Exhibit 3.6(b) and made a part hereof
(the "Billing Agreement"). The Physician Deposit Account shall be maintained by
Manager solely for the purpose of collecting amounts in payment of Medicare,
Medicaid, and CHAMPUS accounts receivable of Practice unless otherwise expressly
agreed by Manager.
3.7 DEPOSIT OF NET PRACTICE REVENUES. During the term of this
Agreement, all Net Practice Revenues collected shall be received directly by
Practice at the Medical Offices, and each business day Practice will transfer
all collected Net Practice Revenues into a bank account as specifically directed
by Manager; provided that Medicare, Medicaid and CHAMPUS collections shall be
deposited into a separate bank account in the name of Practice as provided in
the Billing Agreement. Manager shall be the owner of the account (other than the
account under the Billing Agreement) and have the sole right to make daily
transfers to its operating or other account with its "Credit Facility Lender"
(as defined in Section 5.2(b)) and to make withdrawals to pay Practice Expenses
on a monthly basis. Manager will transfer pursuant to Section 5.1 an amount
equal to the excess of Net Practice Revenues over Practice Expenses by the 25th
day of each month with respect to the preceding calendar month to an account
designated by Practice from which Practice will pay Physician Expenses and for
any other purposes Practice may determine from time to time. Any funds in the
Physician Deposit Account which are not made available to Manager due to any
revocation of its authority under the Billing Agreement shall be deemed
delivered to Practice for purposes of this section. Manager shall maintain its
accounting records in such a way as to clearly segregate the deposit of Net
Practice Revenues and the payment of Practice Expenses and other transfers from
such deposit account 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 and mutually agreed upon to effectuate
the foregoing provisions and to extend or amend such documents and instructions.
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3.8 FINANCIAL REPORTS.
(a) Manager shall maintain the books and records of Manager in
accordance with GAAP with respect to the operations of Practice and prepare
financial reports that reflect the total gross revenues and Net Practice
Revenues generated by each Physician, by or on behalf of the medical practice of
Practice and all Practice Expenses and other charges, if any, paid or incurred
by Manager which are charged to the Practice as Practice Expenses. Manager shall
provide Practice with monthly financial reports showing Net Practice Revenues
and Practice Expenses by the 25th day of each month with respect to the prior
month and shall provide a year-end revenue and expense report showing Net
Practice Revenues and Practice Expenses for Practice within ninety (90) days
after the end of each calendar year. Each such report shall track Net Practice
Revenues by Physician and Practice Expenses by Medical Office.
(b) In the event that the Practice disputes the financial
reports, the Practice shall have the right to retain an independent accounting
firm of its choosing to review the reports and books and records related
thereto. In the event that the chosen accounting firm, in consultation with
Manager's auditors, determines that the expenses are overstated or the revenues
are understated by more than fifteen (15%) percent of the amounts set forth in
the revenue and expense reports prepared by Manager, then Manager shall bear the
costs of retaining the chosen accounting firm. In the event that Manager is not
responsible for the costs of the chosen accounting firm pursuant to the
preceding sentence, then the Practice shall cause the costs of such accounting
firm and Managers' auditors (solely as such costs relate to Practice's review)
to be borne by the Practice. Any amount of overstatement of expenses (whether
more or less than 15%) shall be repaid by Manager within ten (10) days after
such determination.
3.9 SUPPORT SERVICES. Manager shall provide all reasonable and
necessary secretarial, reception and clerical functions, including coordination
of patient visits and scheduling of patients, 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 may be required for the operation of the Practice in a manner
consistent with reasonable business practice at the office locations, as
determined by Manager after consultation with Practice.
3.10 ADMINISTRATOR. Manager shall provide an administrator located
in New York 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. The Practice, subject to Advisory Board
consent, shall have the right to require reassignment of the administrator if,
in its reasonable judgment, the administrator is not adequately performing the
required services. Selection of a successor administrator shall be subject to
Advisory Board approval.
3.11 PERSONNEL. Manager shall provide such non-physician personnel
as determined by Manager, after consultation with Practice, to be reasonably
necessary for the effective
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operation of the medical practice of Practice at the Medical Offices, subject,
however, to the following:
(a) Manager shall employ and/or provide to Practice all
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 non-physician medical support
personnel provided under this Section 3.11(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 and compatibility with a Medical Office, 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. If Practice
is dissatisfied with the services of any person, the Practice shall consult with
Manager. Manager shall in good faith determine whether the performance of that
employee could be brought to acceptable levels through counsel and assistance or
whether such employee should be terminated.
(b) Manager shall employ and 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 3.10 and this Section 3.11, Practice and Manager agree 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 CBO personnel providing
services 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. In the event
any such personnel performs services in a material respect (e.g. 10% of the
time) other than for the Practice (including non-practice related services for
Manager), their salaries and benefits will be prorated accordingly and all
related CBO overhead attributable thereto, including rent, utilities and
depreciation, shall be prorated on a reasonable basis.
(e) If Practice or Physician Partners request personal
secretarial, clerical, bookkeeping, or other non-physician medical support
personnel in addition to personnel
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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.
3.12 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 expansion and/or 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
or expansion 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. Subject to the budget and Advisory Board
approval, Manager shall assist the Practice in its strategic planning and
development. Any advertising approved by the Advisory Board shall be tasteful
and in compliance with applicable laws and regulations.
3.13 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") including
the requirements of any managed care or other agreements, 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 be
permitted to obtain at its request and expense, copies of patient and payor
billing records on electronic media as maintained by Manager. 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 at its expense. 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.
3.14 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 partners or employees of Practice (if such physicians are
hired as employees) and not of Manager. Any out-of-pocket 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 in any material way without Manager's prior written consent.
3.15 EXPANSION OF PRACTICE. Manager will evaluate proposals for
Practice regarding additions to office-based procedures and establishing new
satellite office(s) that are
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commercially reasonable and beneficial to Practice, as reasonably determined by
Practice and Manager to be beneficial to Practice. Subject to Advisory Board
approval, Manager will assist practice in attempting to add ancillary services
and establishing new satellite office(s). Manager will also evaluate for
Practice upon request proposals for relationships and affiliations with
physicians and other specialists, hospitals, networks, health maintenance
organizations and preferred provider organizations. Practice will be responsible
for contacting representatives of such affiliations, hospitals, networks, and
organizations and will not enter into any agreements with respect to any such
matters without prior notice to Manager. At Practice's request, Manager will
assist Practice, in contacting representatives of such affiliations, hospitals,
networks, and organizations.
3.16 PERFORMANCE OF BUSINESS OFFICE SERVICES. Subject to the
provisions of Sections 3.10 and 3.11, 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, so long as patient records remain
at the Medical Offices or off-site storage facilities that are approved by the
Advisory Board and are available for review by the Practice.
3.17 FORCE MAJEURE. Manager shall not be liable to Practice for
failure to perform any of the services required under this Agreement due to the
occurrence of an event over which Manager had or has no reasonable control,
including, but not limited to, strikes, lockouts, calamities, acts of God,
unavailability of supplies, fire, explosion, or other casualty, for so long as
such event continues and for a reasonable period of time thereafter. Manager
shall use reasonable efforts to provide services as soon thereafter as possible.
3.18 PAYMENT OF PRACTICE EXPENSES AND MANAGEMENT FEE. Manager shall
pay all Practice Expenses as they become due out of Net Practice Revenues or
otherwise; 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 (no such
dispute however, shall relieve Manager of its obligation to provide the
Management Services as agreed herein). If Practice or Manager is charged or
assessed any late charges, fees or interest as a result of failure to timely pay
any Practice Expenses, the payment of such charges, fees or interest shall be
the responsibility of the party which caused the payment of such Practice
Expenses to be untimely. Manager shall be entitled, on a monthly basis, to pay
itself from Net Practice Revenues the amount specified in Section 5.3 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.
