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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: May 27, 1998
PHYSICIANS' SPECIALTY CORP.
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(Exact name of registrant as specified in charter)
DELAWARE
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(State of other jurisdiction of incorporation)
1-12759 58-2251438
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(Commission File Number) (IRS Employer Identification No.)
1150 Lake Hearn Drive, Suite 640, Atlanta, Georgia 30342
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code: (404) 256-7535
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(Former Address, if changed since Last Report) (Zip Code)
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Item 2. Acquisition or Disposition of Assets
On May 27, 1998, pursuant to a stock purchase agreement, Physicians'
Specialty Corp. (the "Company"), through PSC Acquisition Corp., a wholly-owned
subsidiary of the Company, acquired (i) substantially all of the tangible assets
and assumed certain contractual liabilities of Physicians' Domain, Inc., a White
Plains, New York based ENT physician practice management company ("Physicians'
Domain") and (ii) the stock of three corporations that are successors to three
ENT physician practices affiliated with Physicians' Domain employing an
aggregate of 20 physicians and 16 allied health care professionals with 11
clinical offices in Southern New York and Northern New Jersey (collectively,
"PDI"). In connection with the PDI transaction, the Company (i) paid
approximately $5.0 million in cash, (ii) discharged approximately $4.2 million
of liabilities of PDI and (iii) issued a subordinated long-term promissory note
in the principal amount of approximately $6.4 million, which note matures in May
2003, accrues interest at a rate of 6.0% per annum, payable quarterly, is
secured by the fixed assets acquired by the Company in the transaction and is
subordinate to senior indebtedness, including borrowings under the Company's
credit facility. In addition, the Company will pay an additional $500,000, in
cash or shares of Common Stock at the Company's option, if the PDI practices
achieve stipulated performance targets. Pursuant to the stock purchase
agreement, the physicians at PDI will have the right to nominate one member to
the Board of Directors of the Company.
In connection with the PDI transaction, the Company entered into
management services agreements with two newly organized ENT practices employing
the 20 ENT physicians. The management services agreements provide for an
aggregate fixed annual management fee of approximately $2.1 million, plus
reimbursement of practice operating expenses. Pursuant to the management
services agreements, the fixed management fee is subject to annual increases
after May 27, 2003 consistent with the annual percentage increase in the
consumer price index for the prior year. The management services agreements also
provide for mutually agreed increases in the fixed management fee upon (i) the
management by the Company of ancillary business developed or acquired or (ii)
the acquisition of additional physician practices which are merged into the
existing PDI practices.
The Company used a portion of the net proceeds received from the
Company's public offering in May 1998 to pay the cash component of and to
discharge the indebtedness of PDI assumed by the Company in connection with the
PDI transaction.
Except for the descriptions of historical facts contained herein, this
report contains forward-looking statements that involve risks and uncertainties
as detailed from time to time in the Company's filings under the Securities Act
of 1933 and the Securities Exchange Act of 1934, including, 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.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of the Businesses Acquired
Financials for the Company and Ear, Nose & Throat Associates, P.C. to be filed
by amendment within the time period specified by Item 7 of Form 8-K.
(b) Pro Forma Financial Information
To be filed by amendment within the time period specified by Item 7 of Form 8-K.
(c) Exhibits
10.47 Management Services Agreement dated May 27, 1998 among the Registrant,
PSC Management Corp. and ENT Associates LLP.
10.48 Management Services Agreement dated May 27, 1998 among the Registrant,
PSC Management Corp. and ENT Associates of New Jersey, P.C.
10.49 Termination Letter terminating the Stock Purchase Agreement dated May 22,
1998 by and among the Registrant, PSC Acquisition Corp. and the other
parties named therein.
10.50 Stock Purchase Agreement dated as of May 27, 1998 by and among the
Registrant, PSC Acquisition Corp. and the other parties named therein
(superseding the Stock Purchase Agreement dated as of May 1, 1998 by
and among the Registrant, PSC Acquisition Corp. and the other parties
named therein and filed as Exhibit 10.46 to the Registrant's Quarterly
Report on Form 10-Q for the three months ended March 31, 1998).
10.51 Promissory Note in the Principal Amount of $6,401,986 issued by PSC
Acquisition Corp. and PSC Management Corp. and guarantied by the
Registrant to Kurzman & Eisenberg, LLP as agent for the parties named
therein.
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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 hereunto duly authorized.
PHYSICIANS' SPECIALTY CORP.
By: /s/ Robert A. DiProva
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Robert A. DiProva
Executive Vice President and
Chief Financial Officer
Dated: June 8, 1998
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EXHIBIT 10.47
MANAGEMENT SERVICES AGREEMENT
by and among
ENT Associates, LLP
PSC Management Corp.
and
Physicians' Specialty Corp.
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TABLE OF CONTENTS
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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
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...........................................................21
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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............................................................................28
SECTION 7. REPRESENTATIONS AND WARRANTIES........................................................................29
7.1 REPRESENTATIONS AND WARRANTIES OF PRACTICE................................................................29
7.2 REPRESENTATIONS AND WARRANTIES OF MANAGER.................................................................29
SECTION 8. INSURANCE AND INDEMNITY...............................................................................30
8.1 INSURANCE TO BE MAINTAINED BY PRACTICE....................................................................30
8.2 INDEMNIFICATION BY MANAGER................................................................................30
8.3 INDEMNIFICATION BY PRACTICE...............................................................................30
8.4 INDEMNIFICATION PROCEDURE.................................................................................30
8.5 KEY MAN INSURANCE.........................................................................................31
8.6 NO PUNITIVE OR CONSEQUENTIAL DAMAGES......................................................................32
SECTION 9. ASSIGNMENT............................................................................................32
SECTION 10. COMPLIANCE WITH REGULATIONS..........................................................................32
10.1 PRACTICE OF MEDICINE.....................................................................................32
10.2 SUBCONTRACTS.............................................................................................33
SECTION 11. INDEPENDENT RELATIONSHIP.............................................................................33
11.1 INDEPENDENT CONTRACTOR STATUS............................................................................33
11.2 REFERRAL ARRANGEMENTS....................................................................................34
SECTION 12. GUARANTEES...........................................................................................34
SECTION 13. NAME; LICENSE........................................................................................36
SECTION 14. MISCELLANEOUS........................................................................................36
14.1 NOTICES..................................................................................................36
14.2 ADDITIONAL ACTS..........................................................................................37
14.3 GOVERNING LAW............................................................................................37
14.4 CAPTIONS, ETC............................................................................................37
14.5 SEVERABILITY.............................................................................................37
14.6 MODIFICATIONS............................................................................................38
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14.7 NO RULE OF CONSTRUCTION..................................................................................38
14.8 COUNTERPARTS.............................................................................................38
14.9 BINDING EFFECT...........................................................................................38
14.10 ENFORCEMENT RIGHTS......................................................................................38
14.11 ARBITRATION.............................................................................................39
14.12 COSTS OF ENFORCEMENT....................................................................................39
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MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT, effective as of May 27, 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.
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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. To the extent that any of the
aforesaid Practice Employees may be lawfully employed by the Manager and are so
employed, such individuals will be leased employees provided to the Practice by
Manager.
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), other than leased Practice Employees, if any, 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
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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 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 "Transitional Period") 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 $1,680,457 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 whether or not subsequently
abandoned), 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 (other than leased employees) or
Physician Partners, except as covered under subsection (j) 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
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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 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 May 27, 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.
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2.2 FUNCTIONS OF THE ADVISORY BOARD. The Advisory Board shall review,
evaluate and make recommendations to Practice and Manager with respect to the
following matters:
(a) Annual Budgets. All annual capital and operating budgets
prepared by Manager, as set forth in Sections 3.4 and 3.19, shall be subject to
review and approval by the Advisory Board, which 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.
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(k) Grievance Referrals. The Advisory Board shall consider,
review and make recommendations to Manager and Practice with respect to any
matters arising in connection with the operations of Practice that are not
specifically addressed in this Agreement and as to which Manager or Practice
requests consideration by the Advisory Board.
(l) Quality Assurance and Utilization Review. The Advisory
Board shall advise Manager and Practice regarding all quality assurance and
utilization review programs undertaken by Practice either independently or in
connection with any managed care contracts maintained by Practice, and Manager
shall assist the Practice in 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
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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 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.
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(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.
(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;
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(v) To receive payments from Medicare and Medicaid,
subject to the provisions of Section 3.6(b) below;
(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
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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.
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
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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,
including leased employees, as determined by Manager, after consultation with
Practice, to be reasonably necessary for the effective operation of the medical
practice of Practice at the Medical Offices, subject, however, to the following:
(a) Manager shall 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
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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 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
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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 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
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other benefits and value that accrue to Practice as a result of Manager's
services under this Agreement.
3.19 BUDGETS.
(a) As part of the Manager's responsibilities under this
Agreement, the Manager shall prepare annual capital and operating budgets for
the Practice for each budget period in accordance with the provisions of this
Section 3.19. As used herein, a budget period means a 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,
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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 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).
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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, (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
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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, 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;
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(x) comply with all Laws applicable to the conduct of
Physician's activities, as well as with the articles of incorporation, bylaws
and other corporate governance documents of Practice and other rules or
regulations adopted from time to time by Practice;
(xi) promptly disclose to Practice (i) the commencement
or pendency of any legal action, administrative proceeding or investigation,
medical staff or professional disciplinary actions against Physician or (ii) the
existence of any circumstances that could reasonably be expected to form the
basis of or lead to any such action, proceeding or investigation;
(xii) abide by any guidelines adopted by Practice or any
person or entity providing management services to Practice designed to encourage
the appropriate, efficient and cost-effective delivery of medical services,
subject always to the clinical judgment of Physician, and cooperate with and
participate in all Practice programs regarding quality assurance, utilization
review, risk management and peer review;
(xiii) maintain appropriate and accurate medical records
in accordance with accepted medical standards and Practice policies with respect
to all patients evaluated and treated; and
(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.
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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 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
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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.
(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
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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 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
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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.
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
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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 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
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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 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 One Million Eight Hundred Ninety-five
Thousand dollars ($1,895,000.00) per annum payable in equal monthly installments
of $157,916.67 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
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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.
(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 the Effective Date and ending on the fortieth
anniversary of the Effective Date. 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.
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(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, 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
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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 "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.
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(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.
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 $14,925,875.80 minus the product of (x) $1,492,587.58, 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.
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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:
(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
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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.
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
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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 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
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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 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
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professional medical judgment with respect to matters under consideration which
require the exercise of such judgment.
10.2 SUBCONTRACTS. Pursuant to Title 42 of the United States Code and
applicable rules and regulations thereunder, until the expiration of four (4)
years after termination of this Agreement, Manager shall make available, upon
appropriate written request by the Secretary of the United States Department of
Health and Human Services or the Comptroller General of the United States
General Accounting Office, or any of their duly authorized representatives, a
copy of this Agreement and such books, documents and records as are necessary to
certify the nature and extent of the costs of the services provided by Manager
under this Agreement. Manager further agrees that if it carries out any of its
duties under this Agreement through a subcontract with a value or cost of Ten
Thousand and No/100 Dollars ($10,000.00) or more over a twelve (12) month period
with a related organization, such subcontract shall contain a clause to the
effect that until the expiration of four (4) years after the furnishing of such
services pursuant to such subcontract, the related organization shall make
available, upon appropriate written request by the Secretary of the United
States Department of Health and Human Services or the Comptroller General of the
United States General Accounting Office, or any of their duly authorized
representatives, a copy of such subcontract and such books, documents and
records of such organization as are necessary to verify the nature and extent of
such costs. Disclosure pursuant to this Section shall not be construed as a
waiver of any other legal right to which Manager may be entitled under law or
regulation.
SECTION 11. INDEPENDENT RELATIONSHIP.
11.1 INDEPENDENT CONTRACTOR STATUS.
(a) It is acknowledged and agreed that Practice and Manager are at
all times acting and performing hereunder as independent contractors. Manager
shall neither have nor exercise any control or direction over the methods by
which Practice, Physician 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.
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(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, 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
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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) 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
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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) 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:
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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
If to the Practice or any Physician Partner:
ENT Associates, LLP
One North Broadway
White Plains, New York 10601
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
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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
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.
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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 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.
39
<PAGE> 44
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: /s/ Richard D. Ballard By: /s/ Steven Sacks
----------------------------- ------------------------------
Title: Vice President Title: President
-------------------------- ---------------------------
PHYSICIANS' SPECIALTY CORP.
By: /s/ Richard D. Ballard
-----------------------------
Title: Chief Executive Officer
--------------------------
40
<PAGE> 45
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.
/s/ Robert Green
---------------------------------
Robert Green, M.D.
/s/ Steven Sacks
---------------------------------
Steven Sacks, M.D.
/s/ Hyman Ryback
---------------------------------
Hyman Ryback, M.D.
/s/ Wayne Eisman
---------------------------------
Wayne Eisman, M.D.
/s/ Dan Moskowitz
---------------------------------
Dan Moskowitz, M.D.
/s/ Richard Rosenberg
---------------------------------
Richard Rosenberg, M.D.
/s/ Gary Fishman
---------------------------------
Gary Fishman, M.D.
/s/ Marie Valdes
---------------------------------
Marie Valdes, M.D.
/s/ Frank Schectman
---------------------------------
Frank Schectman, M.D.
/s/ Michael Bergstein
---------------------------------
Michael Bergstein, M.D.
/s/ Steven Kase
---------------------------------
Steven Kase, M.D.
41
<PAGE> 46
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> 47
EXHIBIT 3.1
Medical Offices
PRACTICE LOCATION
79 East Post Road
White Plains, NY 10601
The Barnes Office Center
Stoneleigh Avenue
Suite 116
Carmel, NY 10566
170 Maple Avenue
White Plains, NY 10601
1983 Crompound Road
Suite 4
Peekskill, NY 10566
200 South Broadway
Tarrytown, NY 10591
1 Old Mamaroneck Road
Suite 1B
White Plains, NY 10605
1035 5th Avenue
New York, NY 10028
984 North Broadway
Suite 400
Yonkers, NY 10701
11 Peekskill Hollow Road
Putnam Valley, NY 10579
2 Stowe Road
Peekskill, NY 10566
Southeast Executive Boulevard
100 Executive Drive
Brewster, New York
<PAGE> 48
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,
<PAGE> 49
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.
<PAGE> 50
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> 51
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.
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:
------------------------------------
Robert Green, M.D.
------------------------------------
Steven Sacks, M.D.
------------------------------------
Hyman Ryback, M.D.
------------------------------------
Wayne Eisman, M.D.
------------------------------------
Dan Moskowitz, M.D.
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE> 53
[SIGNATURES CONTINUED FROM PRIOR PAGE]
------------------------------------
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
Bergen 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>
Robert Green, M.D. Term of Employment plus 5 years 8.78
unless earlier pursuant to the
last sentence of Section 12(b)
Steven Sacks, M.D. Term of Employment plus 5 years 8.78
unless earlier pursuant to the
last sentence of Section 12(b)
Hyman Ryback, M.D. Term of Employment plus 5 years 9.16
unless earlier pursuant to the
last sentence of Section 12(b)
Wayne Eisman, M.D. Term of Employment plus 5 years 9.16
unless earlier pursuant to the
last sentence of Section 12(b)
Dan Moskowitz, M.D. Term of Employment plus 5 years 9.16
unless earlier pursuant to the
last sentence of Section 12(b)
Richard Rosenberg, M.D. Term of Employment plus 5 years 9.16
unless earlier pursuant to the
last sentence of Section 12(b)
Gary Fishman, M.D. Term of Employment plus 5 years 9.16
unless earlier pursuant to the
last sentence of Section 12(b)
Marie Valdes, M.D. Term of Employment plus 5 years 9.16
unless earlier pursuant to the
last sentence of Section 12(b)
Frank Schectman, M.D. Term of Employment plus 5 years 9.16
unless earlier pursuant to the
last sentence of Section 12(b)
Michael Bergstein, M.D. Term of Employment plus 5 years 9.16
unless earlier pursuant to the
last sentence of Section 12(b)
Steven Kase, M.D. Term of Employment plus 5 years 9.16
unless earlier pursuant to the
last sentence of Section 12(b)
</TABLE>
<PAGE> 1
EXHIBIT 10.48
MANAGEMENT SERVICES AGREEMENT
by and among
ENT Associates of New Jersey, P.C.
PSC Management Corp.
and
Physicians' Specialty Corp.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. KEY DEFINITIONS ....................................................1
1.1 GAAP .....................................................................1
1.2 NET PRACTICE REVENUES ....................................................2
1.3 PHYSICIAN EXPENSES .......................................................2
1.4 PHYSICIAN SHAREHOLDERS ...................................................2
1.5 PRACTICE EMPLOYEES .......................................................2
1.6 PRACTICE EXPENSES ........................................................2
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
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 SHAREHOLDER AND EMPLOYMENT AGREEMENTS .........................21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
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 ..........................................28
SECTION 7. REPRESENTATIONS AND WARRANTIES ....................................29
7.1 REPRESENTATIONS AND WARRANTIES OF PRACTICE ..............................29
7.2 REPRESENTATIONS AND WARRANTIES OF MANAGER ...............................29
SECTION 8. INSURANCE AND INDEMNITY ...........................................30
8.1 INSURANCE TO BE MAINTAINED BY PRACTICE ..................................30
8.2 INDEMNIFICATION BY MANAGER ..............................................30
8.3 INDEMNIFICATION BY PRACTICE .............................................30
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 ......................................32
10.1 PRACTICE OF MEDICINE ...................................................32
10.2 SUBCONTRACTS ...........................................................33
SECTION 11. INDEPENDENT RELATIONSHIP .........................................33
11.1 INDEPENDENT CONTRACTOR STATUS ..........................................33
11.2 REFERRAL ARRANGEMENTS ..................................................34
SECTION 12. GUARANTEES .......................................................34
SECTION 13. NAME; LICENSE ....................................................36
SECTION 14. MISCELLANEOUS ....................................................36
14.1 NOTICES ................................................................36
14.2 ADDITIONAL ACTS ........................................................37
14.3 GOVERNING LAW ..........................................................37
14.4 CAPTIONS, ETC ..........................................................38
14.5 SEVERABILITY ...........................................................38
14.6 MODIFICATIONS ..........................................................38
14.7 NO RULE OF CONSTRUCTION ................................................38
14.8 COUNTERPARTS ...........................................................38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
14.9 BINDING EFFECT .........................................................38
14.10 ENFORCEMENT RIGHTS ....................................................38
14.11 ARBITRATION ...........................................................39
14.12 COSTS OF ENFORCEMENT ..................................................39
</TABLE>
iii
<PAGE> 5
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT, effective as of May 27, 1998 (the
"Effective Date"), by and among ENT ASSOCIATES OF NEW JERSEY, P.C., a New Jersey
professional corporation (the "Practice"); PSC MANAGEMENT CORP., a Delaware
corporation ("Manager"); PHYSICIANS' SPECIALTY CORP., a Delaware corporation
("Parent"); and the PHYSICIAN SHAREHOLDER who is a signatory 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 Shareholders, Practice Employees and employees of
Practice, whether rendered in an inpatient or outpatient setting and whether
generated from health maintenance organizations, preferred provider
organizations, Medicare, Medicaid or rendered to other patients, including, but
not limited to, payments received under any capitation 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 SHAREHOLDERS. The term "Physician Shareholders"
shall mean those individuals who are duly licensed to practice medicine in the
State and who are shareholders of Practice.