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(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 calendar 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 revised 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 or provided comments or suggested
changes to the proposed 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 (iii) those items reasonably deemed medically necessary by Practice
shall be acquired. With respect to the initial budget for the balance of
calendar year 1998, Manager shall deliver a draft of the annual budget to the
Advisory Board within ninety (90) days of the date of this Agreement. If the
Advisory Board has not approved the budget for balance of 1998 within one
hundred twenty (120) days of the date of this Agreement, actual 1997 costs of
the Physician Partners' prior practices shall be deemed to be the "immediately
preceding budget period's budget" for purposes of this paragraph.
(b) The parties agree that the Manager shall have the
authority and discretion in its reasonable business judgment 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 and Manager's staffing
obligations under Sections 3.9 and 3.11 are not materially adversely affected.
(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
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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 reasonably determine.
3.20 OTHER MANAGEMENT AGREEMENTS. (a) Manager agrees that during
the initial twenty-four (24) months of the term of this Agreement, Manager will
not, directly or indirectly, enter into a management agreement to provide
substantially similar management services to those provided under this Agreement
to any other otolaryngology practice (hereinafter an "Other ENT Group") located
in a restricted geographical area ("Restricted Area") as set forth on Exhibit
3.20 hereto, unless Manager shall have first offered Practice the opportunity to
merge with or acquire such Other ENT Group and Practice shall not have notified
Manager within thirty (30) days after receipt of such written offer that
Practice desires to merge with or acquire such Other ENT Group; provided,
however, that Manager shall not be required to provide any right of first offer
to Practice if there shall have occurred and be continuing an event which, with
the giving of notice or lapse of time, or both, would constitute a "Practice
Event of Default" hereunder, unless such event shall be cured within 15 days
following written notice from Manager to Practice; and provided, further, that
Practice agrees that in the event it desires to accept any such first offer,
Practice and the Physician Partners will afford the individual physician
shareholders or partners in the Other ENT Group the same economic and voting
rights in Practice as are enjoyed by the Physician Partners. In the event
Practice notifies Manager within the aforesaid 30-day period that it desires to
merge with or acquire such Other ENT Group but subsequently notifies Manager
that it no longer wishes to proceed with such transaction, then Manager shall be
entitled to pursue such transaction. Any written offer provided to Practice
under this Section 3.20 shall include sufficient financial and other information
concerning such Other ENT Group as Practice may reasonably request in order to
make an informed judgment.
(b) Manager agrees that commencing with the 25th month of the
term of this Agreement and continuing until the end of the 60th month of the
term of this Agreement, Manager will provide notice to Practice at the time it
reaches a basic understanding as evidenced by a term sheet or discussion outline
of any potential management agreement between PSC and any Other ENT Group in the
Restricted Area and will not consummate any such transaction for at least 30
days after providing Practice with notice that it has reached such understanding
with any such other ENT Group. Such notice shall identify the Other ENT Group
and PSC's estimate of its revenue run rate and overhead percentage.
(c) All information provided to Practice under this Section
3.20 shall be considered to be confidential by Practice and afforded the same
protection as Manager Confidential Information under Section 4.5(e).
3.21 CONFIDENTIAL INFORMATION. Except as required to perform its
obligations under this Agreement, Manager shall not, without the express written
consent of Practice, distribute, market, publish, or divulge to any person or
entity, or use or modify for use, directly or indirectly, any "Practice
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; provided,
however, that Manager may disclose Practice Confidential Information, (i) to
Other ENT Groups which are potential acquisition partners under Section 3.20 as
approved by Practice or the Advisory Board,
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(ii) as required by law, governmental order or regulation, or by subpoena or
other legal process (provided Practice will be provided advance notice of such
disclosure in order to afford it the opportunity to seek an appropriate
protective order), (iii) in any litigation involving Practice, Manager or a
Physician Partner, and (iv) to Manager's lenders, financial advisors,
accountants, investment bankers, and attorneys. For purposes of this Agreement
"Practice Confidential Information" shall mean valuable, non-public
competitively sensitive data and information relating to Practice that is not
generally known by or readily available to competitors of Practice, including
payor and managed care contract fees and rates under exclusive arrangements of
Practice with third party payors, and Practice revenue and expense reports and
related financial information.
SECTION 4. OBLIGATIONS OF PRACTICE.
4.1 PHYSICIAN EXPENSES. Practice shall be solely responsible for
the payment, when due, of all costs and expenses ("Physician Expenses") incurred
in connection with Practice's operations that are not Practice Expenses and are
not enumerated under subsection 1, 8, 9, 10, 11, 12, or 13 of the third
paragraph of Section 1.6 (except as otherwise expressly provided in such
subsections), 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 Partners 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
Partners. 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 monthly, on the date such
amounts are payable, by cash transfer to Practice for all such salaries and
benefits and payroll taxes 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, if required, to practice medicine in the State. The professional
services provided by Practice and its Physician Partners 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 Partner 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,
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and Manager shall render administrative assistance to Practice on an
as-requested basis to assist Practice in designing, implementing and maintaining
such program.
(b) Practice shall at all times during the term of this
Agreement use its best efforts to assure that each physician employed by 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;
(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 New York 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;
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(xi) promptly disclose to Practice (i) the
commencement or pendency of any legal action, administrative proceeding or
investigation, medical staff or professional disciplinary actions against
Physician or (ii) the existence of any circumstances that could reasonably be
expected to form the basis of or lead to any such action, proceeding or
investigation;
(xii) abide by any guidelines adopted by Practice or
any person or entity providing management services to Practice designed to
encourage the appropriate, efficient and cost-effective delivery of medical
services, subject always to the clinical judgment of Physician, and cooperate
with and participate in all Practice programs regarding quality assurance,
utilization review, risk management and peer review;
(xiii) maintain appropriate and accurate medical
records in accordance with accepted medical standards and Practice policies with
respect to all patients evaluated and treated; and
(xiv) satisfy such other reasonable requirements as
are established from time to time by Practice.
4.3 PROVIDER AND PAYOR RELATIONSHIPS. Manager, upon request of
Practice, shall consult with Practice 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. Practice shall
not be required by Manager to sign up or contract with any particular provider
or payor.
4.4 PHYSICIAN CONTRACTS AND POWERS OF ATTORNEY. (a) During the
term of this Agreement, Practice shall maintain Physician Employment Agreements
substantially in the form of Exhibit A or Exhibit B hereto with all Physician
Partners and with other physician practitioners employed or otherwise retained
by Practice as Practice Employees substantially in the form of Exhibit C hereto.
(b) Practice shall require all Physician Partners 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 Partner and physician Practice Employee
for the purposes set forth in Section 3.6(a) 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 in which its Physician Partners and Practice Employees are in
private medical practice exclusively with Practice, either on a full-time or
part-time basis (to the extent part-time employment may be permitted under his
or her Physician Employment Agreement). Accordingly, Practice agrees that,
during the term of this Agreement, it shall not, without the prior written
consent of
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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 clinics and other healthcare facilities in a manner consistent
with past practices of Practice or, prior to the date hereof, the Physician
Partners.
(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 or other personnel employed by Manager (or who was employed
by 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
or other person and Manager. This restriction shall not include Practice
Employees employed at a Medical Office.
(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. However,
Practice may hire employees, other than employees or personnel employed or
engaged by Manager (or who were employed or engaged by Manager at any point
during the six months prior to termination of this Agreement), to provide such
services.
(d) The intellectual and other property rights in any work
product, discoveries or inventions related to the development of practice
protocols, clinical information systems, clinical coding systems, utilization
management systems or programs, and case management systems or programs)
developed or acquired by Practice, the Physician Partners or Practice Employees
or any other personnel or agents of such parties during the term of this
Agreement and all patents, copyrights, trademarks, service marks and other
intellectual property rights related thereto (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. 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. Other intellectual and property rights
developed or acquired by a Physician Partner or Practice Employee on his or her
own time and without use of the resources or services of Manager or Practice and
specifically excluded in such individual's employment agreement with Practice
shall not be deemed owned by Manager or Practice.