1.5 PRACTICE EMPLOYEES. The term "Practice Employees" shall mean:
(a) those individuals who are duly licensed to practice medicine in the State
and who are employees of Practice (other than Physician Shareholders), and those
individuals who are otherwise under contract with Practice to provide physician
and/or medical services to patients, specifically including nurse practitioners,
certified registered nurse anesthetists, physician assistants, Fellows, surgical
assistants, certified nurse midwives, individuals with a Masters in Social Work
degree, physical therapists, audiologists and similar speech, hearing and
language professionals, and psychologists with a Masters or a Doctorate degree;
and (b) those individuals (other than those described in Section 1.5(a))
required by law, regulatory authority or policy as of the Effective Date, who
must be billed through and by a licensed physician and who are therefore
required to be employees of the Practice. To the extent that any of the
aforesaid Practice Employees may be lawfully employed by the Manager and are so
employed, such individuals will be leased employees provided to the Practice by
Manager.
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), other than leased Practice Employees, if any, or "Physician Shareholders"
(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
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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
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 Plan" (as defined in the
Stock Purchase Agreement) of the CEA Corporation (as defined under the Stock
Purchase Agreement) or its predecessor practice; (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
Shareholders 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 "Transitional Period") 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 $152,768 with respect to the depreciable
personal property on the books of the "Corporation" when acquired under the
Stock Purchase Agreement (including, without limitation, assets acquired by any
such Corporation from Physicians Domain, Inc.) (and whether or not subsequently
abandoned), 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 (other than leased employees) or
Physician Shareholders, except as covered under subsection (j) above; (3)
physician licensure fees, board certification fees and costs of membership in
professional associations for Practice Employees and Physician Shareholders; (4)
costs of continuing professional education for Practice Employees and Physician
Shareholders; (5) costs associated
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with legal, accounting and professional services incurred by or on behalf of
Practice other than as described in the first sentence of Section 3.11; (6)
costs of medical malpractice insurance for Practice, its Physician Shareholders
and Practice Employees, and any liability judgments assessed against Practice,
Practice Employees or Physician Shareholders in excess of policy limits; (7)
direct personal expenses of Physician Shareholders or Practice Employees of a
kind which are customarily charged to Physician Shareholders and Practice
Employees (including, but not limited to, cellular phone expenses, car
allowances 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 Jersey,
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 May ___, 1998 by and
among Parent, PSC Acquisition Corp., and the Physician Shareholder.
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
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Advisory Board. Except as may otherwise be provided, the act of a majority of
the members of the Advisory Board shall be the act of the Advisory Board.
2.2 FUNCTIONS OF THE ADVISORY BOARD. The Advisory Board shall
review, evaluate and make recommendations to Practice and Manager with respect
to the following matters:
(a) Annual Budgets. All annual capital and operating
budgets prepared by Manager, as set forth in Sections 3.4 and 3.19, shall be
subject to review and approval by the Advisory Board, which 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 N.J. Stat. Section 45:9-16 and N.J.A.C. Section 13:35-6.10.
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(j) Exceptions to Inclusion in Net Practice Revenues. The
Advisory Board will review and make recommendations to Manager and Practice with
respect to the proposed exclusion of any revenue from Net Practice Revenues.
(k) Grievance Referrals. The Advisory Board shall
consider, review and make recommendations to Manager and Practice with respect
to any matters arising in connection with the operations of Practice that are
not specifically addressed in this Agreement and as to which Manager or Practice
requests consideration by the Advisory Board.
(l) Quality Assurance and Utilization Review. The
Advisory Board shall advise Manager and Practice regarding all quality assurance
and utilization review programs undertaken by Practice either independently or
in connection with any managed care contracts maintained by Practice, and
Manager shall assist the Practice in 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,
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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 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.
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(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.
(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 Shareholders 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 Shareholders' and Practice
Employees' names under their respective provider numbers and on their behalf,
and in connection with such billing services Manager covenants and agrees that
it will use its best efforts to perform the billing correctly and in accordance
with applicable laws and regulations based on information that Practice and the
Physician Shareholders and Practice Employees provide to Manager for such
purpose;
(ii) To collect accounts receivable and claims
for reimbursement that are generated by such billings in Practice's name and on
Practice's behalf, and in the name and on behalf of all Physician Shareholders
and Practice Employees;
(iii) To place such accounts for collection,
settle and compromise claims, and institute legal action for the recovery of
accounts 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
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services rendered by Practice, Physician Shareholders 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;
(vi) To take possession of and endorse in the
name of Practice, or any Physician Shareholder or Practice Employee, any notes,
checks, money orders, insurance payments and any other instruments received by
Practice as payment of such accounts receivable (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 Shareholder 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
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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.
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 Jersey 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,
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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,
including leased employees, as determined by Manager, after consultation with
Practice, to be reasonably necessary for the effective operation of the medical
practice of Practice at the Medical Offices, subject, however, to the following:
(a) Manager shall 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-
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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 Shareholders request
personal secretarial, clerical, bookkeeping, or other non-physician medical
support personnel in addition to personnel determined to be necessary and/or
appropriate by Manager, and such additional personnel and/or services are
provided by mutual agreement between Manager and Practice, all costs and
expenses incurred by Manager in providing such additional personnel shall be
paid to Manager by Practice.
3.12 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 shareholders 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
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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 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
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other benefits and value that accrue to Practice as a result of Manager's
services under this Agreement.
3.19 BUDGETS.
(a) As part of the Manager's responsibilities under this
Agreement, the Manager shall prepare annual capital and operating budgets for
the Practice for each budget period in accordance with the provisions of this
Section 3.19. As used herein, a budget period means a 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 undersigned Physician Shareholder's prior practice 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,
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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 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 Shareholders 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 Shareholders. 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).
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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, (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 Shareholder, 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 Shareholders and Practice
Employees. Practice shall be responsible for paying as a Physician Expense
salaries, benefits and other similar direct costs for all Practice Employees and
Physician Shareholders. Practice shall pay all Physician Expenses as they become
due. However, Practice shall pay the salaries and benefits for those individuals
described in Section 1.5(b), but Manager shall reimburse Practice 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 Shareholders and Practice
Employees shall at all times be provided in accordance with applicable ethical
standards and Laws applying to the medical profession. Practice shall at all
times during the term of this Agreement be and remain legally organized and
authorized to provide medical care and services
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in a manner consistent with all state and federal laws. The parties will
cooperate with each other in taking steps to resolve any utilization review or
quality assurance issues which may arise in connection with the medical practice
of Practice. If any disciplinary actions or professional liability actions are
initiated against any Physician Shareholder or Practice Employee, Practice shall
immediately inform Manager of such action and the underlying facts and
circumstances. Practice agrees to implement and maintain a program to monitor
the quality of medical care provided by Practice, and Manager shall render
administrative assistance to Practice on an as-requested basis to assist
Practice in 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
Jersey 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;
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(x) comply with all Laws applicable to the
conduct of Physician's activities, as well as with the articles of
incorporation, bylaws and other corporate governance documents of Practice and
other rules or regulations adopted from time to time by Practice;
(xi) promptly disclose to Practice (i) the
commencement or pendency of any legal action, administrative proceeding or
investigation, medical staff or professional disciplinary actions against
Physician or (ii) the existence of any circumstances that could reasonably be
expected to form the basis of or lead to any such action, proceeding or
investigation;
(xii) abide by any guidelines adopted by Practice
or any person or entity providing management services to Practice designed to
encourage the appropriate, efficient and cost-effective delivery of medical
services, subject always to the clinical judgment of Physician, and cooperate
with and participate in all Practice programs regarding quality assurance,
utilization review, risk management and peer review;
(xiii) maintain appropriate and accurate medical
records in accordance with accepted medical standards and Practice policies with
respect to all patients evaluated and treated; and
(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
Shareholders 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 Shareholders and
physician Practice Employees to execute and deliver to Manager powers of
attorney, satisfactory in form and substance to Manager, appointing Manager as
attorney-in-fact for each such Physician Shareholder and physician Practice
Employee for the purposes set forth in Section 3.6(a) to the extent authorized
by law.
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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 Shareholders 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 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 Shareholders.
(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 Shareholders 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,
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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 Shareholder 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.
(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 Shareholder 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 Shareholders and other physician employees of
Practice set forth in the Physician Employment Agreements (which the Parties
agree will be in substantially the form of Exhibit A, 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
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(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 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 Shareholders 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 Shareholders and Practice Employees
participates in such continuing medical education activities as are necessary
for such physicians to remain current in their respective specialties,
including, but not limited to, the minimum continuing medical education
requirements imposed by applicable laws and policies of applicable specialty
boards.
4.7 PROVISION OF SERVICES BY PRACTICE. Practice shall use its
reasonable efforts to maintain at least the same quality and scope of medical
practice and other health care services provided by the undersigned Physician
Shareholder 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 Shareholders or physician Practice Employees to
provide services to patients of the Practice at normal office hours at the
Medical Offices and to provide coverage during all appropriate hours of all
hospitalized patients of Practice whether on any inpatient or outpatient basis.
Practice shall be responsible for coding and call schedule with respect to all
physicians in the Practice.
4.8 PHYSICIAN SHAREHOLDER AND EMPLOYMENT AGREEMENTS. Practice
represents that it has delivered to Manager a true and correct copy of the
shareholder agreement and Physician Employment Agreements between Practice and
its Physician Shareholders and will cause all new
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shareholders of Practice to execute such agreements prior to becoming a partner
(or employee) in Practice. Practice shall not amend the shareholder agreement
so as to cause the shareholder agreement to contravene or conflict with this
Agreement or the Physician Employment Agreements between Practice and its
physician employees. Practice shall not waive any material rights thereunder
without the prior consent of Manager. The shareholders of the Practice are and
shall be individual physicians.
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 undersigned Physician Shareholder
expressly acknowledges and agrees 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 undersigned Physician Shareholder'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 the
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undersigned Physician Shareholder agrees to Practice arbitrating on his behalf
in such procedure any objections he 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 Shareholders and Practice Employees with
respect to any services rendered while employed by 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 Shareholders
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 Shareholder or Practice Employee to endorse) any payments
received on account of such services to the order of Manager and shall take such
other actions as may be necessary to confirm to Manager the rights set forth in
this Section 5.2(a).
Without limiting the generality of the foregoing, it is the
intent of the parties that the assignment to Manager of the rights described in
Section 5.2(a) above shall be inclusive of the rights of Practice and the
Physician Shareholders and Practice Employees to proceeds of payment with
respect to any services rendered prior to the effective date of any expiration
or termination of this Agreement. Practice agrees and shall cause each Physician
Shareholder and Practice Employee to agree, that Manager shall retain the right
to collect any and all accounts receivable and claims for reimbursement relating
to any such services rendered prior to the effective date of any such expiration
or termination ("Pre-Termination Accounts Receivable"), and that the proceeds
thereof will be transferred to Manager's account to be applied in accordance
with Section 3.6 and 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 Shareholders to maintain each of their provider numbers, including but
not limited to Medicare and Medicaid numbers, necessary or appropriate to obtain
payment or reimbursement for all medical services provided by such Physician
Shareholders and shall further cause each Physician Shareholder who provides
services to the Practice to execute any and all documentation necessary to
effectuate the assignments of revenues to Manager as contemplated by this
Agreement.
(b) Practice acknowledges that Manager and Parent may, to
the extent permitted by law, grant a security interest in the Pre-Termination
Accounts Receivable and proceeds thereof to their factor(s) or lender(s) under
Manager's or Parent's working capital credit
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facility (whether one or more, "Credit Facility Lender"), as in effect from time
to time. Practice agrees that such security interest of the Credit Facility
Lender is intended to be a first priority security interest and is superior to
any right, title or interest which may be asserted by Practice or any Physician
Shareholder or Practice Employee with respect to Pre-Termination Accounts
Receivable or the proceeds thereof under this Agreement. Practice further
agrees, and shall cause each Physician Shareholder and Practice Employee to
agree, that, upon the occurrence of an event which, under the terms of such
working capital credit facility, would allow the Credit Facility Lender to
exercise its right to collect Pre-Termination Accounts Receivable and apply the
proceeds thereof toward amounts due under such working capital credit facility,
the Credit Facility Lender will succeed to all rights and powers of Manager
under the powers of attorney provided for in Sections 3.6 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 Shareholder and
Practice Employee shall to the extent permitted by applicable Laws, effective as
of the date of this Agreement, be deemed to have granted (and Practice does
hereby grant, and shall cause each Physician Shareholder and Practice Employee
to grant) to Manager a first priority lien on and security interest in and to
any and all interests of Practice and such Physician Shareholders and Practice
Employees in any accounts receivable generated by the medical practice of
Practice and its Physician Shareholders and Practice Employees 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 Shareholder and Practice Employee to execute and deliver, all such
financing statements as Manager may request in order to perfect such security
interest. Practice shall not grant (and shall not suffer any Physician
Shareholder or Practice Employee to grant) any other lien on or security
interest in or to such accounts receivable or any proceeds thereof or in or to
this Agreement to any other person or entity.
5.3 MANAGEMENT FEES.
(a) Manager shall receive One Hundred Fifty Thousand
dollars ($150,000.00) per annum payable in equal monthly installments of
$12,500.00 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
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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.
(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 the Effective Date 1998 and ending on the
fortieth anniversary of the Effective Date. 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.
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(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, 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 Shareholders and physician
Practice Employees to practice medicine in the State of New Jersey 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 Shareholders 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
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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 undersigned Physician Shareholder dated as of even date
herewith (the "Debenture"), after giving effect to all notice and opportunity to
cure periods thereunder, and Practice and the undersigned Physician Shareholder
under this Agreement and "Practice" and the "Physician Partners" under the New
York 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 Shareholder 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.
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(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.
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 $1,188,724.20 minus the product of (x) $118,872.42,
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 Jersey, 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.
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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:
(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 Articles of
Incorporation, its By-laws or otherwise to authorize the execution, delivery and
performance of this Agreement and such related documents. The execution and
delivery of this Agreement and the Billing Agreement do not and, subject to the
consummation of the transactions contemplated hereby, will not, violate any
provisions of the Articles of Incorporation or its By-laws 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,
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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.
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 Shareholders 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 Shareholders and
Practice Employees, in the amounts required by law. Practice shall provide to
Manager written documentation evidencing such insurance coverage. Practice
shall, at its sole cost and expense, pay the premium costs of all such workers'
compensation insurance coverage. Manager agrees to administer and manage the
above insurance.
8.2 INDEMNIFICATION BY MANAGER. Manager shall indemnify and hold
harmless Practice, its shareholders, 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 Shareholders, Practice Employees or
independent contractors (other than Manager or PSC).
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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 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.
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8.5 KEY MAN INSURANCE. Practice agrees, and shall cause its
Physician Shareholders and Practice Employees to agree, that Manager may obtain,
at its sole expense (and not as a Practice Expense) and for its sole benefit,
"key man" life insurance policies on any or all Physician Shareholders and
Practice Employees. Neither Practice nor any Physician Shareholder or Practice
Employee shall have any right, title or interest in or to the proceeds of any
such insurance policies. Practice shall cause its Physician Shareholders and
Practice Employees to cooperate with Manager, as reasonably requested by Manager
from time to time, in obtaining any such insurance policies, including, but not
limited to, causing such Physician Shareholders and Practice Employees to submit
to such physical examinations and providing such information relating to
insurability as Manager may reasonably request from time to time. Nothing set
forth herein shall be deemed a guaranty of insurability of any physician, or
that such insurance, if any, is obtainable at commercially reasonable rates.
Each Physician Shareholder 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
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of said act or service by Manager shall be deemed waived and forever
unenforceable. Practice and its Physician Employees and Practice Employees shall
be unfettered in the exercise of their professional medical judgment with
respect to matters under consideration which require the exercise of such
judgment.
10.2 SUBCONTRACTS. Pursuant to Title 42 of the United States Code
and applicable rules and regulations thereunder, until the expiration of four
(4) years after termination of this Agreement, Manager shall make available,
upon appropriate written request by the Secretary of the United States
Department of Health and Human Services or the Comptroller General of the United
States General Accounting Office, or any of their duly authorized
representatives, a copy of this Agreement and such books, documents and records
as are necessary to certify the nature and extent of the costs of the services
provided by Manager under this Agreement. Manager further agrees that if it
carries out any of its duties under this Agreement through a subcontract with a
value or cost of Ten Thousand and No/100 Dollars ($10,000.00) or more over a
twelve (12) month period with a related organization, such subcontract shall
contain a clause to the effect that until the expiration of four (4) years after
the furnishing of such services pursuant to such subcontract, the related
organization shall make available, upon appropriate written request by the
Secretary of the United States Department of Health and Human Services or the
Comptroller General of the United States General Accounting Office, or any of
their duly authorized representatives, a copy of such subcontract and such
books, documents and records of such organization as are necessary to verify the
nature and extent of such costs. Disclosure pursuant to this Section shall not
be construed as a waiver of any other legal right to which Manager may be
entitled under law or regulation.
SECTION 11. INDEPENDENT RELATIONSHIP.
11.1 INDEPENDENT CONTRACTOR STATUS.
(a) It is acknowledged and agreed that Practice and
Manager are at all times acting and performing hereunder as independent
contractors. Manager shall neither have nor exercise any control or direction
over the methods by which Practice, Physician Shareholders and Practice
Employees practice medicine. The 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
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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
Shareholders and Practice Employees which substantially preserves for the
parties the relative economic benefits of this Agreement. If the parties cannot
reach agreement on such an arrangement after a period of 30 days of good faith
negotiations which shall commence after the aforesaid determination or opinion
is delivered, 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 Jersey, 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
Jersey. 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
34
<PAGE> 39
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) 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 Shareholders to proceed against any
security before proceeding against Parent hereunder; and (vii) any requirement
that the Physician Shareholders 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 Shareholders' 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 Shareholders 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 Shareholders.
(b) Irrevocable Guaranty by Physician Shareholders. To
induce Manager to execute and deliver this Agreement, the undersigned Physician
Shareholder, 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 Shareholder 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 Shareholders will
perform all such covenants and obligations in accordance with their terms or
immediately pay or deliver to Manager (or such other payee or transferee as may
be provided in any such agreement) the amount due and unpaid or the property not
delivered, as the case may be, by Practice. In the event of bankruptcy,
termination, liquidation or dissolution of Practice, this unconditional guaranty
shall continue in full force and effect. In the event of any extension of time
for payment or performance or other modification of
35
<PAGE> 40
any guaranteed obligation or covenant, or any waiver thereof or other compromise
or indulgence with respect thereto or any release or impairment of any security
for any such obligation or covenant, or any other circumstance which might
otherwise constitute a legal or equitable discharge of a surety or guarantor, no
notice to, or consent of, Practice or any other Physician Shareholder shall be
required. Each Physician Shareholder 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
Shareholders or Practice; (iv) all other notices, demands and protests of every
kind in connection with the enforcement of the obligations of Practice or
Physician Shareholders 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 Shareholder 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) 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 Shareholder
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
Shareholder 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. The undersigned Physician
Shareholder'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) if Physician Shareholder's 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
of New Jersey", 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:
36
<PAGE> 41
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
If to the Practice or the Physician Shareholder:
ENT ASSOCIATES OF NEW JERSEY, P.C.
177 North Dean Street
Englewood, NJ
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.
37
<PAGE> 42
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
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 Shareholders 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
38
<PAGE> 43
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 Bergen County, New Jersey 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
Jersey. 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.
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.
39
<PAGE> 44
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 OF NEW JERSEY, P.C.
By:/s/ Richard D. Ballard By:/s/ Lee Eisenberg
-------------------------------- --------------------------------
Title: Vice President Title: President
----------------------------- -----------------------------
PHYSICIANS' SPECIALTY CORP.
By: /s/ Richard D. Ballard
--------------------------------
Title: Chief Executive Officer
-----------------------------
The undersigned hereby executes the above Agreement solely for the
purpose of confirming and agreeing to be legally bound by his obligations under
Section 12(b) hereof.
/s/ Lee Eisenberg
--------------------------
Lee Eisenberg, M.D.
40
<PAGE> 45
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 Shareholders 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
477 North Dean Street
Englewood, NJ 07631
<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 ENT ASSOCIATES OF NEW JERSEY, P.C. AND THE PHYSICIAN
SHAREHOLDER WHO IS A SIGNATORY 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,
<PAGE> 48
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.