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(e) Practice acknowledges and agrees that Manager's Trade
Secrets and Manager 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 Manager
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 and to conduct the medical practice
of the Practice, 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 Manager 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 may
disclose Manager Confidential Information and Trade Secrets (i) as required by
law, governmental order or regulation, or by subpoena or other legal process, or
in connection with malpractice claims, or as required by third party payors
(provided Manager will be provided advance notice of such disclosure in order to
afford it the opportunity to seek an appropriate protective order), (ii) in any
litigation involving Practice, Manager or a Physician Partner or physician
Practice Employee (provided Manager will be provided advance notice of such
disclosure in order to afford it the opportunity to seek an appropriate
protective order), (iii) to Practice's attorneys, accountants or financial
advisors, and (iv) in connection with any Medicaid, Medicare or third party
payor audit or review. 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
Manager Confidential Information of which Practice becomes aware. For purposes
of this Agreement "Manager 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, 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 Partners 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, Exhibit B, and Exhibit C) with counsel
reasonably approved by Manager. Practice and such counsel shall cooperate with
Manager in any such litigation. Practice shall not compromise or settle any such
litigation (i) for less than the liquidated damages amount set forth in the
Physician Employment Agreements or (ii) in a case where the terminating
physician employee has solicited or hired away employees of Manager or Practice
without Manager's approval, not to be unreasonably withheld. In the event that
the Practice recovers liquidated damages (or other damages or costs) 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, net of
reasonable legal fees and litigation costs. Practice shall not take any action
that, under this Agreement, is to be taken only by Manager. The Parties
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agree and the Physician Employment Agreements 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, but will not create any "Practice
Event of Default" hereunder.
(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 Partners and Practice Employees shall be solely responsible for all
costs and expenses associated with membership in professional associations and
continuing professional education. Practice shall use its reasonable efforts to
ensure that each of its Physician Partners 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 use its
reasonable efforts to maintain at least the same quality and scope of medical
practice and other health care services provided by the Physician Partners prior
to the date hereof and shall use its reasonable good faith efforts to promote
the medical practice of the Practice and to comply with all Practice budgets.
Practice shall engage, in exercise of its sole discretion, a sufficient number
of Physician Partners 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. Practice shall be
responsible for coding and call schedule with respect to all physicians in the
Practice.
4.8 PHYSICIAN PARTNERSHIP AND EMPLOYMENT AGREEMENTS. Practice
represents that it has delivered to Manager a true and correct copy of the
partnership agreement and Physician Employment Agreements between Practice and
its Physician Partners and will cause all new partners of Practice to execute
such agreements prior to becoming a partner (or employee) in Practice. Practice
shall not amend the partnership agreement so as to cause the partnership
agreement to contravene or conflict with this Agreement or the Physician
Employment Agreements between Practice and its physician employees. Practice
shall not waive any material rights thereunder without the prior consent of
Manager. The partners of the Practice are and shall be individual physicians.
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SECTION 5. FINANCING MATTERS
5.1 MECHANICS OF TRANSFERS. (a) Promptly following the end of each
month, Manager shall make a good faith 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 the gross Practice revenues generated by the Practice
for such month, resulting in estimated Net Practice Revenues for such month. An
amount equal to the excess of Net Practice Revenues over Practice Expenses for
such month will be transferred by Manager to Practice on such 25th day. If the
first transfer of funds pursuant to this Agreement occurs more than forty-five
(45) days after the Effective Date, Manager will pay Practice interest on those
funds at a rate equal to its short-term borrowing rate under Manager's senior
credit facility for each day in excess of forty-five (45) days. A final annual
accounting of actual collections, draws and payments will be delivered to
Practice by Manager on or before March 31 of each year of this Agreement with
respect to the immediately preceding calendar year and will include a detailed
financial report of income and expenses and will take into account funds
received and transferred from the Physician Deposit Account under the Billing
Agreement. Manager shall remit to Practice, the amounts, if any, due and owing
to Practice as a result of the final annual accounting on or before the
ninetieth (90th) day after the end of the calendar year. Practice may review and
dispute each such final report in accordance with the procedure set forth in
Section 3.8(b).
(b) Practice and the Physician Partners expressly acknowledge
and agree that Manager shall have the right to offset from amounts to be
transferred to Practice hereunder each month ("Amounts Available for Offset")
any amounts from time to time that are due or owing to Parent or Manager or PSC
Acquisition Corp. pursuant to Section 7.7 of the Stock Purchase Agreement, with
respect to any shortfall in the amount of "Closing Accounts Receivable"
thereunder ("A/R Shortfall Amounts"), or pursuant to Section 8.6 of the Stock
Purchase Agreement with respect to claims for indemnification under the Stock
Purchase Agreement ("Other Amounts"); provided, however, that with respect to
Other Amounts, the Amount Available for Offset shall be reduced by an amount
equal to the salaries, wages and related employee benefit costs and withholdings
of the Practice Employees for such month; and provided, further, that with
respect to Other Amounts, the Amount Available for Offset shall be limited in
accordance with the provisions of Section 8.6 and Exhibit 8.6 of the Stock
Purchase Agreement with respect to each Physician Partner's indemnification
obligations under the Stock Purchase Agreement. Any offsets for A/R Shortfall
Amounts shall not be so limited. In the event Practice disputes any such offset
the matter shall be resolved pursuant to binding arbitration under Section 14.11
below, and all Physician Partners agree to Practice arbitrating on their behalf
in such procedure any objections they may have individually.
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 Partners and Practice Employees with
respect to any services rendered while employed by
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Practice and 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 Partners and Practice Employees for so long as they are employed or
engaged by the Practice; 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. Except as otherwise
provided in Section 3.6(b) and the Billing Agreement, Practice shall endorse
(and shall cause each Physician Partner 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).
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 Partners 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
Partner 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 3.7 and the other provisions of this Agreement and the
Billing 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 Partners 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 Partners and shall further cause each Physician-Partner 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 Partner 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 Partner
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
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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 3.6 and 4.4 above as if
such Credit Facility Lender had been named as the attorney-in-fact therein. No
action taken by the Credit Facility Lender and no pledge to such Credit Facility
Lender shall excuse or limit Manager's obligations under this Agreement to pay
expenses when due or to provide services (including, but not limited to, any
action by Credit Facility Lender resulting in Net Practice Revenues not being
made available to Manager).
(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 Partner 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 Partner 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 Partners and Practice Employees in any accounts
receivable generated by the medical practice of Practice and its Physician
Partners and Practice Employees during their employment with Practice or
otherwise generated through the operations of the medical practice of Practice
prior to the effective date of expiration or termination of this Agreement, 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 Partner 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 Partner 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.
5.3 MANAGEMENT FEES.
(a) Manager shall receive Two Million Nine Hundred Eighteen
Thousand Seven Hundred and Fifty dollars ($2,918,750.00) [less New Jersey
allocation] per annum payable in equal monthly installments of $__________ for
the initial sixty month period of the term as a management fee for its services.
The per annum management fee, payable in monthly installments, shall be
increased annually commencing as of the fifth anniversary of the date of this
Agreement by a percentage equal to the percentage change in "CPIn" (as defined
below) as compared to "CPIo" (as defined below). For purposes hereof, "CPIn" is
the historical Consumer Price Index, most recently published as the final by the
Bureau of Labor Statistics, U.S. Department of Labor, For All Urban Consumers,
New York City Average, All Items, Annual Average 1982-84=100 ("CPI") as of each
anniversary of this Agreement commencing with the fifth anniversary hereof, and
"CPIo" is the CPI published as of the date which is one (1) year prior to the
date of CPIn which was used for such calculation. Upon consummation of other
medical practice or business acquisitions by Manager or its affiliate which are
merged or consolidated into or with Practice, or new businesses developed for
Practice (e.g., surgery center) or acquired in connection with a right of first
refusal as may be mutually agreed by Manager and Practice, the management fee
hereunder shall be increased based on the practice or business acquired or
developed.
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(b) Practice and Manager mutually recognize and acknowledge
that it is the intent of the parties that all management fees paid to Manager
under this Agreement be reasonable and approximate Manager's actual costs and
expenses plus a reasonable profit. Payment of the management fee is not intended
to be, and shall not be, interpreted or applied as permitting the Manager to
share in Practice's fees for professional services rendered, but is acknowledged
as the parties' negotiated agreement as to the reasonable, fair market value of
the management services being furnished by the Manager pursuant to this
Agreement, considering the nature and volume of such services.
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 [Effective Date], 1998 and ending on
__________, 2038. 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 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.
6.2 TERMINATION.
(a) Manager may terminate this Agreement, and have no further
liability or obligation hereunder, other than as provided in Section 6.2(c)
below, upon the occurrence of one or more of the following events (each such
event being herein called a "Practice Event of Default"):
(i) Practice fails to perform in a material respect
its material obligations hereunder and such failure continues uncured 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 is in material breach of Section 4.5(a) of this
Agreement, Manager may terminate this Agreement if such breach is not cured
within ten (10) days after written notice is provided 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 ninety (90)
days of its filing.
(iii) Practice is in material breach or default under
any other written agreement with Manager which expressly provides for cross
default with this Agreement,
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including the Billing Agreement, subject to any applicable notice and cure
periods provided in any such agreement.
(iv) If in any 18 month period the licenses of more
than 25% of the then total number of Physician Partners and physician Practice
Employees to practice medicine in the State of New York 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" (as
defined in the Physician Employment Agreements), or if in any 18 month period
more than 25% of the then total number of Physician Partners and physician
Practice Employees retire or sell their interests in Practice or otherwise cease
to practice medicine on substantially the same basis as agreed to in their
respective Physician Employment Agreements 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)(iv) to replace the
affected physicians with other physicians reasonably satisfactory to Manager, in
its reasonable discretion; provided further, however, that (i) Practice may
agree to bring in locum tenens physicians to provide physician services during
such one hundred eighty (180) day period, (ii) Manager will not unreasonably
withhold approval of any board certified otolaryngologist, allergist or other
physician in a related practice, approved by local hospital credentialing for
medical staff privileges.
(b) Practice may terminate this Agreement, and have no further
liability hereunder, upon the occurrence of one or more of the following events
(each such event being herein called a "Manager Event of Default"), subject,
however, in the case of an event described in subsection (b)(iii) to any
applicable standstill period under the "Debenture" (as hereinbelow defined):
(i) Manager is in material breach of its obligation
to remit to Practice the balance of Net Practice Revenues minus Practice
Expenses as required hereunder and such breach remains uncured for a period of
fifteen (15) days after receipt of written notice thereof from Practice.
(ii) Manager fails to perform in a material respect
any material obligation under this Agreement other than described in (b)(i)
above and such 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.
(iii) An "Event of Default" due to non-payment of
amounts then due and payable shall have occurred and shall be continuing under
that certain debenture from Manager and PSC Acquisition Corp. to Paying Agent
for the benefit of the Physician Partners dated as of even date herewith (the
"Debenture"), after giving effect to all notice and opportunity to cure periods
thereunder, and Practice and the Physician Partners under this Agreement and
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"Practice" and the "Physician-Partners" under the New Jersey MSA shall not be in
breach of any of their respective obligations to Manager or Parent.
(iv) Manager or Parent 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 Manager or Parent is the subject of an
involuntary petition in bankruptcy or reorganization which is not set aside
within ninety (90) days of its filing.
(c) Upon termination of this Agreement for any reason:
(i) Manager shall, within ninety (90) days after
termination, deliver to Practice a final accounting in accordance with Section
3.8 for the Practice as of the date of termination and all written and
electronic data and materials including all patient charts and files, billings
and collections information, records, contracts and other papers or documents
which pertain to Practice, provided that Manager shall be entitled to retain
copies of any and all such material.
(ii) All indemnification provisions under this
Agreement shall remain in effect in accordance with their terms.
(iii) Practice and Manager shall coordinate an
orderly wind-up of all other matters under this Agreement including, but not
limited to, preparation by Manager of a final accounting and remittance to
Practice of all Net Practice Revenues less Practice Expenses as collected and
paid by Manager from time to time thereafter.
(d) Parent and Manager shall not be in breach or default
of their respective obligations under this Agreement (and no Manager Event of
Default shall arise) by virtue of exercising any right of offset in accordance
with the procedure set forth in Section 7.7 or 8.6 of the Stock Purchase
Agreement or Section 5.1(b) of this Agreement. Any amounts that are offset as
aforesaid but are found by arbitration under Section 14.11 below to be due and
owing by Parent or PSC Management to Practice or a Physician Partner shall be
paid to Practice not more than ten (10) days after the rendering of the
arbitration award or decision. Any such arbitration award shall include interest
at 6% per annum from the date of any such wrongful offset on the amount which
was wrongfully offset, to the date of such award or decision. Any amounts not
paid within such 10-day period shall bear interest at the rate announced or
published from time to time by NationsBank, N.A., as its prime rate, plus four
percent (4%) per annum from the date of the award or decision.
(e) The Practice agrees that it is bound by and subject to the
standstill provisions of the Debenture contained in Section 9 thereof.
Accordingly, the Practice acknowledges and agrees that during a standstill
period (as defined in the Debenture), the rights and remedies of the Practice
under and in respect of this Agreement, including without limitation, the
Practice's right to terminate this agreement pursuant to Section 6.2, may be
limited by such provisions of the Debenture.
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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), 6.2(b)(i), 6.2(b)(ii),
or 6.2(b)(iii) 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 ASSETS. Upon the termination of this Agreement
prior to the end of the term of this Agreement (other than a termination by
Practice pursuant to Section 6.2(b)(i), 6.2(b)(ii) or 6.2(b)(iii)), Manager
shall have the additional right to require Practice to repurchase the FFE
located at the Medical Offices, other items of personal property purchased or
leased by Manager for specific use at the Medical Offices and all intangible
assets of Manager which are related to the Practice, including but not limited
to, leases, phones, the name "ENT Associates" and goodwill, from Manager at a
repurchase price equal to $21,619,233 minus the product of (x) $2,161,923, and
(y) the number of years of the term of the Agreement which have been completed
and for which the management fee has been paid at the time of 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 New York,
or such other location as Manager shall designate in such written notice. At the
closing Practice shall purchase such assets by delivery of cash or immediately
available funds, against delivery of a bill of sale and other assignments and
appropriate instruments of conveyance from Manager transferring all its right,
title or interest in or to same free and clear of all liens or security
interests created by Manager or Parent; provided, however, Practice shall be
entitled to receive a credit against the amount of the repurchase price for any
outstanding amounts payable pursuant to the Debenture upon surrender of the
Debenture to Manager for cancellation. 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.
6.5 EARLY TERMINATION OF AGREEMENT. In addition to the foregoing,
in the event of termination of this Agreement prior to the fifth (5th)
anniversary of the Closing Date (the "Threshold Date") for any reason other than
pursuant to the provisions of Section 6.2(b), then all management fees under
Section 5.3 which would have been paid through the Threshold Date, to the extent
not yet paid, shall be immediately due and payable to Manager by the Practice.
Amounts payable pursuant to 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:
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(a) ORGANIZATION AND GOOD STANDING. Practice is a professional
limited liability partnership duly organized, validly existing and in good
standing under the laws of the State. 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, all employment agreements executed
and delivered by it pursuant to this Agreement, and the Billing Agreement, and
has taken all action required by law, its Partnership Agreement or otherwise to
authorize the execution, delivery and performance of this Agreement and such
related documents. The execution and delivery of this Agreement and the Billing
Agreement do not and, subject to the consummation of the transactions
contemplated hereby, will not, violate any provisions of the Partnership
Agreement 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 and the Billing Agreement have been duly
executed and delivered by Practice and constitute the legal, valid and binding
obligation of Practice, enforceable in accordance with their respective terms
(subject to applicable bankruptcy, insolvency, moratorium and similar laws
affecting creditors' rights generally and the general principles of equity).