<PAGE> 49
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 SHAREHOLDER:
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
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.
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> 51
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 SHAREHOLDER:
--------------------------------------------
Lee Eisenberg, M.D.
<PAGE> 52
EXHIBIT 12(b)
<TABLE>
<CAPTION>
Name of Physician Term of Obligations Guaranteed % Share of Liability
- ----------------- ------------------------------ --------------------
<S> <C> <C>
Lee Eisenberg, M.D. Term of Employment plus 5 years, 100%
unless earlier pursuant to the last
sentence of Section 12(b)
</TABLE>
<PAGE> 1
EXHIBIT 10.49
May 22, 1998
Physicians' Specialty Corp.
PSC Acquisition Corp.
1150 Lake Hearn Drive
Suite 640
Atlanta, Georgia 30342
Attention: Chief Executive Officer
Re: Stock Purchase Agreement dated as of May 1, 1998
("STOCK PURCHASE AGREEMENT")
Dear Sir:
Reference is hereby made to the Stock Purchase Agreement. Capitalized terms
used in this letter not otherwise defined herein shall have the meanings set
forth in the Stock Purchase Agreement. This will confirm that Andrew Blank,
M.D., Richard Hamburg, M.D., Jay Youngerman, M.D. and John Grosso, M.D. have
decided not to go forward with the transactions under the Stock Purchase
Agreement and that, accordingly, Sellers will not be able to meet the conditions
to Closing specified in Section 5 of the Agreement.
We recognize and agree that the Stock Purchase Agreement will be terminated
as a result of this development. Please confirm that the Stock Purchase
Agreement is terminated by executing this letter in the space below and return a
copy to the Sellers c/o Steven Sacks, M.D., 1035 5th Avenue, New York, New York
10028, with a copy to Joel Lever, Esq., Kurzman & Eisenberg, LLP, One North
Broadway, White Plains, New York 10601.
Thank you for your cooperation.
Sincerely yours,
/s/ Steven Sacks
----------------------------------------
Steven Sacks, M.D.
/s/ Lee Eisenberg
----------------------------------------
Lee Eisenberg, M.D.
/s/ Robert Green
----------------------------------------
Robert Green, M.D.
/s/ Hyman Ryback
----------------------------------------
Hyman Ryback, M.D.
<PAGE> 2
Physicians' Specialty Corp.
PSC Acquisition Corp.
May 22, 1998
Page 2
/s/ Wayne Eisman
----------------------------------------
Wayne Eisman, M.D.
/s/ Dan Moskowitz
----------------------------------------
Dan Moskowitz, M.D.
/s/ Richard Rosenberg
----------------------------------------
Richard Rosenberg, M.D.
/s/ Gary Fishman
----------------------------------------
Gary Fishman, M.D.
/s/ Marie Valdes
----------------------------------------
Marie Valdes, M.D.
/s/ Frank Shechtman
----------------------------------------
Frank Shechtman, M.D.
/s/ Michael Bergstein
----------------------------------------
Michael Bergstein, M.D.
/s/ Steven Kase
----------------------------------------
Steven Kase, M.D.
ACCEPTED AND AGREED
THIS 22 DAY OF MAY, 1998
PHYSICIANS' SPECIALTY CORP.
By: /s/ Richard D. Ballard
--------------------------
Name:
PSC ACQUISITION CORP.
By: /s/ Richard D. Ballard
--------------------------
Name:
cc: Joel S. Lever, Esq.
Richard H. Brody, Esq.
<PAGE> 1
EXHIBIT 10.50
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
PHYSICIANS' SPECIALTY CORP.
PSC ACQUISITION CORP.
AND
LEE EISENBERG, M.D.
ROBERT GREEN, M.D.
STEVEN SACKS, 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>
<CAPTION>
PAGE
<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
2.25 EMPLOYEE BENEFIT PLANS................................................................................16
2.26 COMPLIANCE WITH LAWS IN GENERAL.......................................................................17
2.27 FRAUD AND ABUSE.......................................................................................17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
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
5.20 TERMINATION OF CORPORATION PLANS......................................................................25
5.21 RESIGNATIONS..........................................................................................25
5.22 DUE DILIGENCE.........................................................................................25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
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
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
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
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>
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of May 27,
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"); LEE
EISENBERG, M.D. ("CEA SELLER"); ROBERT GREEN, M.D. and STEVEN SACKS, M.D.
(individually a "RGSS SELLER" and collectively the "RGSS SELLERS") (ENT Sellers,
CEA Seller and RGSS 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, 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 (ENT Medical Practice, CEA Medical Practice and RGSS 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; 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
1
<PAGE> 7
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;
(ENT Corporation, CEA Corporation and RGSS 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"); 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"); (the ENT Shares, CEA Shares and RGSS
Shares are referred to herein collectively as the "Shares"), upon the terms and
conditions set forth herein;
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 $15,614,600,
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 $5,012,614.00, 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 $6,401,986.00. 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
2
<PAGE> 8
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.
(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.
(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 reduced by any shortfall in the amount of aggregate accounts
receivable of the Corporations at Closing below the requirement of
$3,804,668 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 (30) 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
3
<PAGE> 9
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 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
4
<PAGE> 10
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 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
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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) 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
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may be, by PSC. In the event of bankruptcy, termination, liquidation or
dissolution of PSC, this unconditional guaranty shall continue in full force and
effect. In the event of any extension of time for payment or performance or
other modification of any guaranteed obligation or covenant, or any waiver
thereof or other compromise or indulgence with respect thereto or any release or
impairment of any security for any such obligation or covenant, or any other
circumstance which might otherwise constitute a legal or equitable discharge of
a surety or guarantor, no notice to, or consent of, Parent shall be required.
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
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delivered by Sellers at Closing or shall have the signatures of
Sellers guaranteed or notarized;
(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; 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; and any references in this Agreement to the
Seller(s), the Corporation(s), the
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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 2.1D 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, PDI or Seller is a
party or by which the Practice, Corporation, PDI or Seller
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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 2.4C,
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 2.4C, 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 2.1C. The Shares listed in Exhibits 2.1A through 2.1C 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 2.8C 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 2.9C, Exhibits 2.10A through 2.10C and
Exhibits 2.11A through 2.11C, 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 2.10D list all leases, if any,
pursuant to which the Practice leases, as lessor or lessee, real property.
Except as indicated on Exhibits 2.10A through
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2.10D, 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 2.11D, free and clear of
any liens, claims, charges, exceptions or encumbrances, except for those set
forth in Exhibits 2.11A through 2.11C. 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
2.11D, free and clear of any liens, charges, exceptions or encumbrances, except
for those set forth on Exhibit 2.11D. Exhibits 2.11A through 2.11D 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 2.11D, 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 2.13D. The
assets of the Corporation are located in those counties listed in Exhibits 2.13A
through 2.13D.
2.14 [RESERVED].
2.15 INTELLECTUAL PROPERTY RIGHTS. Except as set forth in Exhibits 2.15A
through 2.15D, 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 processes, formulas or trade secrets. The Corporation
will as of Closing own and possess adequate
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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 2.16D 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
2.17D, 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 2.10D and Exhibits 2.11A through 2.11D.
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 2.10D (in the
case of real property leases), Exhibits 2.11A through 2.11D (in the case of
personal property leases), Exhibits 2.18A through 2.18D (in the case of managed
care contracts, third party payor contracts and contracts other than leases) and
Exhibits 2.25A through 2.25D (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 2.10D, Exhibits 2.11A through 2.11D, Exhibits 2.18A
through 2.18D and Exhibits 2.25A through 2.25D, 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
2.19C, 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.
(e) Experienced damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting any of its material
properties, assets or
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business, or experienced any other material adverse change in its
financial condition, assets, liabilities or business.
2.20 ACCOUNTS RECEIVABLE. Exhibits 2.20A through 2.20C 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 2.20C. 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 2.21C, 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 2.21C 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 2.24D.
2.25 EMPLOYEE BENEFIT PLANS. Except as set forth on Exhibits 2.25A
through 2.25D or Exhibits 2.16A through 2.16D and except for employment
arrangements terminated prior to Closing, neither PDI nor the Practice or the
Corporation has established, or maintains, or is obligated to make contributions
to or under or otherwise participate in, (a) any bonus or other type of
incentive compensation plan, program, agreement, policy, commitment, contract or
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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 2.25D (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 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
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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 2.28C, 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 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
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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:
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
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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 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
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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 fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained therein not
misleading.
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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 (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,
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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 seven associate physicians at the Practices 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.
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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 2.11D and any applicable
equipment leases of PDI assumed by ENT Corporation as set forth on Exhibit
2.11D.
5.12 RELEASE OF LIENS. Except as set forth on Exhibits 5.12A-5.12C, 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 $2,494,000
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 $3,804,668, 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, 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.
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5.18 ASSIGNMENT OF ASSUMPTION AGREEMENTS. Each of the landlords and
tenants under the leases for the medical offices listed on Exhibits 5.18-5.18C
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 2.13D shall
have formed ENT Associates, LLP, and Seller who practices at the New Jersey
office listed in Exhibits 2.13A through 2.13D 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-5.18C.
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:
(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
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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 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.
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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, 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
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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 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
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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 $3,804,668,
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. Any amount
realized from the collection of the Closing Accounts Receivable at the end of
the six month period following the Closing Date in excess of $3,804,668 shall be
remitted to the Paying Agent for the benefit of the Sellers.
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; 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. In connection with such
reorganizations, each Corporation will assume the contractual obligations and
liabilities of the respective Practice transferring its assets to such
Corporation.
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
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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 CEA Seller, as they relate to CEA Seller, CEA Medical
Practice or CEA Corporation; (d) of all RGSS Sellers, jointly and severally, as
they relate to RGSS Sellers, RGSS Medical Practice or RGSS Corporation; or (e)
of PSC and Parent, jointly and severally, as they relate to PSC or Parent. All
such representations and warranties 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.
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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.