Practice has and shall continue to conduct its professional activities in
accordance and in compliance with all laws and regulations applicable thereto.
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 the Billing 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 the Billing Agreement. The execution and delivery of this
Agreement and the Billing Agreement do 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 and
the Billing Agreement have been duly executed and delivered by Manager and
constitute the legal, valid and binding obligations of Manager, enforceable in
accordance with their respective terms.
(c) NO NOTICE OF DEFAULT UNDER CREDIT AGREEMENT. Parent has
not received any notice of default under that certain Credit Agreement dated as
of April 30, 1997 between Parent and NationsBank, N.A.
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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, including, but not limited to, all
Physician Partners and Practice Employees, in the minimum amount of One Million
and No/100 Dollars ($1,000,000.00) per occurrence and Three Million and No/100
Dollars ($3,000,000.00) annual aggregate including "tail coverage" to the extent
necessary to ensure continuity of coverage. Such amounts of coverage shall be
reviewed by Advisory Board on an annual basis and may be increased by Advisory
Board to levels consistent with then current industry practices in the area of
the Practice. 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,
including, but not limited to, all Physician Partners 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 partners, members, directors, officers, agents and
employees from and against any and all claims, demands, liabilities, losses,
damages, actions, suits, costs, deficiencies and expenses (including reasonable
attorney's fees, court costs and other expenses incurred in defending against
claims through appeal or otherwise connected therewith) (hereinafter a "Loss" or
"Losses") arising or 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 and employees
from and against any all Losses arising or resulting in any manner, directly or
indirectly, from the gross negligence, professional malpractice or intentional
acts or omissions of Practice, its Physician Partners, Practice Employees or
independent contractors (other than Manager or PSC).
8.4 INDEMNIFICATION PROCEDURE. (a) Within 30 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") in a writing which encloses a copy of any relevant
pleadings or written notice of claim served upon such Indemnified Person. Any
failure to provide such notice shall not affect an Indemnitor's obligation to
provide indemnification hereunder except to the extent of actual prejudice
suffered from such failure to provide notice. If any such action or other
proceeding shall be brought against any Indemnified Person, Indemnitor shall,
upon written
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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, (b) a conflict or potential conflict
exists between Indemnitor and such Indemnified Person that would make such
separate representation advisable; (c) injunctive or criminal relief is sought,
or (d) such action or proceeding threatens loss of or adverse effect on the
Indemnified Person's license to practice medicine or to participate in
government or third party payor reimbursement programs or threatens loss of
hospital privileges; 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.
(b) If the Indemnitor fails to defend any action or proceeding
hereunder, or having commenced to defend such action or proceeding hereunder,
fails to continue such defense, the Indemnified Person may conduct the defense
of any such action or proceeding, subject to its right of indemnification
hereunder, and any settlement, compromise or final judgment made or entered into
in connection with such action or proceeding shall be binding upon the
Indemnitor as fully as though such Indemnitor had conducted such defense as
required hereby.
(c) The Indemnified Person shall cooperate fully with the
Indemnitor in connection with the litigation, arbitration, contest, compromise
and settlement of all actions and proceedings hereunder and shall make available
to Indemnitor and its agents all books, records and other information necessary
to defend, settle and investigate such actions and proceedings.
8.5 KEY MAN INSURANCE. Practice agrees, and shall cause its
Physician Partners 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 Partners and Practice
Employees. Neither Practice nor any Physician Partner 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 Partners 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 Partners 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. Nothing set forth herein shall be
deemed a
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guaranty of insurability of any physician, or that such insurance, if any, is
obtainable at commercially reasonable rates. Each Physician Partner and Practice
Employee may purchase any such "key man" life insurance policy from the Manager
if such policy is still in effect following termination or non-renewal for any
reason of such person's Employment Agreement with Practice; provided that the
purchase price for such policy shall equal the greater of (a) $10.00, or (b) the
cash value of such policy on the last day of such person's employment by the
Practice, provided nothing herein shall obligate Manager to maintain such
insurance at any time.
8.6 NO PUNITIVE OR CONSEQUENTIAL DAMAGES. Other than for claims
based upon fraud, willful misconduct or bad faith, no party shall be liable to
any other party for indirect, punitive or consequential damages (including any
loss of revenue or profit) arising out of this Agreement.
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 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 so long as the assignee
shall assume in writing all of Manager's obligations under this Agreement;
provided, however, any such assignment shall not affect the obligations of
Manager hereunder or the guaranty by Parent of the obligations of Manager
hereunder. 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.
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
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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 Partners and Practice Employees practice
medicine. The primary obligation of Manager hereunder is to provide all
Management Services in a competent, efficient and satisfactory manner and to
remit in accordance with Section 5.1 the excess of Net Practice Revenues minus
Practice Expenses. Manager shall not, by entering into and performing its
obligations under this Agreement or any related agreements, become liable for
any of the existing obligations, liabilities or debts of Practice unless
otherwise specifically provided for under the terms of this Agreement or any
related agreements and Practice shall not, by entering into and performing its
obligations under this Agreement or related agreements, become liable for any
existing obligations, liabilities or debts of Manager unless otherwise
specifically provided for under the terms of this Agreement or any related
agreements. In its management role, Manager will have only an obligation to
exercise reasonable care in the performance of the Management Services. Neither
party will have any liability whatsoever for damages suffered on account of the
willful misconduct or negligence of any employee, agent or independent
contractor of the other party. Each party shall be solely responsible for
compliance with all state and federal laws pertaining to employment taxes,
income withholding, unemployment compensation contributions and other employment
related statutes regarding their respective employees, agents and servants.
(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 in the written opinion of
special regulatory counsel reasonably acceptable to Manager and Practice, 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 arrangement between Manager, Practice and the then current Physician
Partners 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 arrangement after a period of 30 days of good faith
negotiations which shall commence after the aforesaid determination or opinion
is delivered,
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<PAGE> 38
then either Practice or Manager may elect by notice to the other to require that
the parties enter into binding mediation in accordance with this Section
11.11(b) to determine such arrangement. Pursuant to any such notice of mediation
Manager and Practice shall each choose an expert possessing knowledge regarding
health care management arrangements in the State of New York, and the two
experts so chosen shall select a third expert (the "Mediator") who shall be a
lawyer or accountant with a nationally recognized firm possessing knowledge and
experience regarding health care management arrangements in the State of New
York. Following selection the Mediator shall meet with Manager and Practice and,
if the parties are still unable to agree after two (2) such meetings, the
Mediator shall propose in a writing labeled "Binding Arrangement" an arrangement
which best complies with statutes, rules and regulations and which substantially
preserves for the parties the relative economic benefits of this Agreement, and
such proposed binding arrangement shall be final and binding on the parties.
Each party shall bear the costs associated with the retention of its chosen
expert, and the costs associated with the Mediator shall be paid by Manager in a
percentage amount equal to a fraction, the numerator of which is Manager's
annual management fee for the most recent fiscal year ended, and the denominator
of which is Net Practice Revenues for such fiscal year. The balance of the
Mediator's cost shall be a Practice Expense.
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 performance and 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 any or all of such covenants and obligations in accordance with the
provisions of this Agreement (as the same may be amended), Parent will perform
all of its covenants and obligations in accordance with their terms and
immediately pay and deliver to Practice (or such other payee or transferee as
may be provided in this 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. No 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, shall be deemed a release of Parent, and no
notice to, or consent of, Parent shall be required. Parent hereby waives (i)
promptness and diligence in collection; (ii) notice of acceptance and notice of
the incurrence of any obligation by Manager; (iii) notice of any actions taken
by Manager; (iv)
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<PAGE> 39
all other notices, demands and protests of every kind in connection with the
enforcement of the obligations of Parent pursuant to this Section 12(a), the
omission of or delay of which, but for the provisions of this Section 12(a),
might constitute grounds for relieving Parent of its obligations under this
Section 12(a); (v) the right to a trial by jury of any dispute arising under, or
relating to, the guaranty set forth in this Section 12(a); (vi) any right or
claim of right to cause a marshaling of Manager's assets or to cause the
Physician Partners to proceed against any security before proceeding against
Parent hereunder; and (vii) any requirement that the Physician Partners protect,
secure, perfect or insure any security interest or lien in or on any property
subject thereto or exhaust any right or take any action against Manager or any
other person or any collateral as a precondition to the Physician Partners'
right to enforce the guaranty set forth in this Section 12(a) in accordance with
its terms. Without limiting the generality of the foregoing, Parent hereby
waives any defense to the guaranty set forth in this Section 12(a) which may
arise by reason of (A) the incapacity, lack of authority, death or disability
of, or revocation hereof by, any person or entity, (B) the failure of the
Physician Partners to file or enforce any claim against the estate (in probate,
bankruptcy or any other proceedings) of any person or entity, or (C) any defense
based upon an election of remedies by Physician Partners.