(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
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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 CEA Medical Practice. The
CEA 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, 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(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, 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.
(d) Indemnification with respect to the RGSS Medical Practice. The
RGSS Sellers (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, 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
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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 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.
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
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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
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
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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 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
35
<PAGE> 41
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 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
36
<PAGE> 42
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);
(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
$16,360,000 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
37
<PAGE> 43
for breach of this Agreement, and Sellers shall have no rights to other
damages, specific performance or equitable relief, which are hereby
waived.
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
38
<PAGE> 44
If to the Paying Agent:
Kurzman & Eisenberg, LLP
One North Broadway
White Plains, New York 10601
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
39
<PAGE> 45
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 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
40
<PAGE> 46
agreements between the parties, written or oral, with respect to the
transactions contemplated hereby. It may not be changed or terminated orally,
but may only be changed by an agreement in writing signed by the party or
parties against whom enforcement of any waiver, change, modification, extension,
discharge or termination is sought.
10.14 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.
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<PAGE> 47
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 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.
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<PAGE> 48
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: Vice President
----------------------------------
"PARENT"
PHYSICIANS' SPECIALTY CORP.
By /s/ Richard D. Ballard
--------------------------------------
Title: Chief Executive Officer
----------------------------------
"SELLERS"
/s/ Lee Eisenberg
----------------------------------------
LEE EISENBERG, M.D.
/s/ Robert Green
----------------------------------------
ROBERT GREEN, M.D.
/s/ Steven Sacks
----------------------------------------
STEVEN SACKS, M.D.
/s/ Hyman Ryback
----------------------------------------
HYMAN RYBACK, M.D.
/s/ Wayne Eisman
----------------------------------------
WAYNE EISMAN, M.D.
/s/ Dan Moskowitz
----------------------------------------
DAN MOSKOWITZ, M.D.
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
43
<PAGE> 49
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
/s/ Richard Rosenberg
----------------------------------------
RICHARD ROSENBERG, M.D.
/s/ Gary Fishman
----------------------------------------
GARY FISHMAN, M.D.
/s/ Marie Valdes
----------------------------------------
MARIE VALDES, M.D.
/s/ Frank Shechtman
----------------------------------------
FRANK SHECHTMAN, M.D.
/s/ Michael Bergstein
----------------------------------------
MICHAEL BERGSTEIN, M.D.
/s/ Steven Kase
----------------------------------------
STEVEN KASE, M.D.
44
<PAGE> 50
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-2.1C Addresses and Share Ownership of Seller and
Authorized and Issued Capital Stock of Corporations
Exhibit 2.2A-2.1C Certified Articles/Certificates of Incorporation and Bylaws
Exhibit 2.4A-2.4C Permits, Licenses and Governmental Authorizations
Exhibit 2.8A-2.8D December 31, 1997, 1996 and 1995 Financial Statements of Practices
Exhibit 2.9A-2.9C Liabilities not Disclosed in Financial Statements of Practices
Exhibit 2.10A-2.10D Leases
Exhibit 2.11A-2.11D Personal Property of Practices
Exhibit 2.13A-2.13C Principal Places of Business of Practices and PDI
Exhibit 2.15A-2.15D Intellectual Property Rights
Exhibit 2.16A-2.16D Directors and Officers of Practices; Payroll Information
Exhibit 2.17A-2.17D Legal Proceedings
Exhibit 2.18A-2.18D Contracts (Other than Leases)
Exhibit 2.19A-2.19D Subsequent Events
Exhibit 2.20A-2.20C Accounts Receivable of Practices
Exhibit 2.21A-2.21C Tax Returns of Practices for 1997, 1996 and 1995
Exhibit 2.24A-2.24C Insurance Policies of Practices
Exhibit 2.25A-2.25D Employee Benefit Plans
Exhibit 2.28A-2.28D Medicare, Medicaid and Other Third Party Payor Payment Liabilities
Exhibit 5.9 Form of Legal Opinion for Seller's Counsel
Exhibit 5.12A-5.18C 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-5.18C 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> 51
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 Office 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
200 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
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.51
THIS DEBENTURE HAS NOT BEEN REGISTERED OR QUALIFIED PURSUANT TO THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY STATE SECURITIES LAWS, 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 MAKER THAT AN EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT,
AND ANY APPLICABLE STATE SECURITIES LAWS, IS THEN AVAILABLE.
NON-NEGOTIABLE, SUBORDINATED
DEBENTURE
$6,401,986.00 MAY 27, 1998
FOR VALUE RECEIVED, the undersigned, PSC ACQUISITION CORP., a Delaware
corporation ("PSC"), and PSC MANAGEMENT CORP., a Delaware corporation ("PSC
MANAGEMENT") (PSC and PSC Management are together referred to herein as
"MAKER"), jointly and severally promise to pay to KURZMAN & EISENBERG, LLP (the
"AGENT"), as agent for the Sellers (as hereinafter defined) at One North
Broadway, 10th Floor, White Plains, New York 10601, the principal sum of SIX
MILLION FOUR HUNDRED ONE THOUSAND NINE HUNDRED EIGHTY SIX AND 00/100 DOLLARS
($6,401,986.00), in lawful money of the United States, with simple interest
payable (in accordance with Section 1 below) on the outstanding principal
balance of this debenture ("DEBENTURE") at a rate of 6% per annum through
maturity.
This Debenture is made and entered into pursuant to that certain Stock
Purchase Agreement dated as of May 27, 1998 (the "STOCK PURCHASE AGREEMENT"), by
and among, PSC, Physicians' Specialty Corp. ("PARENT"); and Lee Eisenberg, M.D.,
Robert Green, M.D., Steven Sacks, M.D., 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.
(collectively, the "SELLERS").
As used herein, the term "New York MSA" shall refer to a certain Management
Services Agreement of even date herewith between PSC Management and ENT
Associates, LLP, a New York limited liability partnership ("New York NEWCO");
and the term "NEW JERSEY MSA" shall refer to a certain Management Services
Agreement of even date herewith between PSC Management and ENT Associates of New
Jersey, P.C., a New Jersey professional corporation ("NEW JERSEY NewCo"). The
New York MSA and New Jersey MSA are collectively referred to as the "MSAs" and
singularly as an "MSA".
-1-
<PAGE> 2
1. INTEREST PAYMENTS. Maker shall make interest payments to Agent at the
aforesaid rate on a quarterly basis commencing August 27, 1998, and continuing
on each November 27, February 27, May 27, and August 27 thereafter, with the
final payment of accrued interest being due and payable on May 27, 2003 (the
"MATURITY DATE") together with the then outstanding principal balance of this
Debenture. Interest shall be computed based on a 365-day year and shall be paid
for the actual number of days elapsed. If any payment required hereunder becomes
due and payable on a Saturday, Sunday or legal holiday or a day on which banking
institutions are authorized to close in the State of New York, the maturity of
such payment shall be extended to the next succeeding business day and interest
shall continue to accrue and shall be payable at the rate per annum herein
specified during such extension.
2. PAYMENT OF PRINCIPAL. The entire principal balance of this Debenture
shall be due and payable on the Maturity Date.
3. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" under this Debenture shall mean
and include any of the following:
(a) Maker shall fail to make any payment of interest hereunder, which
failure continues unremedied for a period of 30 days following the Agent's
delivery of written notice to Maker stating that such payment was not paid when
due hereunder;
(b) Maker shall fail to make any payment of principal due hereunder,
which failure continues unremedied for a period of 15 days following the Agent's
delivery of written notice to Maker stating that such payment was not paid when
due hereunder; or
(c) PSC Management shall fail to pay to New York NewCo or New Jersey
NewCo any amounts that are due and owing pursuant to Section 5.1 of the New York
MSA or Section 5.1 of the New Jersey MSA (subject, however, to PSC Management's
right of offset as set forth in the MSAs), and such failure shall continue
unremedied for a period of 15 days following the Agent's delivery of written
notice to Maker stating that such payment was not paid when due thereunder.
Upon the occurrence and during the continuance of an Event of Default under this
Debenture, all amounts then remaining unpaid on this Debenture may be declared
by the Agent to be immediately due and payable.
4. NON-NEGOTIABILITY. This Debenture is non-negotiable.
5. SUBORDINATION.
(a) SUBORDINATION OF SUBORDINATED DEBT TO SENIOR INDEBTEDNESS. By
accepting this Debenture, Agent agrees that all payments of principal, interest
or other amounts that become due and payable from time to time under or in
respect of this Debenture (such principal, interest and other amounts,
collectively, "SUBORDINATED DEBT") are subordinate in right of payment and
collection to the payment in full in cash or cash equivalents of the
-2-
<PAGE> 3
following (collectively, "SENIOR INDEBTEDNESS"):
i. all obligations and liabilities at any time owed by Parent or
either Maker under or in respect of debt financing with one or
more banks or other institutional lenders for general corporate
needs of, or for the financing of acquisitions by, Maker or
Parent, whether secured or unsecured, now existing or
hereinafter incurred, direct or indirect and howsoever
evidenced, including, without limitation, any and all
liabilities and obligations now or hereafter owing by (A) the
Parent to NationsBank, N.A. under or in connection with that
certain Credit Agreement dated as of April 30, 1997 (as
amended, supplemented, restated or otherwise modified from time
to time, the "CREDIT AGREEMENT") between the Parent and
NationsBank, N.A., or any other document, instrument or
agreement executed by the Parent in connection with the Credit
Agreement, and (B) either Maker to NationsBank, N.A. under the
Guaranty (including any amendment or restatements thereof)
executed by such Maker in connection with the Credit Agreement;
and
ii. all interest (including without limitation any interest which,
but for the filing by or against the Maker or Parent of a
petition in bankruptcy, would accrue on any of the foregoing
whether or not recoverable by the holder of such obligation or
liability from the Parent, Maker or its estate under 11 U.S.C.
ss. 506), fees, charges, expenses and attorney's fees for which
the Parent or Maker is now or hereafter becomes liable to pay
to any holder of Senior Indebtedness under any agreement or by
law.