(b) Irrevocable Guaranty by Physician Partners. To induce
Manager to execute and deliver this Agreement, each of the undersigned Physician
Partners, severally unconditionally and irrevocably guarantees to Manager the
full, prompt and faithful performance by Practice of all covenants and
obligations to be performed by Practice under Sections 3.7, 4.4, 4.5, 5.2, 6.4,
6.5, 7.1(a), 7.1(b), 8.1, 8.3, and 14.11 of this Agreement during the term of
the guarantee of such Physician Partner as set forth on Exhibit 12(b) hereto.
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 after giving effect to any applicable grace periods, the Physician Partners
will severally 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 Partner shall be required.
Each Physician Partner hereby waives (i) promptness and diligence in collection;
(ii) notice of acceptance and notice of the incurrence of any obligation by
Practice; (iii) notice of any actions taken by the Physician Partners or
Practice; (iv) all other notices, demands and protests of every kind in
connection with the enforcement of the obligations of Practice or Physician
Partners pursuant to this Section 12(b), the omission of or delay of which, but
for the provisions of this Section 12(b), might constitute grounds for relieving
Physician Partner of his obligations under this Section 12(b); (v) the right to
a trial by jury of any dispute arising under, or relating to, the guaranty set
forth in this Section 12(b); (vi)
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any right or claim of right to cause a marshaling of Practice's assets or to
cause Parent or Manager to proceed against any security before proceeding
against Physician Partner hereunder; and (vii) any requirement that Parent or
Manager protect, secure, perfect or insure any security interest or lien in or
on any property subject thereto or exhaust any right or take any action against
Practice or any other person or any collateral as a precondition to Parent's and
Manager's right to enforce the guaranty set forth in this Section 12(b) in
accordance with its terms. Without limiting the generality of the foregoing,
each Physician Partner hereby waives any defense to the guaranty set forth in
this Section 12(b) which may arise by reason of (A) the incapacity, lack of
authority, death or disability of, or revocation hereof by, any person or
entity, (B) the failure of Parent or Manager to file or enforce any claim
against the estate (in probate, bankruptcy or any other proceedings) of any
person or entity, or (C) any defense based upon an election of remedies. Each
Physician Partner shall be liable under this Section 12(b) only for his pro rata
share of the liability or obligation guaranteed or loss resulting from breach
based on the percentages set forth on Exhibit 12(b) hereto; provided, however,
that a Physician-Partner's individual guaranty will terminate with respect to
breaches occurring after his death or permanent "disability" (as defined in the
Physician Employment Agreements), retirement from Practice at age sixty (60) or
older, or retirement from Practice after completion of at least fifteen (15)
years of service from the date of this Agreement, or after the date set forth on
Exhibit 12(b) for any Physician Partner whose initial term of employment is ten
(10) years.
SECTION 13. NAME; LICENSE. Practice agrees that it shall conduct its
medical practice under the name of, and only under the name of "ENT Associates",
subject to the terms of the License Agreement between the parties of even date
herewith. In the event of any termination of the License Agreement, Practice
agrees to change the name under which it conducts its medical practice to a
distinctly different name unless acquired pursuant to Section 6.4.
SECTION 14. MISCELLANEOUS.
14.1 NOTICES. Any communications required or desired to be given
hereunder shall be deemed to have been properly given if sent by hand delivery,
or by facsimile and reputable overnight courier, to the parties hereto at the
following addresses, or at such other address as either party may advise the
other in writing from time to time:
If to Manager or Parent:
PHYSICIANS' SPECIALTY CORP.
1150 Lake Hearn Drive, Suite 640
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Facsimile: (404) 256-1078
Telephone: (404)
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, Georgia 30308-2216
Facsimile: (404) 885-3995
Telephone: (404) 885-3109
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If to the Practice or any Physician Partner:
with a copy of each notice directed to Practice to:
Joel Lever
Kurzman & Eisenberg LLP
One North Broadway, 10th Floor
White Plains, NY 10601
Facsimile: (914) 285-9855
Telephone: (914)285-9800
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.
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 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 subject matter hereof. 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
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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 14.6 may not be
waived, modified or changed by any other persons except the Chief Executive
Officer or Chief Financial Officer of Manager and Practice.
14.7 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.
14.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
14.9 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.
14.10 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 Physician Partners and
Practice Employees with respect to the restrictive covenants and liquidated
damages provisions contained in the Physician Employment Agreements. Therefore,
Practice appoints Manager its nonexclusive true and lawful attorney-in-fact to
enforce any and all rights of Practice, to the extent not contrary to applicable
law, with respect to the provisions pertaining to restrictive covenants and
liquidated damages in the Physician Employment Agreements, provided that Manager
shall not exercise such enforcement rights unless it shall first provide
Practice with written notice of Manager's intent to enforce Practice's rights
and Practice shall not have commenced enforcement of its rights within five (5)
days after receipt of Manager's written notice. 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 during the term of this Agreement.
14.11 ARBITRATION. All disputes, controversies, differences or
claims arising out of, relating to or in connection with the exercise by Parent
or Manager of a right of offset pursuant to Section 5.1 of this Agreement shall
be finally settled by binding arbitration in New York, New York pursuant to the
arbitration rules of the American Arbitration Association. Arbitration shall
take place before one arbitrator appointed in accordance with such rules. The
governing law of the arbitration shall be the law of the State of New York. Any
award or decision rendered by the arbitrator shall clearly set forth the factual
and legal basis for such award or decision. Judgment on the award or decision
rendered by the arbitrator shall be nonappealable and enforceable in any court
having jurisdiction thereof. The costs of the arbitration, including
administrative, legal and
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arbitrator fees, shall be borne by the losing party or according to the
discretion of the arbitrator if the parties disagree as to which party is the
losing party under the award or decision.
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,
disbursements and court costs, 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 or any counterclaim. "Reasonable attorneys' fees" are those
attorneys' fees reasonably incurred in obtaining a final judgment in favor of
the prevailing party and in pursuing all appeals.
IN WITNESS WHEREOF, Practice, Manager and Parent have duly executed
this Agreement on the day and year first above written.
PSC MANAGEMENT CORP. ENT ASSOCIATES, LLP
By: By:
Title: Title:
PHYSICIANS' SPECIALTY CORP.
By:
Title:
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The undersigned, constituting all of the Physician Partners, hereby
execute the above Agreement solely for the purpose of confirming and agreeing to
be legally bound by their obligations under Section 12(b) hereof.
Andrew Blank, M.D.
Robert Green, M.D.
Steven Sacks, M.D.
Richard Hamburg, M.D.
John Grosso, M.D.
Jay Youngerman, M.D.
Hyman Ryback, M.D.
Wayne Eisman, M.D.
Dan Moskowitz, M.D.
Richard Rosenberg, M.D.
Gary Fishman, M.D.
Marie Valdes, M.D.
Frank Schectman, M.D.
Michael Bergstein, M.D.
Steven Kase, M.D.
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APPENDIX A
<TABLE>
<CAPTION>
DEFINITIONS 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 3.13
Physician Expenses 4.1
Physician Partners 1.4
Practice Preamble
Practice IP 4.6(d)
Practice Employees 1.5
Practice Expenses 1.6
PSC Background
State 1.7
Threshold Date 6.5
</TABLE>
<PAGE> 46
EXHIBIT 3.1
Medical Offices
[to be provided]
<PAGE> 47
EXHIBIT 3.6(B)
BILLING AGREEMENT
FOR
GOVERNMENTAL RECEIVABLES
THIS BILLING AGREEMENT ("AGREEMENT") IS ENTERED INTO THIS _____ DAY OF
__________, 1998, BY AND BETWEEN PSC MANAGEMENT CORP., A DELAWARE CORPORATION
("MANAGER"), AND (NAME OF PRACTICE) AND THE PHYSICIAN PARTNERS WHO ARE
SIGNATORIES HERETO (COLLECTIVELY REFERRED TO AS "PRACTICE").
WITNESSETH:
WHEREAS, THE PARTIES ENTERED INTO A MANAGEMENT SERVICES AGREEMENT DATED
____________, 19___ (THE "SERVICE AGREEMENT"), UNDER WHICH MANAGER PROVIDES
CERTAIN MANAGEMENT SERVICES TO PRACTICE, INCLUDING BILLING AND COLLECTION
SERVICES FOR MEDICARE, MEDICAID AND CHAMPUS RECEIVABLES; AND,
WHEREAS, THE PARTIES WISH TO SET FORTH IN DETAIL THE MECHANISMS UNDER
WHICH MANAGER PROVIDES AND IS COMPENSATED FOR SUCH BILLING SERVICES.
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS
HEREIN CONTAINED, THE PARTIES AGREE AS FOLLOWS:
1. APPOINTMENT AND AUTHORITY. MANAGER SHALL, ON BEHALF OF PRACTICE,
BILL AND COLLECT FROM MEDICARE, MEDICAID AND CHAMPUS THE PROFESSIONAL FEES FOR
MEDICAL SERVICES RENDERED BY PRACTICE TO MEDICARE, MEDICAID AND CHAMPUS
PATIENTS. PRACTICE HEREBY APPOINTS MANAGER FOR THE TERM HEREOF TO BE PRACTICE'S
TRUE AND LAWFUL ATTORNEY-IN-FACT FOR THE FOLLOWING PURPOSES:
A. TO BILL MEDICARE, MEDICAID AND CHAMPUS IN THE NAME
AND ON BEHALF OF PRACTICE;
B. TO COLLECT ALL ACCOUNTS RECEIVABLE RESULTING FROM
SUCH BILLINGS IN THE NAME AND ON BEHALF OF PRACTICE;
C. TO TAKE POSSESSION OF AND ENDORSE IN THE NAME AND ON
BEHALF OF PRACTICE (AND/OR IN THE NAME OF AN
INDIVIDUAL PHYSICIAN WHO HAS PROPERLY REASSIGNED
BENEFITS TO PRACTICE) ANY NOTES, CHECKS, MONEY
ORDERS, ELECTRONIC PAYMENTS, AND OTHER FORMS OF
PAYMENT OF SUCH ACCOUNTS RECEIVABLE;
D. TO DEPOSIT ALL SUCH AMOUNTS COLLECTED, INCLUDING
ELECTRONIC PAYMENTS, INTO AN ACCOUNT OWNED BY
PRACTICE (THE "PHYSICIAN DEPOSIT ACCOUNT") WITH A
BANK WHOSE DEPOSITS ARE INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, WHICH ACCOUNT SHALL AT
ALL TIMES BE MAINTAINED IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 2 BELOW; AND,
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E. TO WITHDRAW FUNDS FROM THE PHYSICIAN DEPOSIT ACCOUNT
IN ACCORDANCE WITH THE PROVISIONS OF SECTION 2 BELOW
ON BEHALF AND IN THE NAME OF PRACTICE FOR THE PAYMENT
OF PRACTICE EXPENSES, AND REMITTANCE OF FUNDS TO
PRACTICE AS PROVIDED IN SECTION 5.1 OF THE SERVICE
AGREEMENT.
2. PHYSICIAN DEPOSIT ACCOUNT.
A. MANAGER SHALL HAVE ACCESS TO THE PHYSICIAN DEPOSIT
ACCOUNT SOLELY FOR THE PURPOSE OF PAYING PRACTICE
EXPENSES INCURRED BY OR ON BEHALF OF PRACTICE,
INCLUDING THE PAYMENT OF MANAGER'S FEE, IN ACCORDANCE
WITH THE TERMS OF THE SERVICE AGREEMENT. PRACTICE
AGREES TO EXECUTE AND DELIVER TO THE BANK ANY AND ALL
DOCUMENTS NECESSARY TO EVIDENCE OR EFFECT THE SPECIAL
POWER OF ATTORNEY GRANTED TO MANAGER IN ACCORDANCE
WITH SECTION 1 ABOVE.
B. MEDICARE AND MEDICAID PAYMENTS SHALL BE DEPOSITED
DIRECTLY TO THE PHYSICIAN DEPOSIT ACCOUNT. PRACTICE
AND MANAGER HEREBY AGREE THAT IF ANY MEDICARE AND
MEDICAID PAYMENTS ARE RECEIVED BY MANAGER ON BEHALF
OF PRACTICE, SUCH AMOUNTS SHALL BE FORWARDED TO THE
PHYSICIAN DEPOSIT ACCOUNT FOR DEPOSIT. FUNDS FROM THE
PHYSICIAN DEPOSIT ACCOUNT WILL ONLY BE DRAWN IN THE
NAME OF PRACTICE. PRACTICE HEREBY AGREES THAT THIS
PAYMENT ARRANGEMENT WILL CONTINUE IN EFFECT ONLY SO
LONG AS PRACTICE HAS SOLE CONTROL OF THE PHYSICIAN
DEPOSIT ACCOUNT, AND THE BANK IS SUBJECT ONLY TO
PRACTICE'S INSTRUCTIONS REGARDING THE PHYSICIAN
DEPOSIT ACCOUNT.
C. IN THE EVENT THAT PRACTICE REVOKES MANAGER'S RIGHT TO
WITHDRAW FUNDS FROM THE PHYSICIAN DEPOSIT ACCOUNT, OR
IF PRACTICE WITHDRAWS FUNDS FROM THE PHYSICIAN
DEPOSIT ACCOUNT OR TAKES ANY OTHER ACTIONS WITH
RESPECT TO THE PHYSICIAN DEPOSIT ACCOUNT (UNLESS SUCH
ACTIONS ARE REQUIRED BY APPLICABLE LAW) WITHOUT FIRST
OBTAINING THE APPROVAL OF THE ADVISORY BOARD IN
ACCORDANCE WITH THE SERVICE AGREEMENT (IT BEING
UNDERSTOOD THAT ALL PROCEEDS ARE INTENDED TO BE PAID
OVER TO MANAGER TO PAY PRACTICE EXPENSES AND REPAY
ANY ADVANCES MADE BY MANAGER IN ACCORDANCE WITH THE
SERVICE AGREEMENT), AND IF ANY SUCH ACTIONS REMAIN
UNCURED AFTER NOTICE AND 15 DAYS OPPORTUNITY TO CURE,
SUCH ACTIONS SHALL CONSTITUTE GROUNDS FOR IMMEDIATE
TERMINATION OF THIS AGREEMENT AND THE SERVICE
AGREEMENT AS A "PRACTICE EVENT OF DEFAULT"
THEREUNDER, AND PRACTICE SHALL IMMEDIATELY REIMBURSE
AND INDEMNIFY MANAGER FOR ALL COSTS AND DAMAGES
SUSTAINED AS A RESULT OF SUCH BREACH BY PRACTICE.