(b) RIGHT TO RECEIVE PAYMENTS PRIOR TO EVENT OF DEFAULT. Except as
provided in the immediately following paragraph of this Section 5(b), Maker
shall not make, and the Agent shall not accept, any payment with respect to, or
on account of, any Subordinated Debt.
Maker may pay, and Agent may receive, regularly scheduled payments of
interest and principal on this Debenture if (i) Agent has not received from the
holders of Senior Indebtedness (or their authorized representatives) holding in
excess of 50% of the principal amount of Senior Indebtedness (collectively, the
"MAJORITY SENIOR DEBT HOLDERS") written notice that an event of default has
occurred and is continuing under any of the respective agreements, documents or
instruments evidencing the respective Senior Indebtedness held by such Majority
Senior Debt Holders (a "DEFAULT NOTICE"), or (ii) having received a Default
Notice, all events of default which resulted in the giving of such Default
Notice are either cured to the satisfaction of, or waived in writing by, the
holders of the Senior Indebtedness under whose documents such event of default
occurred. Agent acknowledges on its behalf and on behalf of the Sellers that the
subordination agreed to herein is a material inducement for Maker to execute and
deliver this Debenture.
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<PAGE> 4
(c) RIGHT TO PRESERVE CLAIMS. Notwithstanding the foregoing, the Agent
and Sellers shall have the right, exercisable not more than thirty (30) days
prior to the expiration of any applicable statute of limitations or notice of
claim filing period affecting any claim Agent or Sellers may have relating to
this Debenture, the Guaranty (defined below) or the Security Agreement (defined
below), to take such action as shall be reasonably required to avoid the
expiration of such statute of limitations or the waiving of any claim in any
proceeding of a Maker or Parent affecting Agent's or any Seller's rights (but in
so doing, the Agent and Sellers are otherwise subject to the terms and
conditions of this Debenture, it being the intention of the parties hereto that
the Agent and Sellers be entitled to take only such action necessary to preserve
a claim which would be barred by the statute of limitations or claim filing
period if such action was not taken).
6. PREPAYMENT. The outstanding principal balance of this Debenture and
interest accrued thereon, may be prepaid in whole or in part at any time without
premium or penalty and without payment of unearned interest upon not less than
ten (10) days prior written notice to the Agent. All prepayments shall be
applied first to accrued but unpaid interest, and then to the outstanding
balance of this Debenture.
7. RIGHT OF OFFSET. Any amounts owing to Parent or Maker by Sellers, or any
of them, under the Stock Purchase Agreement or by New York NewCo or New Jersey
NewCo under either of the MSAs which are not paid when due under such
agreements, may be offset against any amounts due Agent under this Debenture
pursuant to the procedures, and subject to the limitations, set forth in Section
7.7 or 8.6 of the Stock Purchase Agreement or Section 5.1(b) of the respective
MSAs.
8. SECURITY. This Debenture is (a) secured by a security interest in the
favor of Agent, as collateral agent, in the furniture, fixtures and equipment
acquired in connection with the acquisition pursuant to the Stock Purchase
Agreement of ENT Associates Acquisition Corp., Chestnut ENT Acquisition Corp.,
and Green & Sacks Acquisition Corp., (collectively, the "Corporations") as
evidenced by that certain Security Agreement dated of even date herewith by and
between PSC Management Corp. and Agent (the "SECURITY AGREEMENT") and (b)
guaranteed by Parent pursuant to the attached Guaranty (the "GUARANTY").
9. STANDSTILL PROVISION.
(a) STANDSTILL BY AGENT UPON RECEIPT OF DEFAULT NOTICE BY MAJORITY
SENIOR DEBT HOLDERS. Agent agrees that if the Agent shall have received a
Default Notice, Agent shall not, unless otherwise agreed in writing by the
Majority Senior Debt Holders, exercise any of its rights and remedies against
Maker or Parent under this Debenture or the Security Agreement or the collateral
pledged to Agent under the Security Agreement, for a period (a "STANDSTILL
PERIOD") of not less than one-hundred and eighty (180) days after receipt of
such Default Notice. Without limiting the foregoing, during any such Standstill
Period, (i) Agent agrees that it shall not make demand upon Maker or Parent for
the outstanding indebtedness, accelerate the indebtedness evidenced by this
Debenture, sue for, take, receive, possess, setoff or
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<PAGE> 5
in any other manner realize upon its collateral or exercise its rights or
remedies under or in respect of this Debenture, the Security Agreement or the
Guaranty against Maker or Parent or any other individual or entity in respect of
the foregoing, and (ii) Agent, Sellers, New Jersey NewCo and New York NewCo
shall not exercise any right or remedy against Parent or PSC Management which
may arise under either of the MSAs as a result of the Makers' or Parent's
failure to pay principal or interest or other charges when due under this
Debenture or the Guaranty. Agent acknowledges on its behalf and on behalf of all
Sellers, New York NewCo and New Jersey NewCo that the standstill agreed to
herein is a material inducement for Maker to execute and deliver this Debenture.
(b) MULTIPLE DEFAULT NOTICES AND STANDSTILL PERIODS. If a Default Notice
has been given pursuant to Section 9(a), no subsequent Default Notice may be
given by the same or other holders of Senior Indebtedness to result in a new
Standstill Period until at least thirty (30) days after the last day of the
Standstill Period resulting from such prior Default Notice. No event of default
in respect of which a Default Notice has been given may be made the basis of the
giving of another Default Notice (unless such event of default was cured or
waived but subsequently occurred again). Notwithstanding any provision to the
contrary contained in this Debenture, the Guaranty or the Security Agreement, if
an Event of Default under this Debenture remains uncured at the end of a
Standstill Period resulting from a Default Notice, then no subsequent Default
Notice shall suspend, waive or revoke any action taken, or prohibit or limit in
any manner Agent, Sellers, New York NewCo or New Jersey NewCo from pursuing
following the end of such Standstill Period any and all remedies that may be
available to any of them, against PSC Management, Parent or any other person or
entity under or in connection with either MSA as a result of the uncured Event
of Default under this Debenture.
10. TURNOVER OF PROHIBITED TRANSFERS. If the Agent shall receive any
payment or other transfer of property which it is not entitled to receive or
accept under the terms hereof, the Agent shall forthwith pay or otherwise
transfer such payment or property over to the holders of Senior Indebtedness or
their authorized representatives, ratably according to the aggregate amount
remaining unpaid on account of the principal of and interest on the Senior
Indebtedness held or represented by each, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance with its terms in cash or cash equivalents;
provided that, for such purpose, Agent shall be entitled to rely upon a written
notice from each holder of Senior Indebtedness (or its authorized
representative) setting forth the amount of Senior Indebtedness held by such
holder. The Agent irrevocably authorizes any holder of Senior Indebtedness (or
its authorized representatives) to supply any required endorsement or assignment
which may have been omitted. Until so delivered any such payment or property
shall be held by the Agent in trust for the benefit of the holders of Senior
Indebtedness and shall not be commingled with other funds or property of the
Agent.
11. SPECIFIC PERFORMANCE. In addition to any other remedies available to
any holder of any Senior Indebtedness hereunder or otherwise, if at any time the
Agent fails to comply with any provision of this Debenture that inures to the
benefit of any such holder, such holder of Senior Indebtedness (or its
authorized representative) may demand specific performance of such term of this
Debenture. The Agent hereby irrevocably waives any defense based on the adequacy
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<PAGE> 6
of a remedy at law that might be asserted as a bar to such remedy of specific
performance. If the Agent, in violation of this Debenture, shall institute or
participate in any action, suit or proceeding against the Maker, the Maker may
interpose as a defense or dilatory plea this Debenture and any holder of Senior
Indebtedness is irrevocably authorized to intervene and to interpose such
defense or plea in the Maker's name.
12. DEFAULT INTEREST. If any payment of principal or interest is not paid
within three (3) days of when due, whether due by acceleration or otherwise,
such past due payment shall bear interest from the due date for such payment
until paid at an annual interest rate equal to the rate of interest as announced
or published from time to time by NationsBank, N.A. as its prime commercial
lending rate, plus four (4) percentage points per annum, and such interest shall
be due and payable upon demand by Agent.
13. VALIDITY OF SUBORDINATED DEBT. This Debenture defines the relative
rights of the Maker, Agent and the holders of the Senior Indebtedness. Nothing
in this Debenture shall impair, as between the Maker and the Agent, the
obligation of the Maker, which is absolute and unconditional, to pay this
Debenture in accordance with its terms, except as payment thereof may be
postponed or otherwise directed in accordance with this Debenture. Nothing in
this Debenture shall impair, as between the Parent and the Agent, the obligation
of the Parent under the Guaranty, which is absolute and unconditional, to pay
this Debenture in accordance with its terms, except as payment thereof or
remedies thereunder may be postponed or suspended or otherwise directed in
accordance with this Debenture or the Guaranty.
14. GENERAL PROVISIONS.
(a) NOTICES. Any notice under this Debenture shall be in writing, and
shall be delivered either (i) by hand, (ii) by certified United States mail,
return receipt requested, or (iii) by a commercial delivery service guaranteeing
overnight delivery, in any event with postage and delivery charges prepaid. Such
notice shall be deemed to have been duly given on receipt if delivered by hand
or by overnight carrier, or five (5) business days following the date of deposit
in an official depository of the United States mail if mailed by certified mail.
All notices shall be mailed or delivered, as aforesaid, addressed as follows:
To Maker: PSC Management Corp.
1150 Lake Hearn Drive
Suite 600
Atlanta, Georgia 30342
Attn: President
With a copy to: Richard H. Brody
Troutman Sanders LLP
600 Peachtree Street N.E.
Suite 5200
Atlanta, Georgia 30308
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<PAGE> 7
To Agent: Paying Agent
Kurzman & Eisenberg, LLP
One North Broadway, 10th Floor
White Plains, New York 10601
Attn: Joel S. Lever
With a copy to: Kurzman & Eisenberg, LLP
One North Broadway, 10th Floor
White Plains, New York 10601
Attn: Joel S. Lever
Agent or Maker may change the address or addresses to which notice is to be
delivered to it by notifying the other party of the new address or addresses in
the manner provided herein for the giving of notices and such changes of address
shall be effective five (5) business days after such notice is given.