PRACTICE HEREBY ACKNOWLEDGES THAT PRACTICE HAS
GRANTED TO MANAGER A SECURITY INTEREST IN PRACTICE'S
CASH PROCEEDS FROM ALL COLLECTIONS COVERED BY THIS
AGREEMENT IN ACCORDANCE WITH SECTION 5.2 OF THE
SERVICE AGREEMENT. PRACTICE FURTHER AGREES IN THE
EVENT PRACTICE REVOKES MANAGER'S RIGHT TO WITHDRAW
FUNDS FROM THE ACCOUNT THAT PRACTICE SHALL BE DEEMED
TO HAVE RECEIVED ANY AND ALL AMOUNTS RETAINED IN THE
PHYSICIAN DEPOSIT ACCOUNT WHEN DETERMINING THE AMOUNT
TO BE REMITTED BY MANAGER TO PRACTICE UNDER SECTION
5.1 OF THE SERVICE AGREEMENT.
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3. COMPENSATION. AS REIMBURSEMENT FOR SERVICES PROVIDED UNDER THE
SERVICE AGREEMENT AND THIS AGREEMENT, MANAGER SHALL RECEIVE THE FEES SET FORTH
IN SECTION 5.3 OF THE SERVICE AGREEMENT. THE PARTIES HAVE AGREED TO SUCH FEES AT
ARMS' LENGTH AND HAVE DETERMINED THAT SUCH FEES REPRESENT FAIR MARKET VALUE FOR
THE SERVICES PROVIDED HEREUNDER AND UNDER THE SERVICE AGREEMENT.
4. CONSTRUCTION OF TERMS. THE TERMS OF THE SERVICE AGREEMENT SHALL, TO
THE FULLEST EXTENT REASONABLY POSSIBLE, BE CONSTRUED SO AS TO BE CONSISTENT WITH
THE TERMS OF THIS AGREEMENT, AND ALL CAPITALIZED TERMS HEREIN SHALL, EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED HEREIN, HAVE THE SAME DEFINITIONS AS SET FORTH IN
THE SERVICE AGREEMENT. IN THE EVENT OF ANY AMBIGUITY OR INCONSISTENCY BETWEEN
THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE SERVICE AGREEMENT, THE TERMS
AND CONDITIONS OF THIS AGREEMENT SHALL GOVERN.
5. CHANGES IN REIMBURSEMENT LAWS AND REGULATIONS. IN THE EVENT OF
CHANGES IN LAWS AND REGULATIONS THAT WOULD CAUSE ANY PORTION OF THIS AGREEMENT
TO BE ILLEGAL OR UNENFORCEABLE, THE PARTIES SHALL PROMPTLY AMEND THIS AGREEMENT
AS NECESSARY TO COMPLY WITH SUCH LAWS AND REGULATIONS.
6. BINDING ON SUCCESSORS. THIS AGREEMENT SHALL BE BINDING UPON THE
PARTIES HERETO, AND THEIR SUCCESSORS, ASSIGNS, HEIRS AND BENEFICIARIES.
7. GOVERNING LAW. THE VALIDITY, INTERPRETATION, AND PERFORMANCE OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS DESIGNATED TO GOVERN THE TERMS OF
THE SERVICE AGREEMENT.
8. SEVERABILITY. THE PROVISIONS OF THIS AGREEMENT SHALL BE DEEMED
SEVERABLE AND IF ANY PORTION SHALL BE HELD INVALID, ILLEGAL OR UNENFORCEABLE FOR
ANY REASON, THE REMAINDER OF THIS AGREEMENT SHALL BE EFFECTIVE AND BINDING UPON
THE PARTIES.
9. AMENDMENTS. THIS AGREEMENT SHALL NOT BE MODIFIED OR AMENDED EXCEPT
BY A WRITTEN DOCUMENT EXECUTED BY BOTH PARTIES TO THIS AGREEMENT, AND ANY SUCH
WRITTEN MODIFICATIONS OR AMENDMENTS SHALL BE ATTACHED HERETO.
10. NOTICES. ANY COMMUNICATIONS REQUIRED OR DESIRED TO BE GIVEN
HEREUNDER SHALL BE DEEMED TO HAVE BEEN PROPERLY GIVEN IF SENT BY HAND DELIVERY,
OR BY FACSIMILE AND REPUTABLE OVERNIGHT COURIER, TO THE PARTIES HERETO AT THE
FOLLOWING ADDRESSES, OR AT SUCH OTHER ADDRESS AS EITHER PARTY MAY ADVISE THE
OTHER IN WRITING FROM TIME TO TIME:
IF TO MANAGER OR PARENT:
PHYSICIANS' SPECIALTY CORP.
1150 LAKE HEARN DRIVE, SUITE 640
ATLANTA, GEORGIA 30342
ATTENTION: CHIEF EXECUTIVE OFFICER
FACSIMILE: (404) 256-1078
TELEPHONE: (404) 256-7535
<PAGE> 50
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, GEORGIA 30308-2216
FACSIMILE: (404) 885-3995
TELEPHONE: (404) 885-3109
IF TO THE PRACTICE OR ANY PHYSICIAN PARTNER:
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
WITH A COPY OF EACH NOTICE DIRECTED TO PRACTICE TO:
JOEL LEVER
KURZMAN & EISENBERG LLP
ONE NORTH BROADWAY, 10TH FLOOR
WHITE PLAINS, NY 10601
FACSIMILE: (914) 285-9855
TELEPHONE: (914)285-9800
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.
11. 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.
12. 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.
<PAGE> 51
13. COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN SEVERAL
COUNTERPARTS, EACH OF WHICH, WHEN SO EXECUTED, SHALL BE DEEMED TO BE AN
ORIGINAL, AND SUCH COUNTERPARTS SHALL, TOGETHER, CONSTITUTE AND BE ONE AND THE
SAME INSTRUMENT.
<PAGE> 52
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE
DATE FIRST WRITTEN ABOVE.
PRACTICE:
BY:
-----------------------------------
TITLE:
--------------------------------
MANAGER:
PSC MANAGEMENT CORP.
BY:
-----------------------------------
TITLE:
--------------------------------
PHYSICIAN PARTNERS:
--------------------------------------
Andrew Blank, M.D.
--------------------------------------
Robert Green, M.D.
--------------------------------------
Steven Sacks, M.D.
--------------------------------------
Richard Hamburg, M.D.
--------------------------------------
John Grosso, M.D.
--------------------------------------
Jay Youngerman, M.D.
<PAGE> 53
--------------------------------------
Hyman Ryback, M.D.
--------------------------------------
Wayne Eisman, M.D.
--------------------------------------
Dan Moskowitz, M.D.
--------------------------------------
Richard Rosenberg, M.D.
--------------------------------------
Gary Fishman, M.D.
--------------------------------------
Marie Valdes, M.D.
--------------------------------------
Frank Schectman, M.D.
--------------------------------------
Michael Bergstein, M.D.
--------------------------------------
Steven Kase, M.D.
<PAGE> 54
EXHIBIT 3.20
Restricted Areas
Westchester County, New York
Putnam County, New York
Five Boroughs in New York City
Nassau County, New York
Suffolk County, New York
Bergin County, New Jersey
Hudson County, New Jersey
Passaic County, New Jersey
Newark, New Jersey
Elizabeth, New Jersey
<PAGE> 55
EXHIBIT 12(b)
Physician Several Guarantees
<TABLE>
<CAPTION>
Name of Physician Term of Obligations Guaranteed % Share of Liability
- ----------------- ------------------------------ --------------------
<S> <C> <C>
[to be provided]
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 4,739,055
<SECURITIES> 0
<RECEIVABLES> 11,054,758
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,311,043
<PP&E> 3,850,781
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,624,661
<CURRENT-LIABILITIES> 5,282,669
<BONDS> 0
0
0
<COMMON> 6,516
<OTHER-SE> 23,761,644
<TOTAL-LIABILITY-AND-EQUITY> 32,624,661
<SALES> 7,398,531
<TOTAL-REVENUES> 7,398,531
<CGS> 0
<TOTAL-COSTS> 5,859,070
<OTHER-EXPENSES> 28,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,568,361
<INCOME-TAX> 611,620
<INCOME-CONTINUING> 956,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 956,741
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
</TABLE>