(b) SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Debenture shall bind and inure to the benefit of the respective successors,
assigns, heirs, administrators or other legal representatives of Maker and
Agent.
(c) NON-WAIVER OF REMEDIES. No delay or failure on the part of Agent or
Maker in the exercise of any right or remedy shall operate as a waiver thereof,
and no single or partial exercise by Agent or Maker of any right or remedy shall
preclude other or further exercise thereof or the exercise of any other right or
remedy.
(d) WAIVER OF PRESENTMENT, ETC. Maker hereby waives presentment, demand,
notice of dishonor, protests and all other notices other than those expressly
provided by the provisions of this Debenture.
(e) AMENDMENT; WAIVER. This Debenture and any of its terms may be
altered or waived only by a written instrument signed by Maker and Agent;
provided, however, that any alteration or amendment of the provisions of
Sections 1, 2(a), 5 or 9 hereof, or any other provisions hereof that inures to
the benefit of any holder of the Senior Indebtedness, shall not be effective
with respect to such holder unless consented to by such holder. Forbearance by
the Agent in exercising its right to accelerate the maturity of this Debenture
shall not constitute a waiver of Agent's right to do so at any time with respect
to any subsequent Event of Default. No cure by Maker shall limit or restrict the
rights or remedies of the Agent as to subsequent Events of Default.
(f) HEADINGS, CONSTRUCTION. The descriptive section headings in this
Debenture are for convenience only and shall not be construed as part hereof. If
any of the provisions of this Debenture shall be unlawful, void or for any
reason unenforceable, they shall be deemed separable from, and shall in no way
affect the validity or enforceability of, the remaining provisions of this
Debenture.
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<PAGE> 8
(g) GOVERNING LAW. This Debenture and the rights and obligations of the
parties hereto shall be governed by and construed in accordance with the laws of
the State of New York without regard to such state's conflicts of law rules.
(h) APPLICATION OF PAYMENTS. All amounts paid to Agent with respect to
this Debenture are to be applied first to any accrued and unpaid interest then
to the outstanding principal balance of this Debenture.
(i) COSTS OF COLLECTION. Time is of the essence of this Debenture. If
Maker fails to promptly pay any amount required to be paid by this Debenture
when due or declared due, and the same is placed in the hands of an attorney for
collection, or suit is brought on the same, or the same is collected through
probate, bankruptcy or other judicial proceedings, or any other costs are
incurred by Agent in connection with the collection of the same, then Maker
agrees and promises to pay all such costs of collection, including reasonable
attorney's fees and court costs, whether or not a lawsuit is brought, and all
such costs shall be secured by the Security Agreement and guaranteed by the
Guaranty.
(j) INTEREST. Notwithstanding any provision to the contrary contained in
this Debenture or the Security Agreement, the total obligation for payments
which are legally regarded as interest shall not exceed the maximum limits
imposed by applicable state and federal laws in effect on the date hereof, and
if any payment in excess of said limits is provided for, or shall be adjudicated
to be provided for, in this Debenture or the Security Agreement, then in any
such event (i) the provisions of this paragraph shall govern and control and
supersede every other provision of this Debenture and the Security Agreement,
(ii) neither Maker nor its successors, legal representatives or assigns, nor any
other party liable for the payment of any sum due pursuant to this Debenture or
the Security Agreement shall be obligated to pay the amount of such interest to
the extent that it is in excess of the maximum amount permitted by law, (iii)
any such excess interest which may have been collected shall, at the option of
the Agent, either be applied as a credit against the then unpaid principal
amount of this Debenture or refunded to Maker, and (iv) the effective rate of
interest shall be automatically subject to reduction to the maximum lawful
contract rate allowed under applicable state and federal laws in effect on the
date hereof.
(k) CONSENT TO JURISDICTION. Each Maker hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York for the purposes of all legal proceedings arising out of or
relating to this Debenture.
(l) BINDING EFFECT OF DEBENTURE. Any individual or entity on whose
behalf the Agent is acting, whether as paying agent or otherwise, acknowledges
and agrees that by accepting the benefits of this Debenture, such individual or
entity shall be bound by and subject to the terms hereof, including without
limitation the terms of Sections 5 and 9 hereof, as if such individual or entity
were the "Agent."
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<PAGE> 9
(m) AGENCY. All notices, demands and remedies asserted in connection
with this Debenture on behalf of the Sellers (New Jersey NewCo or New York
NewCo) shall be asserted solely by Agent, as agent for the Sellers, and not by
the Sellers or New York NewCo or New Jersey NewCo, individually. Maker, Parent
and all holders of Senior Indebtedness shall be entitled to rely on all notices,
consents, waivers and actions taken by Agent in its capacity as agent for the
Sellers hereunder, and by accepting the benefits of this Debenture, each Seller
agrees that all such actions taken by Agent hereunder shall be binding on such
Seller.
(n) SUCCESSORS TO AGENT. Upon notice to Maker, the Seller's may replace
the Agent with another person or entity and such replacement Agent shall
thereupon become vested with all of the benefits in respect thereof granted to
the Agent herein or otherwise. Upon any such replacement, all references in this
Agreement to the Agent shall mean any replacement of the Agent.
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IN WITNESS WHEREOF, each Maker has executed, or has caused this Debenture
to be executed in its corporate name, by and through its duly authorized
officer, as of the day and year first above written.
PSC ACQUISITION CORP.,
a Delaware corporation
By:/s/ Richard D. Ballard
-------------------------------------
Title: Vice President
----------------------------------
PSC MANAGEMENT CORP.,
a Delaware corporation
By:/s/ Richard D. Ballard
-------------------------------------
Title: Vice President
----------------------------------
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<PAGE> 11
GUARANTY
THIS GUARANTY IS ATTACHED TO AND
IS AN INTEGRAL PART OF THE FOREGOING
NON-NEGOTIABLE, SUBORDINATED DEBENTURE
HAVING AN ORIGINAL PRINCIPAL AMOUNT OF $6,401,986.00
DATED MAY 27, 1998
BY PSC ACQUISITION CORP. AND PSC MANAGEMENT CORP.
IN FAVOR OF THE AGENT
NAMED THEREIN (THE "DEBENTURE")
The undersigned, PHYSICIANS' SPECIALTY CORP., a Delaware corporation
("PARENT") and the parent of PSC Acquisition Corp. and PSC Management Corp.
(together, "MAKER") hereby unconditionally and irrevocably guarantees to Agent
the full, prompt and faithful performance by Maker of all obligations to be
performed by Maker under the foregoing Debenture, including, but not limited to,
the payment of all sums by Maker pursuant to the Debenture. This guaranty shall
be a guaranty of payment and not merely of collection, and shall be unaffected
by any subsequent modification or amendment of the Debenture whether or not
Parent has knowledge of or consented to such modification or amendment. In the
event that Maker fails to fully perform its obligations under the Debenture in
accordance with their terms or pay all or any part of any sums when due pursuant
to the Debenture, Parent will perform all such obligations in accordance with
their terms and immediately pay or deliver to Agent the amount due and unpaid,
as the case may be, by Maker. In the event of bankruptcy, termination,
liquidation or dissolution of either Maker, 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
any waiver thereof or other compromise or indulgence with respect thereto or any
release or impairment of any security for any such obligation, 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.
Agent, by accepting this Guaranty, agrees that all payments from time to
time due and payable under this Guaranty are subordinated in right of payment to
the prior payment in full in cash or cash equivalents of all Senior Indebtedness
(as defined in the Debenture) of Parent, whether such Secured Indebtedness is a
direct obligation of Parent or is guaranteed by Parent; provided however, that
Parent may pay and Agent may receive payments pursuant to this Guaranty at any
time when Maker is permitted to make payments to Agent in accordance with the
provisions of the Debenture. Agent acknowledges that the subordination agreed to
herein is a material inducement for Parent to execute and deliver this Guaranty.
In consideration for the guarantee given by Parent to Agent hereunder,
Agent agrees that Agent shall not exercise any of its rights and remedies
against Parent under this Guaranty or against Maker or the collateral granted to
Agent under the Security Agreement, or against Parent under either MSA, except
in accordance with Paragraph 9 of the Debenture. Without limiting the foregoing,
Agent agrees that it shall not make demand upon Parent pursuant to this Guaranty
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<PAGE> 12
or otherwise for the outstanding indebtedness, accelerate the indebtedness or
sue for, take, receive, possess, setoff or in any other manner realize upon its
collateral or exercise its rights or remedies against Parent under this
Guaranty, during any Standstill Period. Agent acknowledges that the standstill
agreed to herein is a material inducement for Parent to execute and deliver this
Guaranty.
Parent hereby waives (i) promptness and diligence in collection; (ii)
notice of acceptance and notice of the incurrence of any obligation by Maker;
(iii) all other notices, demands and protests of every kind in connection with
the enforcement of the obligations of Parent hereunder, the omission of or delay
of which, but for the provisions hereof, might constitute grounds for relieving
Parent of its obligations hereunder; (iv) the right to a trial by jury of any
dispute arising under, or relating to, this Guaranty; (v) any right or claim of
right to cause a marshaling of Maker's assets or to cause the Agent to proceed
against any security for the Debenture before proceeding against Parent
hereunder; and (vi) any requirement that Agent 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 Maker or any other person or any
collateral as a precondition to Agent's right to enforce this Guaranty in
accordance with its terms. Without limiting the generality of the foregoing,
Parent hereby waives any defense to this Guaranty 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 Agent 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
Agent.
All terms used herein and not defined herein shall have the meanings given
to such terms in the Debenture.
IN WITNESS WHEREOF, Parent has caused this Guaranty to be executed in its
corporate name, by and through its duly authorized officer, as of the 27 day of
May, 1998.
PHYSICIANS' SPECIALTY CORP.,
a Delaware corporation
By: /s/ Richard D. Ballard
-------------------------------------
Title: Chief Executive Officer
----------------------------------
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